5 habits of thriving manufacturers
The manufacturing sector in the US appears to be on the upswing. The cost of labour in some overseas manufacturing hubs is not as inexpensive as it once was, and companies have plenty of reasons to maintain operations close to their customers.
Eighty-eight per cent of respondents in the McGladrey 2014 Manufacturing & Distribution Monitor Report expect an increase in US sales, up eight percentage points from last year, and 54% expect an increase in non-US sales, up 11 points from 2013. Two-thirds expect to increase their workforce in the next 12 months.
A recent survey of CPAs in business and industry also showed meaningful improvement in the US manufacturing sector. In that survey, optimism in manufacturing increased ten percentage points from the previous quarter and 16 points from the previous year.
According to McGladrey, the number of companies expecting to move operations offshore, or to “reshore” by returning jobs to the US, hasn’t changed much in the previous year, but the trend to at least explore a return continues. The McGladrey report lists the top circumstances most likely to trigger a move back:
- Proximity to customers (27%)
- Improved logistics costs (25%)
- Less costly and burdensome regulatory environment (17%)
- Reducing inventory carrying costs (16%)
- Decreasing supply-chain cycle times (15%)
- Improving product and process quality (15%)
Why some companies fare better than others
Thirty-six per cent of US manufacturing companies are “thriving” – an increase of five percentage points from a year ago and four times as many as said they were thriving in 2009. The McGladrey report said thriving firms have five habits that set them apart:
- They are more likely to invest in equipment, technology infrastructure, and software and through acquisitions.
- They are more likely to increase their offerings of leadership and management-development programs.
- They are more adept at using strategy to address operational efficiencies and focus on more profitable existing customers.
- They are using IT to share information with internal and external stakeholders.
- They are better able to minimise the financial impact of regulation and taxes.
Regulatory struggles remain
Sixty-six per cent cite government regulations as the biggest threat to growth, and the concerns are related specifically to health care: 69% say the US Patient Protection and Affordable Care Act will limit their company’s growth in the next 12 months.
US companies are slightly more likely than companies in other countries to make an acquisition. Seventeen per cent of non-US companies plan to acquire a company in the same business, and 18% plan to acquire a complementary business. Twenty-one per cent of US companies plan to acquire a competitor, and 17% plan to add a complementary business.
Data security is not much of a concern for US manufacturing executives: 59% say their data is at little or no risk. However, 75% expect to increase investment in IT in the next year.
“Manufacturing and distribution executives that answered our survey just don’t believe that their data is at risk, which is really a false sense of security because we know that data breaches are happening every day,” Karen L. Kurek, CPA, partner and national industrial products practice leader at McGladrey, said in a video interview about the survey.
Kurek is scheduled to speak at the American Institute of CPAs Global Manufacturing Conference on September 18th and 19th.
Related CGMA Magazine content:
“Global Manufacturers Shift Strategies to Seek Growth and Profits”: Emerging markets are no longer the lure they used to be for global manufacturers. To drive growth and increase profitability, more companies are instead focusing on developed markets and internal operations.
“Three Global Drivers of Productivity”: Find out the three key areas that drive productivity across industries, countries, and company size and where in the world these areas are tended to best.
—Neil Amato (email@example.com) is a CGMA Magazine senior editor.