As growth accelerates, manufacturing is poised to thrive
The 2014 McGladrey Manufacturing Monitor provides further evidence of how manufacturing has helped lead the U.S. economy out of deep recession into solid growth over the past five years. How to maintain and accelerate that growth will be discussed by Karen Kurek, the head of McGladrey’s National Manufacturing and Distribution Practice, at the breakfast keynote address at the 2014 Global Automation and Manufacturing Summit. In advance of the Summit, Kurek discussed with CFE Media the results of this year’s report and what the immediate future holds for the industry:
CFE Media: We’ve had five solid years of growth in manufacturing, and there are some people who feel we’re still on shaky ground. What’s your perspective on the health of manufacturing in 2014?
Kurek: Generally speaking, the industry is healthy and we see good prospects for the near future. Demand is up overall, and this is sparking increases in employee levels and profits. According to this year’s Manufacturing & Distribution Monitor report, the majority of small and mid-size manufacturing and distribution companies expect solid growth over the next 12 months-and two-thirds plan to add jobs during that period. In fact, we expect these growing companies to increase their workforce by 6%, up from 4% in 2013.
In the report, 36% of the 1,147 companies participating in our survey described themselves as "thriving." This is quite a change from only a few years ago-in 2009, for example, only 9% said they were thriving. These companies excel in so many ways-their profits before interest and tax are higher, more of them expect demand and profits to rise, they are hiring more personnel on average-that we took a close look at these companies to see what they are doing to stay healthy and flourish.
The success of these companies suggests that there are a number of things that individual companies, the industry as a whole, and our government can do to help the industry prosper in the future.
CFE Media: Where do manufacturing leaders see us headed in the next five years? Are we seeing more slow but steady growth, or is something more dramatic in either direction possible?
Kurek: Since 2009, we have seen steady growth in the industry. There have been setbacks along the way-the proportion of thriving companies hit its high point of 45% in 2011-but overall things are quite positive. Without trying to predict the future, it looks like this growth will continue.
That said, there are still a number of unknowns that could have an impact on the pace of growth. In the Monitor report, for example, we note that government regulations are still a big source of concern. They are, in fact, seen as the number one external issue limiting growth in the next 12 months-even more than competition.
When we drill down into the details, we find that regulations can mean anything from implementation of the Affordable Care Act (ACA) to regulations on the state level and those from the EPA.
CFE Media: What are some of the key areas of focus for manufacturers?
Kurek: Among businesses in general, and thriving companies in particular, there continue to be a number of areas where significant strategic investments are resulting in great company performance.
Overall, operations improvements and process innovations achieved through Lean manufacturing processes and the use of technology are allowing companies to maintain or even improve productivity. Companies are also seeing improvements through investments in marketing, workforce training, and leadership development.
Companies are integrating and aligning IT investments throughout their businesses, in areas such as customer relationship management, enterprise resource planning, and business analytic solutions. There is a high level of interest in mobility solutions and Web applications; in fact, we found that thriving companies are more likely than other companies to invest in mobility solutions.
Looking ahead, companies are preparing for the growing challenges of succession planning and attracting skilled personnel. Some companies are collaborating with local colleges, trade schools, and high schools on training programs. Others are enhancing or expanding roles beyond their traditional responsibilities in order to make the roles more meaningful and attractive to a younger generation.
Speaking of workforce issues, we found that about three-quarters of the companies participating in our survey are offering full compliance coverage to full-time employees under the ACA mandate. About half of those companies are implementing wellness programs and other incentives to help keep costs down and their workforce healthy. Only about 5% are reducing wages or changing the status of some workers to offset ACA-related cost increases.
CFE Media: One topic gaining a lot of interest is the need for greater speed in the supply chain. If our retail model is going to change in the next few years, it will require not just greater flexibility for final delivery, but greater speed in all parts of the supply chain, starting with manufacturing. What is your perspective on this?
Kurek: As Stephen Covey might put it, supply chain management should "begin with the end in mind." Thriving companies know they need to maintain good relationships with their customers and are making sure that every decision made along the supply chain continuum-including those regarding the products and services that companies provide-is based on supporting the values of the end user.
They are leveraging customer relationship management systems to understand what they need and working with suppliers to improve processes and lower costs.
Many companies are taking a close look at their supplier relationships from a "total delivered cost" perspective, taking into account unit price but also inventory carrying costs, transportation charges, cost of potential delays, and staff/management labor and training. This analysis can lead some companies to bring operations onshore, that is, back to the United States, in order to address these various costs or to gain greater control over product quality, turnaround time, or product innovation.
But each company’s supply chain is unique and it requires this type of in-depth analysis to determine what is best for a particular company.
CFE Media: How is automation and information changing manufacturing? What do you see as the next big thing in this area?
Kurek: After so many years of delaying or canceling information technology projects, companies have been recognizing the opportunities that IT can provide to streamline operations, access data, and improve customer support.
Companies are integrating and aligning IT investments throughout the business, in areas such as customer relationship management, enterprise resource planning, and business analytic solutions. Notably, most of the activity in these areas revolves around upgrading or reconfiguring the solution rather than purchasing new, which can be expensive. Companies are also investing in mobility solutions and Web applications.
Supply chain performance, for example, can leverage technology to ease access to information that can help improve processes, reduce cycle times, enhance inventory forecasting, and generally encourage greater collaboration with supply chain vendors.
Notably, despite several high-profile data breaches that have occurred over the past year, manufacturing and distribution executives continue to report low levels of concern about the security of their data. Despite countless reports warning businesses to be more proactive with their data security initiatives so they can mitigate any potential breaches, these executives don’t believe their data is at risk.
CFE Media: Is there one area in this year’s McGladrey Monitor that you think is going to come as a surprise to your clients and to manufacturing leaders as a whole?
Kurek: We conducted a number of focus groups around the country this year, composed of manufacturers making everything from cleaning products to bakery equipment, and distributors working with products from home construction material to tropical fruit. One of the more pleasantly surprising discoveries was the strength of the "Made in the U.S.A." label. It’s not just about selling domestically; it has meaning in markets around the world. The Made in the U.S.A. label stands for quality from the Middle East to Australia. It’s a big competitive advantage on the global stage.
It’s also interesting to see that onshoring is gaining parity with offshoring as domestic business conditions become more attractive. While 12% of companies reported having moved operations offshore over the past two years, more than 8% reported having moved operations back home. While some companies may decide to move or keep operations here because of the brand advantage, there are a number of circumstances that can trigger when to bring operations back home, such as regulatory environments, carrying costs, cycle times, and quality issues.