Manufacturers and Wholesalers Expect Late 2009 or Early 2010 Recovery, Survey FindsFriday, July 24, 2009
Manufacturers and wholesalers are starting to see positive signs for economic recovery, according to the third annual RSM McGladrey Manufacturing and Wholesale Distribution National Survey. Forty-six percent of respondents say they expect their companies to rebound from the current recession beginning in late 2009 and 44 percent expect the rebound to occur in early 2010.
Forty percent of companies reported their business as “declining” in 2009, as compared to 12 percent in 2008. Only 9% reported their companies as "thriving and growing." Some industries appear to be faring better than others. Medical Devices and Food and Beverage executives, for example, reported favorable growth prospects and stronger-than-average business conditions, following a trend seen in previous years.
“Executives are reporting tough business conditions and as a result they have taken direct actions to reduce costs,” said Tom Murphy, RSM McGladrey’s executive vice president of manufacturing and wholesale distribution. According to the survey, a significant number of companies are planning capacity modifications this year. Twenty-six percent plan to reduce capacity and 25 percent plan to consolidate operations, while only 15 percent plan to expand capacity. As companies try to strengthen their balance sheets and offset the impact of tighter credit requirements, they are relying less on bank financing and more on cash flow as a primary means to fund capital expenditures.
Companies with global business activities are likely to fare better this year than companies focused only on domestic sales, according to survey results. Of the companies reporting sales declines for the year, only 37 percent expect declines for international markets, compared with 62 percent predicting sales declines for domestic markets. Correspondingly, sales increases are projected to be higher in international markets than domestic markets. “The significant difference between anticipated domestic and international sales underscores the importance of pursuing international market opportunities. Survey analysis indicates that companies with global strategies benefit through improved margins,” says Murphy.
The top four 2009 growth strategies cited in the survey were to acquire new customers, increase sales in domestic markets, increase sales to current customers and increase brand recognition. “Companies can’t cost cut their way to growth,” Murphy noted. “With the recession slowing demand for products, companies recognize the need for topline revenue growth. This is reflected in their focus on revenue-generating growth strategies.”
Innovation, Streamlined Operations and Sustainability Are Top of Mind
Additionally, 95 percent of companies surveyed have plans to innovate products or processes, with new product development and product line extensions reported most frequently. “The survey also found companies are responding to the current economic conditions by implementing lean principles and streamlining operations. This should make businesses stronger and more competitive as we climb out of the recession,” says Murphy.
Survey results suggest executives feel they are at low risk of supply chain disruptions. This runs contrary to risk management theory, where the more complex a business process becomes, the higher the risks. With current inventories at low levels, companies need to ensure supplier disruptions are minimized. “Companies that innovate generate new revenue, improve differentiation from competitors and drive down costs. They also enhance their customers’ experience through better products, decreased lead times and lower costs,” says Murphy.
Green initiatives are also a growing priority. More than half of the respondents have implemented or will implement green initiatives in 2009, with 62 percent reporting concern for the environment as the driving force behind such initiatives.
Despite Workforce Reductions, Shortage of Skilled Workers Still a Struggle
Workforce reductions have been widely reported, as companies cut costs to stay competitive in the current market conditions. 52 percent of survey respondents plan reductions in their U.S. workforces in 2009 as did in 2008. However, the outlook for 2010 appears brighter, with only 11 percent of respondents projecting cuts in their U.S. workforces and 44 percent planning to add employees. Despite the recession and reductions planned, survey respondents continue to struggle to find workers with the skills required by today’s advanced manufacturing environment. Engineers, manufacturing technicians, supervisors and entry-level workers are needed by around 30 percent of companies surveyed.
“The demand for skilled workers in the face of current levels of unemployment underscores the lack of technological skills in the current workforce. Companies need to partner with the educational community, government, industry associations and organizations to identify the necessary skill requirements and develop training programs to fill this gap,” says Murphy.
More than 920 manufacturing and wholesale distribution executives completed the survey, answering questions on topics such as current business conditions, growth strategies, operations, technology costs and risk management.
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