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McGladrey’s ‘Manufacturing and Distribution Monitor’

Nov. 2012

In unfamiliar seas, with uncertain weather, seasoned mariners rely on their maps and instruments to carry them to their destination.  In these turbulent economic times, McGladrey’s Manufacturing and Distribution Monitor, a survey of middle-market manufacturing and distribution executives, provides a unique look into the state of manufacturing on “Main Street.”

The survey, sponsored by McGladrey LLP, one of the nation’s leading assurance, tax and consulting firms, shows that these companies are largely optimistic about their own businesses.  It also indicates, however, that they are grappling with a variety of challenges, including eroding confidence in both domestic and global economic conditions, struggles with finding the talent they need to compete, and uncertainty around the looming expiration of the 2001 and 2003 tax cuts.  Middle market manufacturers and distributors are adjusting to the “new normal” of the post-recession era by focusing on efficiencies, operational improvements and innovation.

Optimism or Pessimism

According to the survey, 83 percent of middle market manufacturers and distributors are optimistic about conditions for their own businesses.  However, the number of companies reporting that they are “thriving” is 39 percent, a six percent decrease since 2011, and that decline has been accompanied by deteriorating confidence in both the domestic and global business environment.  In 2012, less than half (46.7 percent) of the 924 respondents reported having an optimistic outlook on the U.S. economy, down from 62 percent in the spring of 2011. Confidence in the world economy has plummeted as well, with only 16.9 percent of respondents reporting some optimism about the world economy – down from 50 percent in the spring.

Additional findings from the survey revealed that nearly three quarters of all respondents (73.7 percent) reported that the expiration of the Bush era income tax rates would do some harm to their business, with nearly half (48.3 percent) reporting that it would do moderate or major harm.  Similar expectations were found when respondents were asked about the potential harm created by the expirations of capital gains tax rates (64.7 percent) and the bonus depreciation credit (69.3 percent).

“While it is clear that manufacturers and distributors continue to feel ‘steadied’ in the wake of the turmoil of the past several years, it is obvious that their confidence in their surroundings is beginning to erode once again,” said Karen Kurek, national manufacturing leader for McGladrey.  “According to the survey, a healthy percentage of manufacturers and distributors are thriving or at least holding their own.  However, they know they have not returned to the same economy or business environment they were operating in prior to the recession, and are, therefore, faced with making fundamental adjustments to their business and operations models.  While concerns about the economy continue, companies are investing in their futures by spending on information technology to enhance systems and processes and adding employees who can help them become more efficient.”

Process and Technology

Further analysis of responses shows that, given the current state of sluggish economic growth

and uncertainty, manufacturers and distributors are both tackling these conditions by becoming leaner, more efficient businesses, focusing on making more long-term, structural changes to process and technology infrastructures that boost productivity while cutting costs.  However, as companies invest more in information technology, it is clear that they will need to recognize that they face new risks as well.

  • Ninety-three percent of manufacturers reported they were lowering costs through operational efficiencies – by far the most common answer of all choices in the survey.  The second most common choice also highlighted efforts to improve process – 57 percent of manufacturers said they were working with suppliers and/or customers to improve their processes and costs.
  • Companies also credited process improvements as a driving factor behind increases in productivity over the past 12 months.  More than 70 percent of businesses reported that process improvements were a factor that most improved productivity.
  • Nearly two-thirds (63 percent) reported that they expect to increase spending on information technology within the next 12 months – this includes nearly 20 percent who said they would increase IT spending by more than 11 percent.
  • While technology spending is on the rise, companies have been slow to recognize the associated risks.  When asked whether they believed their companies’ data is at risk, 77 percent of respondents said they do not.

Other categories in the survey were Sales, New Products and Services, Cost Expectations and Margins, Workforce, Inventory, Process Improvement and Information Technology.

Most will agree with Sir Francis Bacon’s famous maxim, “Knowledge is power.”  For the informed business owner and executive, McGladrey’s Manufacturing and Distribution Monitor is a treasure found.

About the Research

The 2012 McGladrey Manufacturing and Distribution Monitor was conducted using an online questionnaire promoted by McGladrey LLP and various industrial associations to principally U.S.-based manufacturing and distribution organizations.  There were 924 total valid respondents to the Monitor, which consisted of 554 manufacturers and 370 distributors.  Responses were submitted in May and June 2012.  The MPI Group, an independent research firm, received and analyzed the data.  All respondent answers to the Monitor are confidential.  As an incentive to complete the Monitor, participants receive a customized benchmark report.

You can download the 2012 McGladrey Manufacturing and Distribution Monitor by going to McGladrey.com

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