By Jack Keough
Despite a number of recent disappointing economic reports, a newly-released survey shows that middle market manufacturers and distributors are optimistic about their businesses over the next 12 months. However, these respondents also indicated that they are still worried about a number of factors including domestic and global conditions, an ability to attract talent and uncertainty about the expiration of tax cuts.
The survey released by McGladrey Manufacturing and Distribution Monitor say a strong 83% of distributors and manufacturers are optimistic.
Additional findings from the survey revealed that nearly three quarters of all respondents (73.7%) reported that the expiration of the Bush era income tax rates would do some harm to their business, with nearly half (48.3%) 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%) and the bonus depreciation credit (69.3%).
“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.”
Further analysis of responses shows that, given the current state of sluggish economic growth and uncertainty, manufacturers and distributors are both tackling the “new normal” 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% 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% of businesses reported that process improvements were a factor that most improved productivity. Process improvements are clearly becoming a top priority for companies that have emerged from the recession in good shape: more than 78% of “thriving” businesses reported that they were planning to increase investments over the next 12 months, as compared to only 61% of those that were “holding their own” and 45% of “declining businesses.”
Nearly two-thirds (63%) reported that they expect to increase spending on information technology within the next 12 months – this includes nearly 20% who said they would increase IT spending by more than 11%.
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% of manufacturers and distributors are also planning to add employees in positions that reflect their commitment to process improvement and innovation, although they are facing significant challenges in finding the talent and skills they need to fill key positions.
Companies are increasing employment in areas that reflect their commitment to becoming more advanced, leaner and adaptive companies, including engineering (41.2%), research and development (21.6%) and IT (16.6%).
While businesses have recognized a need for talent and skills that will help them innovate and compete, they are still facing significant challenges in finding workers to fill those positions. Approximately 41% of businesses report that they find the skilled talent they require only rarely or some of the time.
At the same time, companies are also addressing this skills gap challenge head-on. Seventy-one percent of businesses reported using internal training and skills-development programs, while 31% reported collaborating with colleges and universities, and 31% with vocational/technical skills institutions.
The report offers economic forecasts for 24 of the 27 industries. MAPI anticipates that 18 of these will show gains in 2012, two will remain flat, and four will decline. The engine, turbine, and power transmission equipment sector will grow by 29% and housing starts will see a 24% increase. The outlook improves in 2013 with growth likely in 23 of 24 industries, led by housing starts at 22 %. Public works construction is the lone industry expected to decline in 2013, by 3%.
The McCladrey Manufacturing and Distribution Monitor was conducted using an online questionnaire promoted by McCladrey and various industrial associations. There were 924 responses to the survey.
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Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com
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