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. Respondents to the survey say they expect their companies to rebound from the current recession beginning in late 2009 (46%) and early 2010 (44%). In general, companies predict an earlier rebound for their own businesses than for their industry or the U.S. economy.
Survey results indicate a significant year-over-year decline in the reported health of companies, however. Forty percent of respondents reported their business as "declining" this year, as compares to 12% in 2008. Only 9% reported their companies as "thriving and growing."
More than 920 manufacturing and wholesale distribution executives responded to questions on current business conditions, growth strategies, operations, technology costs and risk management.
"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. "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."
A significant number of companies are planning capacity modifications this year, with 26% planning to reduce capacity and 25% planning to consolidate operations.
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.
But, "Companies can’t cut their way to growth," Murphy says. The top four growth strategies cited in the 2009 survey were new customer acquisition, increase domestic sales, increase sales to current customers, and increase brand recognition.
Additionally, 95% of companies surveyed have plans to innovate products or processes, with new product development and product line extensions reported most frequently. Green initiatives are also a growing priority. More than half of the respondents have implemented or will implement green initiatives in 2009, with most (62%) reporting concern for the environment as the driving force behind such initiatives.
Sales into international markets are also expected to grow more than in domestic markets during 2009.
Demand for Labor
Workforce reductions have been widely reported as a cost-cutting measure, with about twice as many survey respondents (52%) planning reductions in their U.S. workforces in 2009 as did in 2008. However, the outlook for 2010 appears brighter, with only 11% of respondents projecting cuts in their U.S. workforces; 44% plan to add employees.
Despite the recession and workforce reductions, the need for skilled workers continues to increase. Nearly 30% of companies surveyed indicated a need for engineers, manufacturing technicians and supervisors, underscoring the lack of technological skills in the current workforce, Murphy says.