Report: Manufacturers Have Their Houses in Order

Sept. 9, 2011
However, external factors such as political gridlock, rising raw-material costs and the ongoing shortage of skilled workers continue to keep them up at night.

If you ask manufacturers about their operations, they'll probably tell you they're feeling pretty good. They've improved productivity and efficiency by implementing lean and Six Sigma, training their workers and making strategic investments in high-tech equipment.

If you ask them about what's going on outside their four walls, that's an entirely different story.

That's one interpretation of the summer edition of the McGladrey Manufacturing and Distribution Monitor, a quarterly survey of manufacturing executives on the state of industry.

"The economy, rising commodity prices, federal gridlock, federal over-regulation -- all of those things that manufacturers can't control, they're very concerned and pessimistic about," said Karen Kurek, national manufacturing practice leader for RSM McGladrey Inc.

Conversely, manufacturers seem "fairly positive" about the things they can control, such as making their businesses more productive, Kurek told IndustryWeek.

That assertion is reflected in the latest McGladrey survey. When asked about the health of their companies, 44% of the manufacturing executives answered that their firms are thriving and growing, compared with 45% of executives in the spring.

Meanwhile, 52% of the survey respondents said their businesses are holding their own, while only 3% said their businesses are declining. Those percentages are nearly identical to the spring survey.

Manufacturers in the "thriving and growing" category are engaging in a number of best practices, McGladrey notes, including:

  • Embedding lean and other continuous-improvement approaches into their cultures.
  • Investing in workforce training and automation.
  • Formally measuring vendor performance.
  • Tracking key business metrics in real-time on executive dashboards.
  • Expanding internationally and exploring emerging markets.
Among other indicators that manufacturers continue to get healthier operationally -- regardless of what's happening outside their four walls -- 76% of the executives said their companies have improved productivity in the last 12 months.

The biggest driver of productivity gains: process improvements (80%) and improved labor utilization (60%).

High Anxiety

At the same time, the survey of more than 620 executives found that external factors such as the economy are a lingering source of anxiety.

Some 60% of the survey respondents said they are pessimistic about the U.S. economy, up from 38% in the spring survey. Regarding the world economy, 64% of the respondents said they are pessimistic, up from 50% in the spring survey.

The specter of higher commodity prices also continues to be a huge concern, with 88% of manufacturing executives expecting their raw-material costs to rise.

Some 85% of the executives said they plan to pass those higher costs onto their customers in the form of price increases or surcharges, the survey found.

"That was one point I found fairly remarkable," Kurek said.

Help Wanted

Continuing a trend from the spring, more than half of the respondents to the summer survey said they expect to increase their workforces over the next 12 months, by an average of 7%.

"It kind of debunks the myth that manufacturers are getting more productive at the expense of not hiring more employees," Kurek told IndustryWeek. "Indeed, these manufacturers are getting more productive, but their volumes and their sales have gone up, so they need to hire employees."

"But the big conundrum is not being able to find the people with the appropriate skills to fill those jobs."

While the skills gap continues to be a nagging problem, there is some hope. As an example, Kurek pointed to the National Association of Manufacturers' Manufacturing Institute and its efforts toward the goal of credentialing 500,000 community college students with skills certifications tailored to the needs of manufacturers.

Overall, manufacturers are grappling with the disconnect between the operational improvements they've made and the insanity in Washington, Europe and elsewhere, which is "making them very cautiously optimistic," Kurek noted.

"What we're seeing is that manufacturers and distributors have positive data in front of them, but they're not sure whether to believe their figures or the dismal news they hear every day," Kurek said.

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