Overall, the outlook for the manufacturing industry is largely positive, according to the 2017 RSM Manufacturing Monitor. Rising revenues and profits are fueling enthusiasm and driving investments in information technology, equipment, research and development, and training. In addition, industry hiring is on the rise, and production is seeing slow but steady gains.
Indices such as the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) and the J.P. Morgan Global Manufacturing PMI offer positive assessments of manufacturing in the United States and around the world. At the same time, however, the markets for some sectors have softened, leading to lower revenues and decreased client retention.
When making their strategic decisions, manufacturers will need a broad understanding of the issues at stake, which include the following:
GROWTH
Overall, the global manufacturing industry appears strong, and some manufacturing sectors have fared quite well. With some growth in other worldwide markets, overall activity is increasing and having a positive impact on U.S. activities. Many manufacturers are offering new or improved products and expanding into other markets as strategies for growth, but mergers and acquisitions appear to be active as well.
When it comes to sales growth strategies, almost half of manufacturers are offering new or improved products. Many have also expanded—or are planning to expand—in new or existing markets. These markets are predominantly domestic, but there is activity crossing borders as well. Collaboration with customers and investments in innovations as well as research and development are accelerating new product introductions.
TECHNOLOGY
While two-thirds of manufacturers in the survey plan to increase their investments in technology, many executives perceive an insufficient return for efforts on investments in technology. Data security is an ever present concern, but efforts to address it appear to be limited, which has been the trend over the past few years.
Manufacturers who are not utilizing technology strategically for operational efficiency, for customer relationship or risk management, supply chain data, just to name a few areas—may not be able to maintain an advantage over their competitors for long or will slip further behind. Customer expectations have changed, and companies must update their infrastructure and systems or risk declining results. As collaboration and innovation technologies become more widespread, they are eliminating barriers for organizations and changing how they go to market and interact with their customers.
PROFITABILITY
Nearly half of manufacturers are reporting operating profits of 6 percent or more (before interest and taxes), but the costs of components and materials have increased in the past 12 months and manufacturers plan on passing these higher costs on to customers in a price-conscious environment. Investments in process improvements by almost half of the respondents continue to be a priority.
By far the most popular strategy among manufacturers to increase profitability is to make operational improvements and thereby reduce costs. Yet only 46 percent of survey participants are implementing these improvements to increase profitability; only about one-quarter are using supply chain improvements to reduce costs.
RISK
Downturns in the global economy and fluctuations in currency and commodity pricing were of concern for a greater percentage of manufacturers than local or national domestic regulations. As the labor market tightens, attracting and retaining skilled workers continues to be an issue.
The survey did find that a more reasonable tax and regulatory environment, particularly for middle market manufacturers who make up approximately 40 percent of the GDP, would be welcome. But the likelihood of substantive regulatory changes actually occurring may vary, depending on the sector and the issue. According to the RSM Middle Market Business Index, many executives believe policy changes on a range of issues—including trade agreements, federal regulations, immigration, infrastructure, and tax reform—are likely. Manufacturers should follow proposed regulatory changes closely in order to be able to make effective, timely changes to their strategic goals, objectives and plans.
The perspectives of senior decision- makers offered in this report can help manufacturers compare their middle market organizations to industry peers across the country and around the world. The insights provided by RSM subject matter specialists will enable executives to make informed strategic and tactical decisions based on extensive, detailed data provided by the survey.
To read the full report, go to RSM’s website at rsmus.com.
Darcy Wilson Jones, CPA is an Audit Partner at the Los Angeles office of RSM US LLP. For more information, contact her at (213) 330- 4669 or via [email protected].
