Recently, the Leading Edge Global Alliance (LEA) released its 2017 National Manufacturing Outlook and Insights Survey. LEA, of which Clark Nuber is a founding member, is the second largest international association of CPA Firms in the world, creating a high-quality alliance of 220 firms focused on accounting, financial and business advisory services.
To underscore the importance of the manufacturing industry, here are a few interesting things to note. According to the National Association of Manufacturers (NAM), U.S. manufacturing would represent the ninth largest economy in the world based on its total annual GDP of $2.17 trillion. Also, according to NAM’s calculations, for every $1 spent in the industry another $1.81 is added to the economy. Additionally, the manufacturing industry has a major impact on the economy with regard to employment. The Economic Policy institute states that, taking into account both direct and indirect jobs, the industry employs nearly 20% of the U.S. workforce.
The LEA National Manufacturing Outlook and Insights Survey polled more than 250 manufacturing executives across the country. Half of companies surveyed had revenues between $10M and $100M.
Here are the seven key insights from the survey that you should know:
1. Top Priorities – Slower growing respondents listed cost cutting as the top priority, while higher growth respondents selected Research and Development. This suggests that innovation and growth are closely related.
2. R&D Investment – One fifth of respondents indicated that between 6-10% or more than 10% of revenue would be reinvested in Research & Development. In addition to manufacturers in rapidly changing high tech sectors, companies investing more in R&D may be taking advantage of the R&D tax credit. Recent changes to the credit have made it more useful and a powerful new opportunity for rapidly growing, early stage companies.
3. Capital Expenditures – Just over two-thirds of respondents are planning for capital expenditures on equipment, and just over a third plan for plant expansion and/or computer software investments. Small manufacturers that are growing plan to spend more on plant expansion and modernization, whereas large manufacturers plan to spend on computer software as systems grow in complexity and sophistication.
4. Increasing Costs – Approximately 75% of the respondents expected labor costs to increase significantly and nearly 50% expected materials costs to increase. Manufacturing has changed from having very clear and specific product, attributable materials, and labor costs to a complex technology-based environment. Cost accounting and activity-based costing have moved reporting in the right direction to more accurately recognize product line profitability.
5. Merger & Acquisitions – 10% of the respondents said they were exploring and 12.5% expecting to explore a merger or sale. Just over 16% said they did explore an acquisition and 23% said they plan on exploring an acquisition. Manufacturers planning to sell their business should focus on key areas driving business valuation. Those looking to make an acquisition should consider the technology systems and processes of the targets and consider cultural implications of integration.
6. Hiring Trends – Lack of qualified workers is still the biggest barrier for growth, according to nearly half of the respondents. However, over half of the respondents plan to hire more. The best answer to both trends is likely a combination of apprenticeships and paying for experienced hires.
7. Data & Technology – Big Data, business intelligence, and the internet of things are trends and challenges. Quality data makes for better decision-making and is an important consideration for strategic decisions around supply chain, operations, inventory, customer satisfaction and financials reporting and asset management.
Clearly, the manufacturing industry is important to the U.S. economy. That is why surveys such as the LEA’s are needed to gain a clearer outlook of the challenges and opportunities that lie ahead.
If you would like a copy of the survey or would like to discuss the survey findings, please contact Hillary Parker.
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