United States

Winter 2012 Monitor report


While the resurgence of American manufacturing has recently become a hot topic across the country, the story has largely focused on behemoths like Boeing, GE and other household names—many of which have recently expressed optimism about the direction of the economy and have begun to see their businesses grow again. But the manufacturing sector's overall health cannot be assessed without a close look at its heart—the middle-market companies that account for the vast majority of the country's manufacturing jobs.

Middle-market executives polled in the Winter 2011-12 McGladrey® Manufacturing & Distribution Monitor Report are increasingly confident about the future. In fact, after two quarters in which optimism about company growth was tempered with doubts about the U.S. economy, leaders in the Winter Monitor survey ended 2011 by expressing positive convictions on both fronts.

In the most recent poll, 47 percent of participants say their businesses are "thriving and growing." That is the highest number recorded in the past year, and it is on par with the 48 percent reading taken in the pre-recession McGladrey 2007 annual manufacturing and distribution survey. Additionally, just 3 percent of businesses reported declining conditions in the Winter Monitor survey, compared with 9 percent of companies in 2007. These positive trends, gathered from a survey pool that is almost exclusively private-equity or privately owned companies, illustrate the strength of recovery among mid-market manufacturers and distributors.

By market sector, the Industrial Machinery and Metal Fabrication segments led the way, with over 60 percent of leaders in both areas reporting "thriving and growing" business conditions in the most recent quarter. The Automotive sector also continued its strong rebound from early 2011, when the tsunami in Japan disrupted the global supply chain. Building materials, which had been pummeled by the housing crash in 2009 and 2010, came back to life in the last year. In fact, the percentage of "thriving and growing" companies in this segment jumped 82 percent from the Fall to Winter Monitor survey, suggesting some positive momentum that will carry into 2012.

Regarding the U.S. economy, business leader confidence rose sharply in just a three-month period. In fact, 59 percent of business leaders in the Winter Monitor say they are optimistic about domestic economic growth prospects over the next year. That is up from just 24 percent in the Fall Monitor survey and down just a fraction from the 62 percent reported in the Spring Monitor report. In concert with these findings, the perceived level of risk for federal government gridlock and federal regulation both fell sharply from the Fall to Winter Monitor polling.

On the world economy, the level of favorability is mixed. While optimism rose 10 percentage points from the Fall to Winter Monitor surveys (17 to 27 percent), the latest measure is well off the 50 percent reading from the Spring 2011 report. This reflects ongoing concern among survey participants about sovereign debt issues hanging over the European Union and other global economies.

In addition to summary data for the most recent quarter and all of 2011, the Winter Monitor report also summarized key insights contributed by industry professionals and McGladrey specialists. A sampling of these best practices for thriving and growing companies include:

  • Process improvement. The evidence is clear: Nearly 70 percent of companies with a strong culture of continuous improvement are "thriving and growing," while just 41 percent of businesses with little or no process improvement culture can make the same claim. As a general rule, the strongest companies tend to incorporate tools such as Six Sigma, continuous performance feedback loops or lean manufacturing in a strategic, disciplined way. Additionally, top-performing midsize and large companies are much more likely to invest in more efficient equipment as a means to improve productivity.

    While the Labor Department reports manufacturing productivity has increased 227 percent since 1987, feedback from Monitor surveys and Executive Summits reveals more room for improvement. For example, only a small fraction of manufacturers and distributors feel they have effective tools to manage costs in vendor relationships. Moreover, many companies still have not fully embraced how well-designed IT and risk management tools can improve processes while minimizing internal and external threats to profitability and reputation.
  • Human resources. While 60 percent of business leaders in the Winter Monitor say they're planning to increase their workforce this year, finding qualified employees for manufacturing and distribution jobs remains a challenge. To address this persistent "skills gap," companies should consider more aggressive steps—such as internships, on-the-job training, scholarships or technical training partnerships—to help develop a pipeline for future workers. Meanwhile, to help retain the best talent already on the payroll, executives should thoughtfully review how to build and implement a leadership development program for high-potential workers. At the top levels of the company, a defined succession plan should also be established to help the organization seamlessly handle planned (or unplanned) changes in leadership.
  • Profitability. Product pricing is one of the most challenging elements of running a manufacturing or distribution business, and many companies compound the issue by passing along blanket increases to customers. However, that approach does not consider the overall value a company provides to its customers, a factor that goes well beyond what a product costs to produce. Such value-based pricing needs to be data-driven, focused on external differentiation from competitors and internal understanding of how customers benefit from the existing business relationship.

In This Issue

Winter 2012 Monitor report

Healthcare, energy and commodity costs

The trouble with mergers: tax concerns within the manufacturing industry