While executives of manufacturing firms are more confident about the economy's growth now than they were several months ago, their projections are still not overly optimistic. According to PricewaterhouseCoopers' quarterly Manufacturing Barometer, 64 percent of the executives surveyed at year's end are optimistic about the U.S. economy, compared with just 45 percent who felt that way at the end of the third quarter of 2006. They are also more optimistic about the global economy - with 69 percent feeling optimistic at the end of 2006 as compared with 58 percent just three months prior.
This optimism is, in fact, based in reality. As 2006 came to a close, energy prices softened and consumers became more confident and spent more. The Commerce Department has reported that the U.S. GDP expanded at an annual rate of 3.5 percent in the fourth quarter of 2006 - better than the 2 percent and 2.6 percent growth recorded in the second and third quarters of last year, respectively.
So if the economy appears to be starting out 2007 strong, how can manufacturers make sure it continues to be a good year for them? EDS, a leading provider of IT services to manufacturers, says "manufacturers must become more agile and work smarter." The global technology services company cites eight trends that will influence manufacturers in 2007 - globalization, market volatility, increasing customer demands, accelerated product innovation, outsourcing noncore competencies, cost pressure, flexibility, and competition - and provides some advice as follows:
Manufacturers must leverage employees and resources around the world, integrating suppliers globally. They need to react quickly to changes in client demands that can impact profitability. Customers want "unique" products and look for them at the lowest possible cost. Thus, manufacturers must increase their product innovation, in order to satisfy customers' desires, and they must speed up design and production time in order to get products to market faster.
Outsourcing of noncore competencies will continue to help manufacturers maintain profitability, but they must look "at both sides of the ledger," i.e., increasing their revenue while reducing their costs. In order to maintain competitiveness, manufacturers need flexible assembly lines that can produce multiple products. They also need to be able to ramp up production at facilities quickly in growing markets in order to avoid the costs of shipping from facilities located elsewhere. EDS concludes that global competition is here to stay, and the companies that realize this will be the better for it. Manufacturers that are quick to adapt will grow, while those who are slow to do so will not.
The U.S. economy is already showing signs of strength greater than anticipated. And if inflation is kept in check by companies that focus on cost control rather than price increases to maintain competitiveness, the year ahead could very well turn out to be good one.