The Future of U.S. Manufacturing
U.S. manufacturers are looking to the future with a mix of optimism and caution.
Josh P. Cole, Principal, Manufacturing and Distribution Performance, Crowe Horwath and Doug B. Schrock, Principal, Advisory Services, Manufacturing and Distribution Performance Consulting, Crowe Horwath (Feb/Mar 10)
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Other technology trends today are also represented in the
survey. Leveraging the Internet or other electronic means of
communication and collaboration continues to be a priority. In an age
of forecasting uncertainty, advanced planning and forecasting solutions
are becoming priority investments as manufacturers look to reduce
uncertainty related to sales and operations planning.
As a result of strategic restructuring initiatives, some organizations
have made wholesale changes to their business models. For example, many
consumer product companies have outsourced much of their manufacturing
and distribution base and now consider themselves marketing-,
customer-, and sales-focused organizations. Such a change greatly
affects the focus of their internal enterprise systems. In this case,
the traditional manufacturing and distribution functions associated
with an ERP solution no longer support their future strategy. More
focus is given to demand planning and forecasting as well as investing
in customer-focused technology.
Manufacturers are clearly embracing flexible-cost models, which enable
them to apply external IT resources as needed without committing to
permanent operating expenses. Middle-market organizations are also
using external variable-cost support models.
For example, IT providers are packaging services such as server and
infrastructure hosting with support models often promoted as "managed
operations." Such models compete directly with internal IT support
expenditures - which include not only people, but also costs associated
with data centers, servers, other hardware, and back-up and recovery
solutions. The providers use "shared space" to defray the costs and
provide the combined benefits across multiple customers.
Market Pressures a Concern
A variety of market pressures are taking their toll on
manufacturers' operations. Heading the list are competition from
low-cost countries, the cost of U.S. healthcare, and the cost of raw
materials. Nearly half of all the respondents cite these factors as the
top market pressures affecting their business today and during the next
There is much less concern about attracting and keeping skilled labor
in the current environment, given the surplus of talent available in
the marketplace. Manufacturers expect this opportunity to be
short-lived, with respondents assuming a future tightening of available
employees and subsequent retention concerns rising again in three years.
Supply-chain disruption is a concern for about 10 percent of the
surveyed companies. Larger organizations, in particular, are devoting a
lot of attention to the financial strength of critical suppliers and to
the potential risk to the organization if one or more of those
suppliers were to fail. The financial stability of suppliers is a
significant concern for manufacturers - one that is difficult to
manage, as many suppliers are reluctant to share financial statement
data with their customers.
Another area of growing concern is governmental influence, as
manufacturers struggle to deal with not only ever-increasing taxes, but
also a rising volume of regulatory and compliance issues. The most
widespread of these concerns are environmental regulations, such as
potential cap-and-trade programs designed to reduce harmful emissions.
Manufacturers fear such regulations cut into their profitability as
well as put them at a competitive disadvantage in the global
marketplace if other countries do not require their industrial
companies to comply with similar laws.
International Outsourcing to Grow
Manufacturers report that 18 percent of their products are
manufactured or directly sourced abroad, and they expect this number to
increase by one third during the next three years. There is no question
that organizations see global sourcing as a clear fixture in their
supply chains and that it will continue to increase for the foreseeable
The use of offshore resources reflects a change in existing
supplier-customer relationships. With higher pressures for cost-cutting
and efficiency, there's no longer room for sourcing managers to remain
in long-term partnerships just because of historical success. We expect
to see continued increases in the willingness for customers to switch
from existing suppliers to new entrants that offer better prices or
terms and still deliver acceptable quality and timeliness.
The next three years should be better than the last three for U.S.
manufacturers. Those companies that have used their surplus capacity
over the past several years to prepare for a resumption in demand will
be well-positioned to capitalize on opportunities that emerge; those
businesses that have not yet taken steps to become more productive may
still have time to do so before the markets for their products return
to their former status.
Josh Cole is a principal with Crowe Horwath LLP in the Grand Rapids, Mich., office. He can be reached at 616-752-4274 or firstname.lastname@example.org.
Doug Schrock is a principal with Crowe Horwath LLP in the Indianapolis office. He can be reached at 317-706-2643 or email@example.com.
What's the biggest lesson manufacturers have learned in dealing with the past two years of recession economics?
Manufacturers have learned to review business and investment decisions more meticulously before making a commitment. For example, they recognize the importance of performing a more thorough analysis of the actual business impact that will be realized through alternative projects and will take the time to choose the best sub-set that will generate real business results. More
- Josh P. Cole, Principal, Manufacturing and Distribution Performance, Crowe Horwath