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State of the Industry Update and How Thriving Companies Succeed

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Karen Kurek, principal at McGladrey, will discuss the firm’s exclusive Manufacturing Monitor Report, discuss the strengthening of the U.S. manufacturing economy, and highlight the trends and challenges for manufacturing in the next two years.

Published in: Data & Analytics
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State of the Industry Update and How Thriving Companies Succeed

  1. 1. Global Automation and Manufacturing Summit © 22001124 MccGllaaddrreeyy LLLLPP.. AAllll RRiigghhttss RReesseerrvveedd.. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 2014 McGladrey Manufacturing & Distribution Monitor 2013 McGladrey LLP. All Rights Reserved. September 10, 2014 State of the Industry Update and How Thriving Companies Succeed
  2. 2. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. About McGladrey  Founded in 1926  Largest provider of accounting, tax and business consulting services in the U.S. focused on the middle market  Serve more than 8,000 mid-size manufacturers and distributors across the country  U.S.: 75 offices, with 6,700 professionals  Worldwide: Offices in 100 countries, with 32,000 professionals 2
  3. 3. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% Real GDP Real Gross Domestic Product (Chained 2005 Dollars) 2012 2013 2014 Real GDP Forecast: ↑ 1.9% (2013) ↑ 1.6% (2014) ↑ 3.0% (2015) Source: Bureau of Economic Analysis, NAM calculations using Moody’s Analytics simulation model
  4. 4. $0.86 $1.11 © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. $0.72 Manufacturing’s multiplier effect Indirect Economic Activity Generated by $1 of Sector GDP $0.69 $0.69 $0.66 $0.63 $0.57 $0.54 $0.54 $0.46 $0.62 $0.80 $0.99 $1.32 Manufacturing Agriculture, Forestry, Fishing, and Hunting Transportation and Warehousing Construction Information Educational Services, Health Care, and Social Assistance Other Services, Except Government Government Retail Trade Arts, Entertainment, Recreation, Accommodation, and Food Services Professional and Business Services Finance, Insurance, Real Estate, Rental, and Leasing Wholesale Trade Utilities Mining Source: Bureau of Economic Analysis, 2012 Annual Input-Output Tables
  5. 5. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 11% 10% 9% 8% 7% 6% 5% 4% 14 13 12 11 10 9 8 7 6 Employment situation 2008 2009 2010 2011 2012 2013 2014 Durable Goods Nondurable Goods Unemployment Rate Millions of Workers Unemployment Rate Source: Bureau of Labor Statistics
  6. 6. Largest net employee gains Manufacturing Sectors with the Largest Net Employment Gains YTD, in Thousands of Employees © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. (December 2009 to June 2014) 25.1 21.4 21.0 9.9 8.7 7.9 2.5 2.5 18.4 52.7 52.3 151.9 194.2 231.9 Transportation equipment Fabricated metal products Machinery Primary metals Plastics and rubber products Miscellaneous nondurable goods manufacturing Wood products Electrical equipment and appliances Food manufacturing Miscellaneous durable goods manufacturing Nonmetallic mineral products Chemicals Petroleum and coal products Furniture and related products Source: Bureau of Labor Statistics
  7. 7. Top 20 states for manufacturing job creation © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 18.8 17.3 15.9 15.2 12.7 12.6 12.6 11.3 9.1 13.8 29.4 25.6 24.5 20.7 26.7 41.0 66.3 63.0 76.8 107.4 Michigan Texas Indiana Ohio Wisconsin Washington South Carolina Minnesota Tennessee Kentucky Georgia Iowa Florida Oregon Illinois Utah Colorado Missouri North Carolina Louisiana December 2009 to June 2014 (in Thousands of Workers) Source: Bureau of Labor Statistics
  8. 8. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..
  9. 9. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Manufacturing Jobs Offer Greater Compensation 9 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Manufacturing Non- Manufacturing Average Compensation in Dollars per Full-Time Equivalent Worker, 2011 Wages and Salaries Benefits Source(s): U.S. Bureau of Economic Analysis and MAPI
  10. 10. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 60 55 50 45 Global Markit Global Markit Manufacturing Purchasing Managers’ Indices Global U.S. China Eurozone Source: Markit
  11. 11. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 5.0% Export growth 10.0% 7.1% 2.5% 0.5% 13.3% 5.7% 0.7% 5.1% 1.4% 6.8% -0.1% -2.0% 2.4% -0.4% 5.7% 2.0% 4.8% 4.7% -6.7% 1.1% Canada Mexico Free Trade Agreement Nations Asia Europe South America TOTAL Percent Growth of Manufactured Goods Exports, 2012–2014 2012 2013 2014 YTD Source: U.S. Department of Commerce
  12. 12. Monthly business and consumer sentiment surveys Consumer Confidence Indices NFIB Small 110 105 100 95 90 85 80 75 70 © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 120 110 100 90 80 70 60 50 40 30 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 University of Michigan Consumer Confidence Conference Board Consumer Confidence NFIB Small Business Optimism Source: University of Michigan/Thomson Reuters, Conference Board, National Federation of Independent Business
  13. 13. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 22 20 18 16 14 12 10 8 Total vehicle sales (in Millions of Units) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Bureau of Economic Analysis
  14. 14. Housing market situation Housing Starts, Permits (in thousands of units) NAHB Housing Market Index 80 70 60 50 40 30 20 10 0 © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 2,500 2,000 1,500 1,000 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Housing Starts Housing Permits NAHB Housing Market Index Source: U.S. Census Bureau, National Association of Home Builders
  15. 15. The 2014 Manufacturing & Distribution Monitor © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..  Monitor survey has been conducted for 9 consecutive years  Fielded: Spring 2014  Survey participants: 1,147 total - 80%: United States - 20%: Brazil, Canada, France, Germany, Mexico and the United Kingdom 15
  16. 16. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 2014 Monitor highlights 16
  17. 17. How do so many companies thrive where others only hold steady or decline? Six year business conditions Declining Holding own Thriving 45% 53% 39% 56% 31% 36% 61% 60% 3% 5% 7% 5% © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 9% 52% 40% 24% 66% 10% 2009 2010 2011 2012 2013 2014
  18. 18. The strategic investments of thriving companies 18 © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Infrastructure Information technology, equipment and machinery, R&D External challenges Regulations and compliance Process Continuous improvement Growth Mergers and acquisitions, innovation Supply chain Relationships and service
  19. 19. 5% 3% © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Infrastructure: Establishing the foundation, continued 19 Investment increases in next 12 months Average, by business condition 17% 11% 6% 10% 9% 7% 7% Information technology Equipment and machinery Research and development Thriving Holding steady Declining
  20. 20. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Infrastructure: Establishing the foundation, continued 20 Investment increases in next 12 months Average, by business condition Upgrading technology infrastructure Upgrading technology software Investing in mobility 23% 24% 45% 13% 14% 40% 7% 7% 32% Thriving Holding steady Declining
  21. 21. Infrastructure: Establishing the foundation, continued 1=Not at risk 2 3 4 5 = Very much at risk © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 11% 48% 34% 6% 1% 21 Awareness of information and data risk 59% Believe they are at little or not risk
  22. 22. Growth: Thriving companies grow through strategic M&A activities 22 © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Reasons for M&A activity by thriving companies Expand product lines to reach new customers Improve current market position Create cost synergies/improve margins Expand distribution channels Create stronger position with suppliers 20% 20% 37% 35% 33%
  23. 23. Growth: Thriving companies grow through innovation 23 Thriving companies continually ask “What’s next?” © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Thomas Alva Edison (center) and his close team members “Leaders today don’t have to have all the answers. But …they need to ask ‘what’s next?’ in provocative ways.” Sarah Miller Caldicott Power Patterns of Innovation
  24. 24. Continuous improvement: Thriving companies regularly seek new ways to improve © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..  Operations - Productivity increases due to: • Process improvements • Improved labor utilization • Improved equipment utilization 24  Workforce - Improved company performance due to: • Leadership and management development • Workforce education and training  Information technology - Improve customer satisfaction - Minimize corporate risks
  25. 25. “Begin with the end in mind.” Stephen R. Covey, The 7 Habits of Highly Effective People 25 © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Supply chain: Working up and down the supply chain Decisions are made to address the needs and values of the end user.
  26. 26. Supply chain: Companies are finding reasons for on shoring operations © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..  Closer to customers and markets with better lead times  Improve logistics costs  Seek less costly and burdensome regulatory environment  Reduce inventory carrying costs  Decrease supply-chain cycle times  Improve product and process quality  Intellectual property  Energy costs 26 Top circumstances for bringing operations back home:
  27. 27. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Supply chain: Brand in the U.S.A. 27
  28. 28. External challenges: “How will the following external issues affect your company’s growth in the next 12 months?” © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..  Availability of skilled workforce  Competition from other companies  Government regulations  Material and components pricing  Taxation 28
  29. 29. 76% 29 External challenges: Managing external pressures to lessen their impact 71% 57% © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Impact of external factors by business condition Taxation Government regulations Competition from other companies Material and components pricing Availability of skilled workforce 41% 72% 80% 66% 50% 48% 52% 59% 70% 62% 46% 56% Thriving Holding steady Declining
  30. 30. 30 External challenges: Managing external pressures to lessen their impact 46% © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Scenarios resulting from the ACA Provide health plans that include incentives for healthy living Implement wellness programs to encourage healthier lifestyles Reduce wages to offset the costs of ACA compliance Change some workers from full-time to part-time to reduce ACA-related costs Lay off workers to offset the costs of ACA compliance 5% 5% 4% 45%
  31. 31. Federal Government Receipts & Expenditures as a % of Gross Domestic Product, 1960 to Present 22.7% © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 28% 26% 24% 22% 20% 18% 16% 14% 18.4% 60 65 70 75 80 85 90 95 20 00 05 10 14 Federal Receipts as a % of GDP Federal Expenditures as a % of GDP Source: Bureau of Economic Analysis
  32. 32. Benefits: Strategic investments lead to improved company performance… 32 0% 20% 40% 60% 80% © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Operations and practice capability Product/process innovation Marketing strategy and execution Leadership and management development Lead generation/sales practices Thriving Holding steady Declining
  33. 33. Benefits: …and IT environment effectiveness in particular 33 Thriving Holding steady Declining © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. By business condition Improve customer 25% 0% 20% 40% satisfaction 21% 33%
  34. 34. Benefits: Thriving companies expect sales and workforce growth 34 © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..
  35. 35. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. What are thriving companies doing? 35 • Making investments in information technology, equipment, workforce personnel development, marketing and other areas. • Growing through strategic acquisitions. • Staying innovation-focused and utilizing continuous improvement techniques. • Working with suppliers and enhancing their value proposition for customers. • Managing external challenges, looking for opportunities to minimize the financial impact of government regulations and taxation.
  36. 36. The 2014 Manufacturing & Distribution Monitor reports © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..  Manufacturing and distribution  Industry sector reports: - Distribution - Consumer products industry - Food & beverage industry  Geographic reports: - Mexico - Brazil - U.S. state (11)  Customized reports: - Participants - Associations 36
  37. 37. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Questions?
  38. 38. Karen L. Kurek National Industrial Products Practice Leader McGladrey LLP Karen.kurek@mcgladrey.com (312) 634- 3920 38 © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Contact me
  39. 39. For a copy of the full 2014 McGladrey Monitor report —as well as state, industry sector and country and reports— please visit our website at www.mcgladrey.com © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..
  40. 40. © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey®, the McGladrey logo, the McGladrey Classic logo, The power of being understood®, Power comes from being understood®, and Experience the power of being understood® are registered trademarks of McGladrey LLP. McGladrey®, the McGladrey logo, the McGladrey Classic logo, The power of being understood®, Power comes from being understood®, and Experience the power of being understood® are registered trademarks of McGladrey LLP. © 2014 McGladrey LLP. All Rights Reserved. © 2013 McGladrey LLP. All Rights Reserved.

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