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State of the Industry Update and How Thriving Companies Succeed
The document presents a comprehensive overview of the state of the manufacturing and distribution industry, highlighting key trends and data from 2014. It details the performance of manufacturing jobs, economic indicators, external challenges, and strategic investments made by thriving companies to succeed in a competitive landscape. The insights are derived from a survey conducted with over 1,100 participants across various countries, emphasizing the need for continuous improvement, innovation, and adaptation to external pressures.
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State of the Industry Update and How Thriving Companies Succeed
- 1. Global Automation andManufacturing 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. © 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. © 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. $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. © 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. Largest net employeegains 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. Top 20 statesfor 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. © 2012 McGladrey© 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..
- 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. © 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. © 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. Monthly business andconsumer 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. © 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. 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. 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. © 2012 McGladrey© 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. 2014 Monitor highlights 16
- 17. How do somany 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. The strategic investmentsof 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. 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. © 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. Infrastructure: Establishing thefoundation, 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. Growth: Thriving companiesgrow 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. Growth: Thriving companiesgrow 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. Continuous improvement: Thrivingcompanies 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. “Begin with theend 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. Supply chain: Companiesare 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. © 2012 McGladrey© 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Supply chain: Brand in the U.S.A. 27
- 28. External challenges: “Howwill 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. 76% 29 Externalchallenges: 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 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. 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. Benefits: Strategic investmentslead 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. Benefits: …and ITenvironment 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. Benefits: Thriving companiesexpect sales and workforce growth 34 © 2012 McGladrey © 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd..
- 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. 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. © 2012 McGladrey© 2014 McGladrey LLLLPP.. AAlll RRiigghhttss RReesseerrvveedd.. Questions?
- 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. For a copyof 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. © 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.
Editor's Notes
- #9 8
- #10 Manufacturing Jobs Offer Greater Compensation Today’s manufacturing employees earn higher wages and receive more generous benefits than other working Americans. In the third quarter of 2012, manufacturing employers paid $33.30 per hour in wages and benefits, while all employers in the economy paid about $30.80 per hour, meaning that there is an 8 percent premium for working in manufacturing. Most of the difference in compensation is due to the fact that manufacturers provide a higher level of benefits for its workers than do other industries, including for paid leave, supplemental pay, and insurance. [SLIDE TRANSITION]
- #16 KEY POINT: This is a broad set of participants that provides an accurate look at the industry. United States: 921 Non-United States: 226 Brazil 28 Canada 9 France 41 Germany 68 Mexico 50 UK 27
- #17 KEY POINT: This is a unique data set of private data that provides information you can’t get anywhere else. The survey asked a range of questions, covering topics such as employment to data security to how companies grow. Here are some of the interesting points we uncovered during the survey process Over the years we’ve conducted the survey, we’ve noticed the resilience of thriving companies
- #18 KEY POINT: How have thriving companies managed to do so well, even in the depths of the recession? Each year, the survey asked participants about they’re business condition: Are they thriving, holding steady or declining? As you can see here, even in the immediate aftermath of the recession, a steady percentage of thriving companies remains pretty strong. In 2014, there 36% self-identified as thriving, up from 31% in 2013. What did companies do to join the ranks of the thriving? “Thriving” is a somewhat subjective term. For an executive to say a company is thriving, it could simply mean that revenue growth is outpacing inflation. Yet the thriving companies participating in the 2014 Monitor survey have more in common than strong revenue growth or higher demand. We thought it would be helpful to share what these thriving companies are doing in order for you to bring the best practices of these companies back to your own organizations.
- #19 KEY POINT: Thriving companies make capital and resource investments to generate revenue in an innovation-focused environment. These companies take the time and effort necessary to make their strategies work for them. Infrastructure: Investing in their businesses, and at a faster rate. Thriving companies lead others in a number of investment areas. A greater percentage of them invest in equipment (and at a higher rate), as well as in technology infrastructure and software. Growth: They are also more likely to grow through acquisitions and innovation. Process: Continuous improvement is in the DNA of the culture. Leadership and management development programs and employee training on the shop floor at these companies are expected to increase in the next 12 months. Thriving companies also lead in significant initiatives in operational and other improvements. Supply chain: Thriving companies are using information technology and other resources to share information with suppliers and internal personnel to understand and meet the needs of their customers. External challenges: Thriving companies are better able to minimize the financial impact of government regulations and taxation. They are embracing the challenges with, for example, incentives and programs designed to make the best of a regulatory environment through lower costs and healthier employees. Effective implementation of these strategies: Notably, thriving companies use these strategies more effectively than others. Whether it’s addressing operational efficiencies, focusing on more profitable existing customers or leveraging technology, these companies are taking the time to make these strategies work for them.
- #20 While many companies plan to increase investments this year, thriving companies, however, are leaders in investments for the future. They set the strategic priorities that will lead to growth, particularly for IT and R&D. Average spending increases at thriving companies for: 17% for information technology (10% for holding steady; 7% for declining) 11% for equipment and machinery (compared to 9% holding steady and 7% declining companies) 6% for research and development (5% holding steady; 3% declining Thriving companies place a huge value on accurate information to run their businesses. They are anticipating increases in IT spending by an average of 17 percent, compared to 10 percent by companies that are holding steady and 7 percent by declining companies over the next 12 months.
- #21 Drilling deeper, the differences are all the more stark for IT. Thriving companies are able to manage profit strategies more effectively than other organizations, particularly regarding the effectiveness of implementing technology. For example, 24 percent report that upgrading technology infrastructure was highly effective in managing profits, compared to 14 percent of holding steady and 7 percent of declining companies. Thriving companies are more likely to invest in mobility solutions, with 45 percent planning to purchase new, upgrade or reconfigure, compared to 40 percent of holding steady and 32 percent of declining companies. One Seattle-based manufacturer, for example, is rolling out a new Web-based application to allow its 1,400 customers to reach them online. The software enables customers and prospects to get quotes, view product drawings and submit orders.
- #22 KEY POINT: To secure their growth, executives also are looking to improve systems to safeguard their company’s information and data. Unfortunately, security breaches are being reported regularly, with customer records or sensitive information ending up in the wrong hands. Yet a majority of executives believe that their company’s information and data is reasonably safe. Thriving companies ensure IT effectively minimizes corporate risks. More troubling are the reasons that make executives think their systems and data are secure. For example, many simply do not think that their companies are targets of hackers. This may be because executives view hackers’ targets to be limited to competitive information or intellectual property alone, and would be of limited use outside their firm or industry.
- #23 Thriving companies are making these acquisitions primarily to expand product lines to reach new customers, create cost synergies, improve margins and improve their market position. Corporate governance, operation integration and creating a common culture are critical to ensure the success of M&A activity: Thriving companies are more effective at integrating IT platforms to share data Thriving companies leverage skills/resources throughout the firm rather than just locally EXAMPLES Bimba Manufacturing Company, a leading provider of pneumatic, hydraulic and electric solutions based in Illinois, recently acquired Acro Associates, a California firm. Acro’s non-contact pinch valve product line provided Bimba with the ability to expand further into the medical industry, while also bringing new technologies to their existing industrial customers in food and beverage and other sectors. Adding Acro’s pinch valves and controls capabilities increases their strategic value in key industries and reflects a long-term commitment to growth. A Philadelphia-based distributor of glass bottles and related packaging grew by acquisition in order to bring the company expertise in specific domestic markets. However, they tended to operate in regional silos and, as a result, were unable to leverage that expertise across the country. In an effort to work more “as one company,” the company began moving to a single information technology platform in order to share data and leverage the knowledge they acquired throughout the organization.
- #24 At Thomas Edison’s Menlo Park facilities, California employees called it “midnight lunch,” the inventor’s practice of creating an environment of social engagement and collaboration that took place after hours in his lab.6 It served as the foundation for the work in all of Edison’s labs by bringing individuals from diverse disciplines together to ensure multiple perspectives and rapid problem-solving. “Innovation is about creating new value. That means innovation can be applied to products, services, business models, or even how your company serves its customers.” (Sarah Miller Caldicott, great grandniece of Thomas Edison) Clearly, thriving companies recognize this. Thriving companies continually use innovation for growth and improved performance: 65% have seen improved company performance through innovation of products and processes 68% will create new products in the coming year 55% anticipate improved company performance due to innovation Product and process innovation is necessary for all companies because, in trying to understand and satisfy customers’ future interests, they experiment and uncover better ways of doing business, even if those ideas don’t initially yield returns as a new product or service. Unfortunately, many firms focus their innovation efforts solely on products—not on evolving customer needs. Only 12 percent of companies overall report that new services are important for sales growth in the next 12 months. EXAMPLES One manufacturer of electric power monitoring equipment based in Washington state noted that having its research and development team members in disparate locations was not encouraging innovation and invention. The company began construction on a nearly 100,000-square-foot building that would, among its many features, include enough office space to put the company’s entire R&D team in one location as well as allow for a more creative and collaborative environment. Service is a key contributor to customer value and can yield revenues and profits as much as a new widget. Examples abound in various industries: IBM IT and business services, Rockwell Automation energy management services, Apple retail stores and its Genius Bars.
- #25 KEY POINT: As one Seattle manufacturer put it, “No matter how many times you do a Lean event on a process, you can find substantial gain. I haven't yet been at a manufacturing company that has said, "Okay, we're done now, that's as far as we can push it." You can always look at a process and eliminate non-value added [steps, and] eliminate defects…” This company invests in continuous improvement initiatives on an annual basis to eliminate defects and improve performance. Their efforts have resulted in tripling productivity in one of the company’s steel lines with half the number of personnel. The need for continuous improvement has not disappeared. Even though there often remains a strategic opportunity for pricing as a profitability lever, thriving U.S. companies today succeed in part because they continually establish higher benchmarks to force improvements: 28 percent of them cite process improvement initiatives as a top reason for their success. Thriving companies also report larger increases in productivity, driven by process improvements (80% of thriving companies), improved labor utilization (5%) and improved equipment utilization (4%). EXAMPLE: BISON GEAR Bison Gear and Engineering Corporation, a manufacturer of gear motors based in St. Charles, Illinois, converted its manufacturing facility to function as a lean manufacturing plant. The company has been able to achieve significant reductions in lead times throughout the operation by utilizing a number of lean techniques. They took the lean concepts used on the shop floor to other parts of the enterprise as well, implementing them in the back office, finance department and the engineering process of the business. Training is a continuing priority among thriving companies this year. 54% report that investments in leadership and management development improved company performance; 45% cite workforce education and training for improved productivity. Thriving companies are not only using IT to improve information sharing both within the company and with customers, but they are also far more effective in using IT to improve customer satisfaction and minimize corporate risks.
- #26 KEY POINT: Every decision made along the supply chain continuum, including those regarding the products and services that companies provide, should be based on supporting the needs and values of the end user. Thriving companies know the importance of the vendor relationship; nearly three-quarters found working with suppliers to improve processes and lower costs was an effective means to maintaining or improving profit margins. Leveraging customer relationship management systems, a greater percentage of thriving companies (33%) make more effective use of their IT systems to improve customer satisfaction than other companies (27%). EXAMPLES An aerospace company has added assembly options for its customers—producing a “kit” from multiple parts that is then shipped to buyers—as a way to make value-added services a distinctive element of its brand. A food manufacturer and distributor based in Baltimore, noting food safety concerns in general, and the Food Safety Modernization Act in particular, considers making investments to source and manufacture certain products domestically rather than try to control quality and safety coming from a source offshore.
- #27 We asked: “Under what circumstances might your organization move its major operations facility?” Here are the responses. We’ve been noticing a decrease in the strategy to offshore, and an increase in on shoring. Onshore: Return some operations/functions to home country Past two years: 7.7% Next two years: 9.9% Offshore: Relocate some domestic operations/functions overseas Past two years: 13.1% Next two years: 12.6% Each company’s supply chain is unique, and analysis of current spend, total-cost data, and emerging supplier opportunities contribute to onshore and offshore decisions, as do the efficiencies to be gained by having activities physically closer to the customer EXAMPLES GE Appliances: At General Electric’s Appliance Park, in Louisville, Kentucky, its GeoSpring water heater just came home to Louisville from China due to concerns that it would be “knocked off,” as well as due to rising oil prices, rising local wages in China and increases in U.S. productivity. Caterpillar: Opened new plant for manufacturing hydraulic excavator in Texas due to the location’s “proximity to supply base, access to ports and other transportation.” But they also make strategic decisions to build plants in Japan, China and Brazil, based on the forecast need, logistics and other considerations.
- #28 In fact, some focus group participants pointed out that products made in the United States enjoy a reputation for quality around the world. One Seattle-based manufacturer exports its garage doors to Canada as well as the Middle East, Australia and New Zealand. China can make a garage door and ship it to Saudi Arabia for a fraction of the cost, ~60% less. But it's the quality and “Made in America,” that enables the Seattle manufacturer to compete. “We have to put a sticker on every door that says ‘Made in America,’ that's a huge thing.” Depending on the market, the value that customers place on these products can translate into premium prices and profits.
- #29 This year, the Monitor survey asked “How will the following external issues affect your company’s growth in the next 12 months?” Here are the possible multiple choice responses. Which do you think was No. 1?
- #30 KEY POINT: These elements are part of the business environment, and thriving companies are moving ahead with their strategies. An in-depth understanding of their business fundamentals and financials (enabled by IT investments) allows these companies to be nimble in their responses to changing regulatory and tax landscapes. Even when unpredicted changes occur, executives and their accounting teams find opportunities to minimize financial fallout on their organizations. Thriving companies are clearly less affected by external factors. For example [go on to next slide on ACA]…
- #31 KEY POINT: Companies are focusing attention on how to lower the premiums companies and workforces will pay Many companies (and not just those that are thriving) are already compliant with the act—or at least, that is their intention. Because the act’s regulations are still being revised, many companies may not have a complete understanding of what being in compliance means for them. For now, they are focusing their attention on how to lower the premiums that they and their workforces will pay. About half of the companies are implementing incentive programs to promote healthier lifestyles or are adopting wellness programs Affordable Care Act: Thriving companies are even more likely to respond to the Affordable Care Act’s employer mandate: 76.6% will offer fully compliant coverage to full-time employees 0.3% will not offer compliant coverage to employees and will instead pay penalties 13% are not subject to the employer mandate because they have fewer than 50 employees 10.1% Unsure/haven’t made a decision --------- 2.6% will change the status of some workers from full-time to part-time in order to reduce ACA-related costs 0.9% will lay off workers in order to offset the costs of ACA compliance 3.0% will reduce wages in order to offset the costs of ACA compliance 46.6% will implement wellness programs to help encourage employees to live healthier lifestyles 49.1% will provide health plans that include incentives for healthy living This approach also helps attract and retain talent.
- #33 Through the effective use of KPMs and other feedback (e.g., ERP, CRM systems), thriving companies are able to see how they’re doing – in real time, in any location – and adjust as needed using the investments they’ve made in IT, continuous improvement, marketing, leadership or sales generation.
- #34 These investments in IT are paying off for thriving companies. In customer satisfaction, companies rated their IT environments “effective” or “extremely effective.” EXAMPLE One Seattle-based manufacturer is rolling out a new Web-based application to allow its 1,400 customers to reach them online. The software enables customers and prospects to get quotes, view product drawings and submit orders in one location.
- #35 Thriving companies are looking that much better… However, thriving companies’ anticipated employment costs increases in the next 12 months Wages 97.0% expect increase by 4.1% avg. Health care costs 92.1% expect increase by 9.5% avg. Other benefits 74.7% expect increase by 3.4% avg. Employee training 79.6% expect increase by 6.2% avg.
- #36 In summary, how do thriving companies do it? They prioritize their strategic plans, and manage them effectively. Thriving companies bring an in-depth understanding of their business fundamentals, strategic priorities and financial knowledge and build on a foundation of IT systems (e.g., CRM, ERP) and KPMs. This allows them to be informed and nimble in their responses to changing circumstances and opportunities. [THIS STILL NEEDS REFINING.]
- #37 We’ve cut the information in a number of different ways, for your convenience. Most are available through our website at www.mcgladrey.com, look under industrial products.