Insights into trends and changes in manufacturing . . .
With expectations of rising revenue, profits and employment, manufacturers appear optimistic about prospects for the industry and their companies. According to the 2016 RSM Manufacturing Monitor survey results, nearly 70 percent of manufacturers in the United States and around the world are anticipating an increase in operating profits — this comes after a year in which the average profit (as a percentage of revenue) was 17 percent. More than half of the companies surveyed expect to increase their workforce; three-quarters expect to increase revenues, many by more than 10 percent.
Some sectors — particularly automotive, aerospace and construction materials — have had a record-breaking year. But economics are cyclical, and other sectors — energy, agriculture and general industrial manufacturing, among them — are experiencing a decrease in demand, limiting their profitability and growth. Many of these companies are experiencing flat or declining revenues.
For companies to break out of a cycle of diminishing revenues — and for others to achieve their ambitious expectations for growth — a number of areas should be considered. Learn more about these key areas in this short video with Steve Menaker, partner and manufacturing industry leader at RSM US LLP.
Growth: Buffeted by the headwinds of a strong U.S. dollar, sluggish global growth, weak economies in Europe and other regions, geopolitical uncertainty, and still-low commodity prices, manufacturers’ output has essentially been stagnant since May 2015 and capacity utilization has also declined over that time frame to its lowest level since February 2014. The going may be choppy at times for certain sectors; nevertheless, manufacturers overall are moving forward.
Global: U.S. companies, many of which are focusing primarily on domestic markets, may be missing out on global opportunities and are letting non-U.S. manufacturers take more initiative. Non-U.S. manufacturers generate nearly half of their sales outside of their home countries. These companies also have substantial production capacity — on average, more than 60 percent—located outside of their home countries.
Technology: Nearly 60 percent of Monitor participants expect to increase their investments in technology in the coming year; half of that cohort anticipate increases upwards of 6 percent or more. Addressing the needs of a company through technology takes rigorous planning and management. The stronger companies continue to invest in and leverage technology to drive revenues and profits.
Margins: According to the Monitor, operating profit before interest and taxes for the most-recent fiscal year was an average 15 percent of revenues. Many companies plan to increase their investments in process improvements, but identifying and prioritizing improvements is critical to controlling profitability. Pricing pressure from customers is the mode of today and companies must be laser focused on their profitability.
Risk: Many manufacturers are ignoring common strategic initiatives designed to address significant business and cybersecurity risks. Every firm—regardless of size or status—needs a risk-management plan to protect revenues, employees, executives and owners.
The perspectives of C-level decision-makers in companies provide a unique insight into the industry. The analysis provided by the Monitor is designed to spark discussions that can help drive individual companies and the manufacturing industry forward in the months and years to come.
The RSM Manufacturing Monitor survey was conducted by an independent research firm, The MPI Group, Inc., an independent research firm, on behalf of RSM US LLP and its affiliated international firms. There were 1,174 total valid respondents to the 2016 Monitor survey, with completed questionnaires received in March and April 2016. Responses were received by MPI, then entered into a database, edited, and cleansed where necessary to ensure answers were plausible. The information provided is confidential and accessible only by RSM and MPI. Monitor data will be shared with third parties only in aggregate form, through RSM articles, white papers and presentations