Capital Spending and Hiring on the Rise for Midsized Manufacturers, but Increasing Costs Cause Concern

Controlling spending is key to success in 2011, as raw material costs keep rising, Prime Advantage Group Outlook survey finds


Employment, Education and Technology

Almost half of surveyed companies believe there will be an increase in hiring over the next six months, and 49 percent expect employment to remain at 2010 levels. Only three percent predict a reduction in current workforce levels.

This finding reveals more optimism among Prime Advantage members than in respondents to the spring 2011 KPMG survey of U.S. manufacturing executives, in which only 37 percent expected rising employment in their companies in the next year.

The most important supply chain-related educational needs for these manufacturers over the next 12-18 months include sourcing and procurement education (45 percent), strategy and leadership (41 percent), risk management (41 percent) and demand management (34 percent).

When asked about the status of supply chain technology adoption in key areas such as sales and operation planning, business intelligence, inventory optimization, spend visibility, spend analysis and supply chain visibility, on average about half are fully deployed, partially deployed or launching, with most falling in the later stages of deployment.

Of those fully or partially deployed, most are ERP-based and very few to none are solely Cloud-based. Around 23 percent are in the process of investigating solutions. Still, only 27 percent of manufacturers are not on any track to investigate or deploy such solutions.

Near-shoring Does Not Dominate Sourcing Strategy

While 40 percent of respondents who source products from offshore vendors are planning to bring sourcing back to North America in the near future, the majority of respondents (60 percent) plan to add more offshore vendors. These results reflect a slight rebalancing or correction in sourcing strategy from the last decade's massive offshore sourcing trend rather than a full pendulum swing back to buying domestic products.

The top three cost pressures that most concern mid-sized manufacturing companies over the next six months include the cost of raw materials — with 96 percent including it in top three concerns and 76 percent citing as the top concern — followed by inflation (52 percent selected as the second strongest cost pressure) and healthcare (37 percent selected as the third strongest cost pressure).

In every Group Outlook survey conducted since June 2008, the cost of raw materials (such as metals and plastics) has appeared as the top cost pressure, but the number of respondents citing this as the top concern has grown steadily as the economy has improved (from 36 percent just a year ago, to 51 percent six months ago).

Interestingly, costs related to consolidating vendors was cited as the lowest concern, by 66 percent. Prime Advantage suggested that this was an indicator of the respondents' confidence in the GPO's ability to provide a network of qualified suppliers.

Biggest Obstacle in Purchasing: Forecast Accuracy

When asked about potential obstacles that would prevent their companies from achieving their purchasing goals, survey respondents overwhelmingly cited the ability to maintain forecast accuracy and demand variability (76 percent), followed by the ability of suppliers to keep pace on predictable demand (41 percent) and to manage understaffed purchasing departments (39 percent). The 2010 Gartner Supply Chain Survey echoed this, as 59 percent of respondents ranked forecast accuracy/demand variability as the biggest obstacle to achieving supply chain goals.

Elsewhere, the survey suggests that the ability to offer products that are more sustainable or energy efficient has become a huge focus for small and midsized manufacturers, with 81 percent of respondents acknowledging this change in focus in product development processes.

The biggest driving factors behind these changes are customer requirements (80 percent), followed by compliance regulations (53 percent) and shareholder directives (12 percent). In addition, 57 percent of respondents have also started buying more sustainable indirect products for internal consumption.

Prime Advantage said that in the past 10 years it has returned more than $110 million in rebates and discounts to its members. "These real savings are helping U.S. companies gain a powerful competitive advantage," the company said.

To request a copy of the Prime Advantage 2011 Group Outlook Survey, go here (registration required).

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