MFGWatch Q4 2011

Quarterly Survey of North American Manufacturers

MFGWatch Executive Summary: Overall manufacturing business conditions improve for product manufacturers (buyers) and job shops/contract manufacturers (suppliers) with both reporting increased sales; job shops/contract manufacturers report growths in capacity and customer inquiries; reshoring still not a noticeable trend for product manufacturers but intentions to reshore increased; more education needed on exporting before manufacturers will become willing to explore international markets; increase in concerns about availability of qualified labor.

Most Recent Data: Direct media inquiries and interview requests to Mitch Free mfree@mfg.com

BUYERS (Product Manufacturers)

Business Growth

In Q4 2011, did your company’s sales:

  • Grow: 53% (50%)
  • Decline: 18% (9%)
  • No Change: 23% (41%)
  • Don't Know: 6% (<1%)

(Percentages in parentheses represent expectations stated in the previous quarter.)


ANALYSIS

North American buy-side product manufacturing companies continued to show growth through Q4 2011 with a 3% increase in sales from Q3 (to 53%) – it is a full 10% increase from Q2’s 43% reported growth. This further validates the rise in the Institute for Supply Management’s manufacturing index of one point in January to a seasonally adjusted 54.1 from December, marking the 30th consecutive month of increased job shop activity. These are positive signs showing continued expanding growth in manufacturing.

Supplier Management

In Q4 2011, how did the number of suppliers in your supply base change?

  • Increase: 30% (43%)
  • Same: 17% (5%)
  • Decrease: 46% (47%)
  • Don't Know: 7% (5%)

(Percentages in parentheses represent expectations stated in the previous quarter.)


ANALYSIS

The percentage of North American buy-side product manufacturers that reported decreasing the number of suppliers in their supply base jumped drastically from 5% in Q3 to 17% in Q4 2011. 30% of buyers reported increasing the number of suppliers which is a record low since we added this question to the MFGWatch survey in Q4 2010. This change suggests an increasing stability in the supplier markets.

Staff Adjustment

In Q4 2011, how did your company adjust staff?

  • Increase: 26% (34%)
  • Decrease: 14% (12%)
  • Same: 57% (53%)
  • Don't Know: 3% (1%)

(Percentages in parentheses represent expectations stated in the previous quarter.)


ANALYSIS

The percentage of buy-side product manufacturers reporting increases in staff, declined by 8% in Q4 2011 (26% vs. 34% in Q3). Although this number is lower than the record high in Q3 2011, the 4th quarter is historically a slower time for hiring. Product manufacturing companies are still hiring at a rate of 26% which is a substantial increase over the bottom of the job market in Q3 and Q4 2009. The slower hiring rate could potentially indicate a workforce skills gap as manufacturers struggle to find qualified labor. Within the manufacturing industry, there is an increased need to escalate the focus on education to ensure qualified labor is prepared and available.

Supply Chain Disruption

In Q4 2011, did your company experience a significant supply chain disruption that caused you to investigate or select new suppliers?

  • Yes: 34% (44%)
  • No: 60% (54%)
  • Don't Know: 6% (2%)

(Percentages in parentheses represent expectations stated in the previous quarter.)


ANALYSIS

The number of buy-side product manufacturers reporting a significant supply chain disruption drastically decreased to 34% from 44% in Q3 2011. This is a record low that we have not seen since Q4 2009. Likewise, those reporting no supply chain disruptions increased 6% (to 60%) from 54% in the previous quarter. However, when asked the same question about their customers, job shops and contract manufacturers (suppliers) saw an increase in inquiries from companies suffering a supply chain disruption (up 5% from Q3 2011) suggesting this could potentially be an anomaly. We will have to see if this trend continues in Q1 2012. This could potentially demonstrate stabilizing supply chains and that buy-side product manufacturers have taken measures to mitigate their supply chain risk and have become less and less affected by disruptions to their supply chains.

Returned Production to North America for North American Consumers

In Q4 2011, for your North American consumers, did your company return any portion of production into or closer to North America from a low-cost country?

  • Yes: 22% (19%)
  • No: 69% (74%)
  • Don't Know: 9% (7%)

(Percentages in parentheses represent expectations stated in the previous quarter.)


ANALYSIS

The number of product manufacturers that reported returning a portion of their production back to North America for their North American consumers increased by 3% to 22% up from 19% in Q3 2011. This uptick brings the percentage of reshoring or nearshoring companies to the 2nd highest amount since the inception of the MFGWatch (the highest was 25% in Q4 2010). Although reshoring or repatriation of production remains noticeable, these results continue to demonstrate that it is hardly a trend to offset offshored production at this time.

Future Returned Production to North America for North American Consumers

In Q1 2012, for your North American consumers, will your company be researching bringing any portion of its production into or closer to North America from a low-cost country?

  • Yes: 33% (26%)
  • No: 46% (55%)
  • Don't Know: 21% (19%)

(Percentages in parentheses represent expectations stated in the previous quarter.)

ANALYSIS

Although the number of North American product manufacturers that actually reshored production was only 22% in Q4 2011, the number researching bringing production into or closer to North America in Q1 2012 increased by 7% to 33% up from 26% in Q3. This tends to indicate that economic conditions have started to produce sound business reasons for bringing work back to North America and product manufacturers continue to see value in exploring this option for their business. What is more, American manufacturing has never gotten the full throttle White House support that was addressed in the recent State of the Union that called to return manufacturing to the United States. But, will it? While MFGWatch respondents noting reshoring activities has never gotten to over 38% since we began tracking, we will have to wait and see if the reshoring intentions actually come to fruition in 2012.

Manufacturing Closer to Consumption

In Q4 2011, did your company adopt or consider a strategy to establish production of your products closer to their markets of consumption?

  • Yes: 18% (32%)
  • No: 70% (55%)
  • Don't Know: 12% (13%)

(Percentages in parentheses represent expectations stated in the previous quarter.)


ANALYSIS

The number of North American product manufacturers reporting adopting strategies to establish production closer to markets of consumption dropped drastically to 18% from 32% in Q3 2011. However, as this is a recent addition to the MFGWatch survey, we do not believe this is enough data to correlate to a trend at this time. Although, the declining amount of respondents saying they are manufacturing close to consumption is interesting and should be closely monitored in relation to the reshoring and exporting data as we continue into 2012. Additionally, we are planning a few follow-up questions in the future MFGWatch surveys.

Factors Threatening Sourcing/Supply Chain Strategies

In Q4 2011, what were the most important factors threatening your sourcing or supply chain strategies? (Choose 3)

  • Fuel/Oil Prices: 29% (31%)
  • Logistics & Shipping Costs: 37% (45%)
  • Intellectual Property Protection: 14% (16%)
  • Separation of Production from Design or R&D: 11% (9%)
  • Product Quality Compliance: 37% (40%)
  • Unstable Labor Costs: 11% (11%)
  • Civil Instability: 2% (3%)
  • Supplier Financial Health/Stability: 17% (18%)
  • Availability of Competent Suppliers: 36% (46%)

(Percentages in parentheses represent expectations stated in the previous quarter.)




ANALYSIS

Logistics & shipping costs (37%), product quality compliance (37%) and availability of competent suppliers (36%) take the lead in factors threatening buy-side product manufacturers supply chain strategies. Results for Q4 2011 are fairly consistent with previous quarters other than a 10% decrease in buyers reporting issues with discovering competent suppliers (36% in Q4 2011 vs. 46% in Q3). This goes to further indicate a stabilizing supplier market and the availability of dependable suppliers on a global basis.

Export Strategies

In Q1 2012, please describe your export strategies:

  • We will be exporting to foreign markets for the first time: 9% (4%)
  • We will be increasing our exports to foreign markets: 27% (25%)
  • We will be decreasing our exports to foreign markets: 2% (1%)
  • We are maintaining our current exports level to foreign markets: 23% (39%)
  • We are not considering exporting at this time: 39% (30%)

(Percentages in parentheses represent expectations stated in the previous quarter.)

ANALYSIS

The number of buy-side product manufacturers that will be exporting to foreign markets for the first time more than doubled from the previous quarter from 4% in Q3 to 9% in Q4 2011. 2% more buyers will be increasing their exports to foreign markets from Q3 to Q4 (25% to 27%). However, the number of respondents that said they were not considering exporting also grew by 9% - from 30% in Q3 to 39% in Q4. The number of first time exporters as well as those who are increasing their exports remains strong. Nonetheless, there is still a lot of room for growth and may indicate a need to further educate the manufacturing industry on the many benefits of exporting for their business.

Intentions for hiring, investment and expansion

In Q1 2012, which of the following best describe your company’s intentions for hiring, investment and expansion?

  • We are aggressively investing in new technology & expanding our workforce: 26% (23%)
  • We are aggressively investing in new technology but not expanding our workforce: 28% (35%)
  • We are hiring, but not investing in new technology: 11% (14%)
  • We are neither hiring, nor investing in new technology: 35% (28%)

(Percentages in parentheses represent expectations stated in the previous quarter.)

ANALYSIS

65% of buy-side product manufacturers are aggressively investing in new technology, hiring or both which is a positive sign further supported by the increase in sales reported in Q4 2011. However, the number of buy-side product manufacturers that are neither hiring nor investing in new technology grew by 7% in Q4 2011 – from 28% in Q3 to 35% in Q4 resembling the more stagnant growth projections – a possible “wait and see” approach - that we saw back in Q2 2011. Nevertheless, well over half of North American buy-side manufacturers are investing which is a very positive sign for our economy.

Economic and Competitive Future of Manufacturing

In Q1 2012, which of the following issue(s) will have the most impact on the economic & competitive future of manufacturing in your region?

  • Extensive Government Regulations: 31% (24%)
  • Logistics, Shipping & Energy Costs: 34% (37%)
  • Operating Costs: 51% (59%)
  • Rising Taxes: 25% (24%)
  • Trade Policy Reform & Deficit: 15% (10%)
  • Budget Deficit: 12% (8%)
  • Availability of Qualified Labor: 31% (30%)
  • Access to Capital: 35% (26%)

(Percentages in parentheses represent expectations stated in the previous quarter.)


ANALYSIS

Operating costs continue to be the clear leader when it comes to issues that will have the most impact on the economic & competitive future of manufacturing (with 51% of respondents). The sustained increase in product manufacturers concerned about access to capital is troubling – from 22% in Q2 to 26% in Q3 to 35% in Q4 2011 – which substantiates the increase in respondents who are not planning to hire or invest in new technology in Q1 2012. The increase in respondents having an impact from the availability of qualified labor could become a troubling trend and should be closely monitored.

Quick Demographics

Industry Breakdown of Respondents:

  • Aerospace: 5%
  • Automotive: 10%
  • Medical: 6%
  • Defense: 3%
  • Consumer Products: 24%
  • Machinery Tools & Equipment: 15%
  • Textiles: 12%
  • Other: 25%

(Percentages in parentheses represent expectations stated in the previous quarter.)

What are your current primary sourcing destination(s) for manufacturing your product (select all that apply)?

  • United States: 86%
  • Canada: 24%
  • Mexico: 17%
  • South America: 9%
  • Eastern Europe: 7%
  • Western Europe: 11%
  • Central Europe: 5%
  • North Africa: 1%
  • India: 15%
  • China: 41%
  • Rest of Asia: 20%
  • Other: 2%

(Percentages in parentheses represent expectations stated in the previous quarter.)

 

SUPPLIERS (Job Shops & Contract Manufacturers)

Business Growth

In Q4 2011, did your company's sales:

  • Grown: 55% (46%)
  • Decline: 21% (14%)
  • Same: 23% (39%)
  • Don't Know: 1% (1%)

(Percentages in parentheses represent expectations stated in the previous quarter.)


ANALYSIS

North American job shop and contract manufacturers have reported growth at a historic high in Q4 2011 at 55% vs. 46% in Q3. However, progress is slightly tempered by the increase in respondents who reported a decline in sales which jumped from 14% in Q3 to 21% in Q4 2010. Nevertheless, it is encouraging to see such a positive change in sales finishing out 2011 strong.

Employment Conditions

In Q3 2011, how did your company adjust staff?

  • Increased: 29% (31%)
  • Decreased: 15% (10%)
  • Same: 55% (58%)
  • Don't Know: 1% (1%) »

(Percentages in parentheses represent expectations stated in the previous quarter.)


ANALYSIS

The decline in hiring that we saw in Q3 2011 continued into Q4 with only 29% of job shops and contract manufacturers reporting increases in staff (down from 31% in the previous quarter). Moreover, the number of respondents that reported staff reductions increased from 10% in Q3 to 15% in Q4 2011. It seems that although overall sales are up from previous quarters and companies are reporting increasing profits, North American job shops and contract manufacturers seem to be reluctant to hire or are having difficulty maintaining current staff. This could be, in part, due to continued economic concerns or the lack of a skilled workforce.

Supply Chain Disruptions

In Q4 2011, did your company receive queries or actual work from companies suffering from supply chain disruptions and in need of immediate assistance?

  • Yes: 45% (40%)
  • No: 43% (46%)
  • Don't Know: 12% (13%)

(Percentages in parentheses represent expectations stated in the previous quarter.)

ANALYSIS

Although the buy-side product manufacturers reported a reduction in supply chain disruptions in Q4 2011 (which could be an anomaly), North American job shops and contract manufacturers had a much different experience. The number or respondents that saw additional queries or actual work from companies suffering from a supply chain disruption increased from 40% in Q3 to 45% in Q4 2011. The number reporting no additional work or queries fell 3% from 46% in Q3 to 43% in Q4. 43% is also a record low since the inception of the MFGWatch. Supply chain instability by North American product manufacturers continue to manifest themselves in the business queries reported by suppliers.

Inquiries and Prospects

In Q4 2011, did you see inquiries from customers or prospects?

  • Increase: 47% (43%)
  • Decrease: 11% (17%)
  • Same: 40% (38%)
  • Don't Know: 2% (2%)

(Percentages in parentheses represent expectations stated in the previous quarter.)

ANALYSIS

North American job shops and contract manufacturers reported an increase in inquiries from customer prospects in Q4 2011 – from 43% in Q3 to 46% in Q4. Likewise, the number of respondents reporting a decrease in inquiries fell by 5% to 11% in Q4 2011 from 17% in Q3. This falls in line with the reported increase in sales reported in Q4 and bodes well for North American job shops and contract manufacturers heading into 2012.

Future Capacity

In Q1 2012, which best describes how you expect to manage the capacity (equipment, technology, employees) of your business?

  • We will be exporting to foreign markets for the first time: 3% (7%)
  • Add Capacity: 45% (39%)
  • Reduce Capacity: 5% (5%)
  • Maintain Current Capacity: 45% (51%)
  • Don’t Know: 5% (5%)

(Percentages in parentheses represent expectations stated in the previous quarter.)

ANALYSIS

The number of North American job shops and contract manufacturers that reported intentions to add capacity in Q1 2012 is a historic high at 45% - up from 39% in Q3 (for Q4 projections). The trend to add capacity continues and has been steadily growing since Q4 2009. This again falls in line with the positive trend in sales and customer inquiries we are seeing from North American job shops and contract manufacturers.

Export Strategies

Describe your company’s export strategies for Q1 2012.

  • We will be exporting to foreign markets for the first time: 3% (3%)
  • We will be increasing our exports to foreign markets: 13% (9%)
  • We will be decreasing our exports to foreign markets: 2% (1%)
  • We are maintaining our current exports level to foreign markets: 30% (32%)
  • We are not considering exporting at this time: 52% (55%)

(Percentages in parentheses represent expectations stated in the previous quarter.)

ANALYSIS

The number of job shops and contract manufacturers reporting first time or increasing exports remains low at only 16% in Q4 2011 (although it is up from 12% in Q3, the number is troubling). With 52% of respondents not considering exporting at this time, it goes to show, just as with the buy-side, that much more education is needed in North American manufacturing on the benefits of exporting for small business. Increased support and encouragement will be needed for North American job shops and contract manufacturers to enter into international markets.

Economic and Competitive Future of Manufacturing

Which of the following issues will have the most impact on the economic & competitive future of manufacturing for your region in Q1 2012?

  • Extensive Government Regulations: 20% (16%)
  • Logistics, Shipping & Energy Costs: 5% (11%)
  • Operating Costs: 27% (31%)
  • Rising Taxes: 8% (6%)
  • Trade Policy Reform & Deficit: 8% (7%)
  • Budget Deficit: 2% (4%)
  • Availability of Qualified Labor: 20% (14%)
  • Access to Capital: 10% (11%)

(Percentages in parentheses represent expectations stated in the previous quarter.)

ANALYSIS

Operating costs continue to lead the pack as far as what job shops and contract manufacturers are concerned about going into 2012. However, government regulations and the availability of qualified talent to feed their shop floors have risen again in Q4 2012 to 20% each – up from 16% and 14% respectively. Interesting, especially going into a political campaign year, for the third consecutive quarter, the impact of the US budget deficit registers very low on the list of concerns to supply-side manufacturers.

Intentions for Hiring, Investment & Expansion

Which best describes your company’s intentions for hiring, investment & expansion for Q4 2011?

  • We are aggressively investing in new technology & expanding our workforce: 27% (16%)
  • We are aggressively investing in new technology buy not expanding our workforce: 25% (28%)
  • We are hiring, but not investing in new technology: 11% (15%)
  • We are neither hiring, nor investing in new technology: 37% (41%)

(Percentages in parentheses represent expectations stated in the previous quarter.)

ANALYSIS

In Q4 2011 North American job shops and contract manufacturers reported a drastic growth in those who plan on investing in both technology and expanding their workforce going into 2012 – from 16% in Q3 to 27% in Q4 2011. To further substantiate these growth intentions, the number of contract manufacturers who reported no intention to hire or invest in new technology dropped by 4% from 41% in Q3 to 37% in Q4 2011. This continues the positive trend in adding capacity that we are seeing in the supply-side manufacturing market.

Quick Demographics

Industry Breakdown of Respondents:

  • Aerospace: 10%
  • Automotive: 12%
  • Medical: 6%
  • Defense: 6%
  • Consumer Products: 14%
  • Machinery Tools & Equipment: 25%
  • Textiles: 2%
  • Other: 25%

(Percentages in parentheses represent expectations stated in the previous quarter.)

 

What are your current primary sourcing destination(s) for manufacturing your product (select all that apply)?

  • United States: 88%
  • Canada: 29%
  • Mexico: 27%
  • South America: 4%
  • Eastern Europe: 4%
  • Western Europe: 9%
  • Central Europe: 2%
  • North Africa: 2%
  • India: 8%
  • China: 25%
  • Rest of Asia: 13%
  • Other: 3%

(Percentages in parentheses represent expectations stated in the previous quarter.)

 

MFGWatch is an annual, recurring survey conducted by MFG.com of North American OEMs/Sourcing Professionals of manufacturing goods and services. The survey is conducted via e-mail from a sampling of MFG.com member companies, and is intended to reflect projected and reported behaviors of companies in the North American manufacturing sector. MFGWatch data and its analysis are provided to share openly – however, MFG.com does ask for responsible acknowledgement as the source of MFGWatch data. Industries represented include aerospace/aeronautics, automotive, medical, defense, textiles and consumer products manufacturers.