Manufacturers Show Confidence in Sustained Recovery

Prime Advantage, a buying consortium for midsized industrial manufacturers, has released the results of its fifth Prime Advantage Group Outlook (GO) survey, a report detailing the top economic concerns of midsized industrial manufacturers for 2010.

According to the survey, which polled 528 professionals representing U.S.-based manufacturers involved in commercial foodservice, packaging, truck and trailer, material handling, food processing and construction, a sense of confidence has returned to small and midsized industrial manufacturers, along with expectations of higher revenue, customer demand and hiring. Survey data was collected in February from 77 representatives of industrial manufacturing companies, including business owners, vice presidents of procurement and purchasing professionals. The survey polled respondents on their projections for the next six months of the year compared to the past six months.

The survey reveals that 45% of respondents expect revenue for the first half of 2010 to increase more than it did in 2009. In the previous GO survey, published in September 2009, 37% of respondents predicted revenues would increase for the remainder of 2009, as compared to the second half of 2008. Only 11% expect revenues to decrease, compared to 20% in the last GO survey.

Prime Advantage notes that this confidence is in line with the Purchasing Managers’ Index, which has grown steadily for a year and is at its highest rate since July 2004. Also, reports the company, the Federal Reserve Board’s Beige Book report on manufacturing for April 14 showed that all districts except one (St. Louis) reported increases in orders, shipments or production.

“As the economy has stabilized, industrial manufacturers are beginning to enjoy increased demand for their products,” says Louise O’Sullivan, president and founder of Prime Advantage. “The main challenge for small and midsized manufacturers in the year ahead will be to manage the increase in demand with capacity, monitoring how much of the uptick is due to inventory replenishment verses customer-driven demand, and matching that with throughput and hiring decisions. Strategic procurement planning will help with these decisions and also enable these manufacturers to control costs while rapidly and efficiently responding to new demand.”

The vast majority (89%) of respondents expect revenues in 2010 to either stay the same or increase, reflecting an increase of 9% over the 2009 Mid-Year GO survey. Capital spending expectations also improved, with 34% of respondents predicting an increase from 2009 spending levels. In the 2009 survey, 86% reported that capital spending for their U.S. locations would either stay the same (55%) or decrease (31%) from the first half of 2009.

Top sourcing concerns for 2010 are the ability to focus on business process issues, such as cost savings and efficiency measurement, with 37% in agreement. This is followed by an ability to manage the costs of raw materials (33%) and components (27%).

For the fifth GO Survey in a row, raw material costs (such as metals and plastics) are the top cost concern, as cited by 36%. However, this number has come down from the past three surveys, when 53% (September 2009), 67% (February 2009), and 93% (July 2008) reported it was the top cost-pressure concern in previous studies.

Inflation is the second-greatest concern at 16%, followed by healthcare and foreign competition, tied at 13%. This reflects a shift in opinions about cost pressures, as the previous survey pinpointed overhead costs and logistics/supply chain costs as the second- and third-greatest concerns.

The top three external concerns facing small and midsized manufacturers include customer demand at 38% (up from 24% in the last GO survey), price pressure (32%) and inflation (16%).

About one-quarter (24%) report that 2010 employment levels at their companies will increase from 2009 levels, while 55% say they will stay the same, and 21% say they will decrease.

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