Although business conditions are as hard as they have been in years, manufacturers and wholesalers are starting to see positive signs for economic recovery, according to RSM McGladrey's latest Manufacturing and Wholesale Distribution National Survey. More than 920 manufacturing and wholesale distribution executives completed the survey, answering questions on topics such as current business conditions, growth strategies, operations, technology costs and risk management.

This year only 9 percent of companies reported their business as "thriving and growing." Further, 40 percent reported their business as "declining."

"Business conditions are as difficult as they have been in years," according to an executive summary of the survey's findings. "None of the industry segments surveyed have escaped impact."

However, some industries seem to be faring better than others. In the survey, conducted in March and April, medical-device manufacturers and food-and-beverage executives reported favorable growth prospects and stronger-than-average business conditions.

Also encouraging, 46 percent see an economic rebound for their company in 2009 and 44 percent in 2010. Companies generally predict an earlier rebound for their own businesses than for their industry or the U.S. economy.

"Executives are reporting tough business conditions and as a result they have taken direct actions to reduce costs," Tom Murphy, RSM McGladrey's executive vice president of manufacturing and wholesale distribution, said in a statement.

Reacting to the current economic conditions, companies have begun redefining revenue-growth strategies, reorganizing operations, reducing costs and positioning themselves for the projected late-2009/early-2010 turnaround.

For example, the survey finds a significant number of companies are planning capacity modifications this year: 26 percent plan to reduce capacity, 25 percent plan to consolidate operations and only 15 percent plan to expand capacity. As companies try to strengthen their balance sheets and offset the impact of tighter credit requirements, they are relying less on bank financing and more on cash flow as a primary means to fund capital expenditures.

"The survey also found companies are responding to the current economic conditions by implementing lean principles and streamlining operations," Murphy said. "This should make businesses stronger and more competitive as we climb out of the recession."

The top four 2009 growth strategies cited in the survey include the following:

• Acquire new customers;
• Increase sales in domestic markets;
• Increase sales to current customers; and
• Increase brand recognition.

In addition, 95 percent of companies surveyed plan to focus on product or process innovation; new product development and product line extensions were reported most frequently. A growing priority for manufacturers and wholesale distributors is implementing "green" initiatives, with more than half of respondents having already implemented, or planning to implement, green initiatives this year. Most (62 percent) reported "concern for the environment" as the No. 1 reason for going green.

The green findings are at odds with the American Small Manufacturers Coalition's Next Generation Manufacturing Study, also released last month, which found that sustainability strategies rank low in manufacturers' priorities, with only 16 percent stating green as important to their success in the next five years.

A particularly notable finding is that, despite the recession and nationwide workforce reductions, respondents "continue to struggle to find workers with the skills required by today's advanced manufacturing environment."

According to RSM McGladrey's findings:

Engineers, manufacturing technicians, supervisors and entry-level workers are needed by around 30 percent of companies surveyed. Sales persons are in high demand, according to survey results, reflecting the revenue-generating growth strategies reported by company executives.

"The demand for skilled workers in the face of current levels of unemployment underscores the lack of technological skills in the current workforce," according to Murphy.

Manpower's fourth annual talent shortage survey, released in late May, revealed that skilled manual trades, technicians, engineers, managers, laborers and production operators are among the 10 hardest-to-fill jobs worldwide in 2009. Among the 10 hardest jobs to fill, as reported by U.S. employers for 2009, are engineers, skilled/manual trades, technicians, IT staff, laborers and machinist/machine operators.

Murphy advises, "Companies need to partner with the educational community, government, industry associations and organizations to identify the necessary skill requirements and develop training programs to fill this gap."

Despite this alleged talent shortage, approximately twice as many survey respondents (52 percent) plan employee reductions in 2009 as did in 2008.

However, prospects for 2010 appear more promising, with only 11 percent of respondents projecting cuts in their U.S. workforces and 44 percent planning to add employees.

In the end, companies with global business activities are "likely to fare better this year than companies focused only on domestic sales," according to RSM McGladrey's 2009 findings. Of the companies reporting sales declines for the year, only 37 percent expect declines for international markets, compared with 62 percent predicting sales declines for domestic markets. Sales increases are projected to be higher in international markets than domestic markets.

RSM McGladrey's full survey report will be available on July 20.

Recent/Related: U.S. Manufacturers Face Critical Threats to Competitiveness

Resources

RSM McGladrey 2009 Manufacturing and Wholesale Distribution Survey
RSM McGladrey, June 22, 2009

Executive Summary: 2009 Manufacturing and Wholesale Distribution National Survey
RSM McGladrey, June 22, 2009

RSM McGladrey 2009 Manufacturing and Wholesale Distribution Survey Finds Companies Optimistic about Economic Recovery
RSM McGladrey, June 22, 2009

2009 Talent Shortage Survey Results
Manpower, Inc., May 28, 2009

Manpower's Annual 10 Hardest Jobs To Fill Survey Finds Four Years of Similar Data Points to Gaps in the U.S. Workforce
Manpower, Inc., May 28, 2009