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Indiana Manufacturing - Retrenching for the Future

Posted 9:17 PM by

The preliminary results of the 2013 edition of the annual Indiana Manufacturing Survey finds many companies indicating they are tightening their financial belts in an effort to retrench for the future.

In the 2012 survey results, Hoosier manufacturers were more optimistic, with 44 percent considering their financial performance as "healthy." But when asked the same question in 2013, just 33 percent considered themselves as such. So while some manufacturers are still cautiously investing in the future, many have reverted to cost-cutting, a theme more prevalent in the 2011 edition of the survey, when companies were just beginning to recover from the "Great Recession."

Also echoing themes from the "Great Recession," cash flows and working capital management have once again returned to the top of the list of most important priorities for Indiana manufacturers. These financial concerns are fueled by a host of reasons, ranging from rising healthcare costs to increasing government regulations. Indeed, Indiana's tax policies, along with pending healthcare laws and regulations, were rated as more important to the cost and viability of manufacturing than our renowned transportation infrastructure and logistic networks. As one manufacturer commented concerning regulations, the biggest issue is "just keeping up with them all!" Another respondent even more bluntly framed the matter: "Get out of our way so we can make a living. Too much paperwork for the simplest common sense stuff."

Another part of this retrenching is a renewed focus on existing products versus the development of new ones. For the first time in years, innovation has declined in terms of the introduction of new products. There is also discouraging news in terms of the percentage of respondents planning to open a new manufacturing facility in Indiana in the next several years, which dropped from 11 percent in 2012 to 8 percent in 2013. Likewise, those planning on "onshoring" manufacturing back to the U.S. declined from 9 percent in 2012 to 6 percent in 2013.

As with previous years, human resource development and investment in facilities, machinery and information technologies continued to be the preferred means of modernizing manufacturing. By far, the most popular improvement program remains "lean" methods, which over 80 percent of companies now feature (up from 70 percent in 2012) as part of their manufacturing strategy.

This year's survey also studies in detail the often-reported manufacturing "skills gap" in qualified workers. The two biggest shortages are in skilled production (e.g., machinists, operators, technicians, etc.) and production support (e.g., industrial engineers and planners). Not surprisingly, these shortages most adversely affected the abilities of manufacturers to achieve productivity targets and implement new technologies. Areas where the existing workforce has room for improvement include problem-solving and employability skills (e.g., attendance, timeliness, work ethic, etc.), and communication. In response to these needs, employee training and development programs, as well as overtime, were the two most common strategies to compensate for these skill gaps.

While the preliminary findings from 2013 may seem alarming, especially in contrast to the more optimistic results of 2012, we remain upbeat about Indiana manufacturing. It is important to note that this year's numbers do not even remotely compare to the bleaker days of 2008 through 2010. Nonetheless, Hoosier manufacturers are now clearly at a crossroads in history, with continued prosperity on one side and decline on the other. The results from this year’s survey suggest that Indiana's manufacturers are presently following the right strategies – managing their cash, retrenching their operations and focusing on employees. With so much at risk, Hoosier manufacturers appear determined to navigate their way through these relatively uncertain times. As one manager resolutely put it, we will "keep the doors open no matter what," while another added that they intend to continue "holding on to the path that got us here."

This annual Indiana Manufacturing Survey is a joint collaboration between Katz, Sapper & Miller, LLP, Conexus Indiana, the Indiana Manufacturers Association, and Indiana University’s Kelley School of Business.

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Katz, Sapper & Miller’s Manufacturing and Distribution Services Group provides traditional tax compliance and assurance services, but what sets us apart is the entrepreneurial spirit. Our strategic solutions will make your company more efficient, competitive, and profitable. Learn more.

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