RSM US LLP (“RSM”) released results from its annual middle market manufacturing survey, which shows leaders in the manufacturing and food and beverage sectors are concerned about the availability of skilled workers, despite overall optimism on business performance and growth. In today’s tight U.S. labor market, nearly half of food and beverage respondents said the availability of skilled workers will negatively impact profitability, and 56 percent of manufacturing leaders plan to increase training and workforce development investments.
“Our survey clearly shows retaining a skilled workforce remains a priority for American manufacturers, which refutes concerns that technology and automation investments are taking away job opportunities,” said Steve Menaker, partner and manufacturing practice leader at RSM. “Ensuring manufacturers and food and beverage companies can combine the right talent with innovative technologies to drive operational efficiency and maximize profit will continue to be important in the year ahead.”
Manufacturers Focusing on Domestic Sources and Sales, But Need to Manage Margins
According to the latest report, global economic downturns and fluctuations in currency and commodity pricing were more concerning to manufacturers than local or national domestic regulations. Nearly half of middle market manufacturers reported their growth strategies in the next year include expanding in existing domestic markets, compared to only 30 percent planning to expand in existing international markets.
Nearly half of manufacturers are reporting operating profits of 6 percent or more (before interest and taxes), but the costs of components and materials have increased in the past 12 months and manufacturers plan on passing these higher costs on to customers in a price-conscious environment. Investments in process improvements by almost half of the respondents continue to be a priority.
“This report signals a trend of on-shoring, with manufacturers taking advantage of the strong U.S. market for production and sales,” said Menaker. “However, to account for increasing input prices, manufacturers should consider a refined margin improvement plan by focusing on higher-margin products and reducing lower-margin products to drive overall profitability.”
Technology remains a key investment to improve process efficiency and customer relationship management. Two-thirds of manufacturers anticipate increasing information technology (IT) investments in the year ahead, with slightly more than half planning to invest in IT to enhance operational activities. Still, this does not replace their reported need for skilled labor, with nearly 70 percent of manufacturers reporting they are likely to increase their workforce in the coming months. The continued need for skilled workers supports the idea that technology is not significantly changing headcounts in the near term.
Food and Beverage Sector Poised for Growth, But Needs to Manage Business Risks
Nearly half of the surveyed middle market food and beverage leaders reported their companies are thriving, with nearly four in 10 saying they expect double-digit revenue growth in the next 12 months. This growth comes in the form of acquisitions and new products, with nearly six in 10 respondents saying they are planning acquisitions, and another six in 10 planning to launch new products in the next 12 months. Notably, more than half report the trend of health and wellness is good for their business.
“Responding to consumer preferences will always be one of the greatest challenges and opportunities for food and beverage producers,” said Cristin Singer, partner and national food and beverage sector leader at RSM. “Managing the amount of investment into these new products – which ultimately can be hit or miss – is important, and a key reason companies will innovate through acquisition in the year ahead.”
To accommodate growth, food and beverage companies are investing in both operational and online technologies that can improve efficiency and open new channels with customers. While traditional sales channels will remain the most used and effective, more than three quarters of respondents have already or plan to implement e-commerce technologies in the future.
Barriers to profitability include workforce management, food safety and cyber security management. More than seven in 10 respondents anticipating employee costs will increase in the next 12 months. Additionally, forty percent of food and beverage leaders globally say they are concerned about food safety compliance costs, and that number jumps to 45 percent for non-U.S. companies. Plus, despite widely reported cyber-attacks in recent months, only 39 percent of middle market companies have enhanced their employee security protocols.
For more information, view the Manufacturing Monitory survey here and the Food and Beverage Monitor survey here.