Among the highlights of the Q1 2011 MFGWatch Survey of North American Manufacturers:
- Overall Manufacturing Business Conditions & Employment Improve, But At Slower Rates.
- Japanese Tragedy Impact: Supply Chain Disruptions Increase Significantly In North America.
- Top Supply Chain Concerns Among Buyers: Logistics & Shipping Costs; Volatile Fuel/Oil Prices; Finding Competent Suppliers.
- Inflation, Higher Costs Temper Enthusiasm among both buyer and supplier manufacturers.
- Small Manufacturers See Significant Overall Business Improvement, But Are Hiring Less.
Other findings in North American manufacturing from Q1 ’11 include:
- Buyers maintained double-digit levels of growth in expanding their stable of captive suppliers, with 16% indicating they have expanded the number of suppliers to manufacture their products. This also marks the second quarter of significant expansion in this area. However, while these levels do mark significant overall growth, a flattened growth rate coupled with missing the optimistic expectations expressed in the previous quarter shows that caution exists among North American sourcing professionals. Of particular note is the apparent lack of seeking alternative sources in the face of the Japan disaster, as well as fewer associated supply chain disruptions from Q4 ’10 (see Supply Chain Disruptions results below).
- While buyers indicate a slight drop in hiring over Q4 ’10 (down 3%), the significant increase in companies that maintained steady employment in the latest quarter (up 10% to 61%) shows a welcome stability among North American manufacturers. Still, this ‘holding pattern’ in manufacturing employment is likely a result of stated trepidation due to rising costs and concerns for inflation in the coming months.
- The number of buyers reporting significant supply chain disruptions jumped substantially by 5% (to 42%), matching numbers not seen since Q3 ’10. While any increase comes as no surprise in the face of the disruptions caused by the Japanese tragedies, it appears they have had less impact on overall supply chains in North America than expected.
- The number of buying manufacturers that report reshoring production to North America fell to its lowest levels in a year (17%, down from 25% in Q4 ’10). While companies reported in the press that are repatriating work to the US continue to gain attention, this drop likely is a result of sourcing and supply chain managers distracted to maintain sources disrupted by the disasters in Japan in Q1 ’11.
- For the first time in one year, fewer buyers indicate they will be investigating a reshoring strategy to repatriate production to North America from a low-cost country (27%, down from 32% in Q4 ’10). Some of these downward trends in significantly altering sourcing & supply chain strategies may be the result of a combination of the Japanese tragedies and concerns over rising fuel/logistics costs seen in Q1 ’11. But despite the drop in reshoring activity, the percentages of current and anticipated return of production to North America still represent remarkable movement.
- While responses regarding reshoring slipped in Q1 ’11, a very significant sampling (37%) of buyers indicate that their companies are exploring moving or establishing production of product closer to their market of consumption, regardless of location. This strategy may indicate an adoption of ‘lean and green’ tactics that reduce total costs of ownership, as well as reduce the carbon footprint for companies and their product lines.
- As expected, volatility in both supply chains (Japan) and logistics costs (oil) propelled Fuel Prices and Logistics to the top of the list of threats seen by supply chain and sourcing professionals in Q1 ’11. The Availability of Competent Suppliers and Product Quality remained high on the minds of these buyers, but they dropped in importance in the face of rising costs in managing extended supply chains. Factoring in Supplier Financial Health with the difficulties in locating competent sources and maintaining product quality shows a significant concern with overall supplier management for the third consecutive quarter.
- For the third straight quarter, small and medium supplier manufacturers have seen business conditions improve. This upward trend is encouraging, but their failure to expand this growth & confidence to hire more employees casts a pall over these improvements (see below).
- A disappointing drop in the number of small supplier manufacturers adding employees (26%) resulted in shedding the gains seen in Q4 ’10, when the highest percentage (31%) reported adding employees. This 5% drop is confusing since it coincides with stated improved business conditions, and may be attributed to rising costs for fuel, shipping, materials, and overall uncertainty regarding impending regulatory and tax adjustments.
- Despite the jump in numbers of buyers that reported experiencing significant supply chain disruptions, fewer small supplier manufacturers report receiving inquiries from buyers under duress. However, the 33% that have received such requests in Q1 ’11 represents a significant percentage, and it marks the 7th consecutive quarter that 1/3 or more of the reporting suppliers have encountered buyers seeking to overcome supply chain disruptions or supplier failure.
- In perhaps the single most encouraging result from the MFGWatch survey of manufacturers, 52% of supplier manufacturers report seeing increased overall quoting activity and requests from potential customers. Not only do these numbers support heightened business conditions for shops and plants; they also indicate improved overall business conditions at buy-side manufacturers and within overall North American manufacturing performance.
“Despite some slipping in the numbers, the numbers are still quite healthy and overall North American manufacturing continues to soar,” said Mitch Free, founder and CEO of MFG.com. “Employment could be stronger, but the business conditions seen on both the buyer and supplier sides of the equation are encouraging. Add to that the increased quoting opportunities and you have a recipe for great opportunity and growth. But inflation, rising costs and overall economic uncertainty could stifle growth, and these concerns could threaten what appears to be a fragile recovery.”
The latest MFGWatch survey represents responses from 1171 Supply-side manufacturers, Buy-side OEMs and sourcing professionals throughout North America. Respondents represent an array of industries, including automotive, aerospace, medical, industrial equipment, consumer products and textiles.
MFGWatch Survey of European Manufacturers
MFG.com has conducted its first MFGWatch survey of buyer and supplier manufacturers in Europe in the first quarter of 2011. A total of 2,288 manufacturers responded to the survey conducted in April. Highlights include:
- 36% of European buying manufacturers expect to expand the number of captive suppliers eligible to manufacture their products
- An extraordinary 52% experienced significant supply chain disruptions in Q1 ’11
- 36% of both buyer & supplier manufacturing companies added staff in Q1 ’11
- Buyers see Logistics & Shipping Costs (20%), Product Quality Compliance (19%) and Availability of Competent Suppliers (17%) as the 3 greatest risks to their supply chain strategies
- 14% of buyers returned production closer to Europe from a low cost country, while 19% report they will be researching similar strategies in the coming months. 31% say they are examining moving or establishing production closer to or within markets of consumption
- 21% of buyers say their supply chain strategies were impacted by the Japanese tragedies
- 57% of supplier manufacturers saw their businesses grow in Q1 ’11, and 53% have seen an increase in inquiries from customers and/or prospects
