As concerns about a potential recession are subsiding in early 2024 and the economy continues to experience better-than-expected growth, manufacturers’ optimism of business prospects over the next six months has increased, according to a new industry report. The latest Sikich Industry Pulse found that manufacturing executives rated their optimism an average of 7.07 on a scale of one to 10 – the highest rating since June 2021, when manufacturers were coming out of the COVID-19 pandemic slump. In comparison, executives’ optimism averaged at 6.76 on a scale of one to 10 in August 2023.
Two factors in the increase in optimism across the industry are an increase in customer demand and a decrease in labor challenges. While four in 10 respondents noted increasing customer demand in August 2023, more than half (51%) of manufacturers attributed their positive outlook to increasing demand in 2024. At the same time, labor shortages and costs have less of an impact on manufacturers’ outlook, with only 18% and 15% of respondents noting these factors as a challenge, compared to 25% and 24% in August 2023.
“Ongoing concerns about the economy have plagued manufacturers for the past few years; it’s great to see those concerns begin to lessen,” said Jerry Murphy, partner-in-charge of manufacturing and distribution services at Sikich. “Now is an ideal time for executives to prioritize growth initiatives. Upgrading technology and facilities, upskilling workforces, and executing business transformation projects will set manufacturers up for long-term success.”
Operational efficiency projects on the rise
Seventy-six percent of manufacturers implemented one or more operational efficiency projects in the past three years, and three out of four respondents to Sikich’s Industry Pulse survey are planning an operational efficiency project in 2024. These projects help manufacturers reduce costs (as reported by 58% of respondents), better measure results, eliminate rework and more.
Of the organizational efficiency projects planned for 2024:
- 33% are organizational redesigns
- 23% are Kaizen events
- 22% are implementations of robotic process automation
Further, 9% of manufacturers are planning a reduction in force in 2024. This is up 3% from March 2023, when 6% of manufacturers were planning a reduction in headcount.
“Organizational redesign and Kaizen events are great tools for manufacturers to improve processes and add efficiency,” said Jenny Massey, director of site selection and business incentives at Sikich. “One under-utilized efficiency project manufacturers should consider is conducting an analysis of incentives and tax credits available in their current location. Only 9% of manufacturers are considering moving facilities this year. By strategically assessing and optimizing available incentives, manufacturers can potentially reduce operational costs and enhance their competitive position without the need for relocating to lower-cost areas. However, if a company is considering relocation, substantial incentives may be available in the form of real or personal property tax abatements and should certainly be investigated.”
Eighteen percent of manufacturers that moved locations in the past three years saw savings of $750,000+ and 27% of companies that moved saw savings ranging from $500,000 to $750,000.
Sikich surveys manufacturers and distributors multiple times throughout the year on a range of business topics to create industry benchmark data. In February, Sikich surveyed more than 100 executives from manufacturing and distribution companies across sectors including industrial equipment, wholesale and distribution, metal fabrication, food and beverage, apparel, footwear and textiles, and transportation. View the latest Sikich Industry Pulse: Manufacturing and Distribution report here.
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Tags: Small Business
