Q3 MFGWatch Results Announced: Quarterly Survey of North American and European Manufacturers

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North American Manufacturers See Business Conditions Improve, But Investments In Technology Outweigh Hiring. Supply Chain Disruptions Continue To Plague Product Manufacturers. European Manufacturers Are Feeling The Economic Fallout.

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It’s encouraging to see manufacturing lead the way to prosperity. There’s no surprise there – manufacturing is where tangible wealth is created.

MFG.com, the largest global sourcing marketplace for the manufacturing industry, today announced the results of their latest two-part MFGWatch Quarterly Survey of North American & EMEA Manufacturers, covering the third quarter of 2011.

Among the highlights of the Q3 2011 MFGWatch Survey of North American Manufacturers:

  •     Product manufacturers (Buyers) as well as Job Shops and Contract Manufacturers (Suppliers) reported growth in company sales in Q3’11.
  •     Hiring in the Manufacturing sector increased in Q3’11. However, when creating jobs; more manufacturers invested in technology before jobs.
  •     Job Shops and Contract Manufacturers seem to be resistant to exporting to foreign markets. Fewer in Q3’11 say they will begin or increase exports in Q4'11.
  •     Top Supply Chain Concern: Operating costs.
  •     Reshoring and nearshoring activity contracted significantly among North American product manufacturers.
  •     Significant supply chain disruptions continued to plague buy-side product manufacturers, while feeding opportunity to job shops and contract manufacturers from buyers under duress.

(To download a copy of MFGWatch report, visit http://www.mfg.com/en/mfgwatch)

Other findings in North American manufacturing from Q3 2011 include:

  •     North American buy-side product manufacturing companies have shown a surprising resilience through the 3rd quarter of 2011, with a full 7% more companies indicating growth in sales.
  •     North American buy-side product manufacturing companies continued to seek out new suppliers and expand their stables of supply-side resources. The consistency in these responses since the inception of the MFGWatch survey suggests an instability in the supplier markets due to fewer options, logistics costs and shifts in supply chain strategies. Still, the recurring theme of seeking out new sources – along with more manufacturers maintaining their supplier sources (up 11%) bodes well for the North American Supply-side manufacturing base.
  •     Buy-side product manufacturers saw a rise in employment in Q3’11, beating last quarter by 1%. There was also a decline (5%) in product manufacturers reporting staff reductions. However, more manufacturers in Q3 expressed no change in staff indicating a level of uncertainty in the national and global economies, especially when compared to the number of manufacturers that report growth in their businesses.
  •     The number of buy-side product manufacturing companies reporting significant supply chain disruptions fell slightly from Q2’11 (to 44% from 48%), while those reporting no disruptions jumped 5%. Supply chains seem to have stabilized somewhat from last quarter’s record. However, 44% indicates a remarkable level of companies mitigating significant risk or disruptions as part of their ‘normal’ supply chain management activities. (In 6 of the past 9 MFGWatch surveys, significant supply chain disruptions have been reported by over 40% of product manufacturers.)
  •     More North American product manufacturing companies report reshoring or nearshoring production closer than they did in Q2’11 (19%, up 4%). This uptick brings the percentage of reshoring or nearshoring companies back to just above MFGWatch averages (an average of 18% have reported reshoring activity over the past 7 quarters). In Q2'11 we asked product manufacturers if they were planning to investigate reshoring or nearshoring initiatives in the 3rd quarter. 31% said they would but in Q3 only 19% actually did. Reshoring or repatriation of production is clearly noticeable, but hardly a trend to offset offshored production.
  •     The number of North American manufacturing companies that expect to repatriate production from low-cost countries fell to the lowest levels since Q1’10, and well below the historical average of 31% over the past 7 quarters. While a quarter of companies represents a potentially large volume of activity, those companies that actually institute near- or reshoring policies or strategies have not manifested themselves to the levels projected in previous quarters since the inception of MFGWatch.
  •     A substantial number of North American product manufacturers are adopting strategies to produce within the markets in which they sell. With nearly a third of manufacturers pursuing this strategy (32%), this represents an important acceptance of a shifting global manufacturing environment. And when combined with the responses for reshoring activity, it is clear that North American product manufacturers are investigating supply chain alternatives – albeit at lower volume heading into the end of 2011.
  •     Indirect costs continue to dominate the concerns of North American buy-side product manufacturing companies, with logistics and fuel costs of most concern. But supplier health and product quality continue as major risks to supply chain stability as well. While residual supply chain risk from the Japanese remains, the consistency across these topics makes us believe that they represent intrinsic concerns in managing any extended supply chain vs. effects from a single event.
  •     North American product manufacturers appear to be improving their investment intentions for the coming months, as fewer state they’re taking a ‘wait and see’ approach to expansion. Technology seems to be a clearer winner for their investments over employment, echoing similar sentiments expressed in Q2’11.
  •     North American supply-side job shops and contract manufacturers continue to gain steam, but that progress is tempered slightly by some contraction in sales. Growth was reported by 3% more manufacturers in Q3’11 than in Q2, reporting positive business improvements at levels over 40% for the sixth straight quarter.
  •     While less hiring occurred among North American job shop and contract manufacturers in Q3’11, the 31% that reported adding staff is higher than the MFGWatch historical average of 28%, and significantly higher than the low of 10% in Q4’09. This indicates a level of stability and momentum in the businesses and relationships of job shops and contract manufacturers.
  •     The significant supply chain disruptions reported consistently by North American buy-side product manufacturers continue to manifest themselves in the business queries reported by suppliers. The 40% indicating they’ve been contacted by buyers in distress represents the second highest percentage reported over 9 quarters (and since Q2’10), and well above the MFGWatch historical average for this category (37%). Also of note, the 46% of suppliers that report no activity from buyers under duress is the lowest since the inception of MFGWatch.
  •     North American job shop and contract manufacturers report a similar increase in overall quoting inquiry activities in Q3’11 as the previous quarter. In contrast, there was a decline in the number of manufacturers reporting a decrease in inquiries by 3%. However, the 43% reporting heightened prospective business is well below the 52% with similar observations in Q1’11. Nevertheless, combined with the increase in activity from buyers under duress, business potential remains strong for suppliers heading into the end of 2011.
  •     By large margins, job shops and contract manufacturers continue to show a reluctance to export or enter the global manufacturing ecosystem. For the second quarter, well over half (55%, up 3% from last quarter) say they are not considering exporting products to other markets. This lack of motivation indicates a significant comfort level in remaining in continental rather than international markets, and underscores the level of support or encouragement they will need to enter those other markets.
  •     Operating costs continue to dominate job shop and contract manufacturing business’ concerns going into the final stretch of 2011. But government regulations and finding qualified talent to feed their shopfloors have risen in Q3’11 to significant levels (16% & 14%, respectively). Interestingly, for the second consecutive quarter, the impact of the US budget deficit registers very low on the list of concerns to supply-side manufacturers.
  •     While their buy-side counterparts and customers are showing increased intentions to invest, job shops and contract manufacturers in North America remain in a ‘holding pattern’ toward investment, particularly where employment is concerned. This inactivity is likely due to uncertainty around the economy and rising operating costs.

“It’s encouraging to see manufacturing lead the way to prosperity. There’s no surprise there – manufacturing is where tangible wealth is created,” said Mitch Free, founder and CEO of MFG.com. “There’s no doubt that business conditions are improving, but uncertainty is holding back the part of the economy we need most right now.”

The latest MFGWatch survey represents responses from 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 third MFGWatch survey of buyer and supplier manufacturers in Europe for the third quarter of 2011. Highlights include:

  •     European supply-side manufacturers continued to see a dramatic contraction of their businesses in Q3’11. Only 35% report business growth in the most recent MFGWatch survey, compared to 44% in Q2’11. Also, 34% of suppliers report their businesses have contracted, up from 18% in the previous quarter.
  •     Conversely, buy-side manufacturers in Europe report the same souring business conditions as their supply-side counterparts. European sourcing manufacturers reporting growth in their businesses fell from 44% to 27% in Q3’11, while those indicating contraction rose from 16% to 30% over the same period.
  •     The percentage of European buy-side manufacturers reporting significant supply chain disruptions fell a staggering 16%, from 52% to 36% in Q3’11, likely due to cooling business and economic conditions in the EU.
  •     Employment among European manufacturers has begun to reflect the weakening economic landscape, with both buy-side and supplier manufacturers hiring less and laying off more employees. Among supply-side manufacturers, 13% fewer added jobs while a notable 13% more shed jobs (20%, up from 3% in Q2’11). While not as dramatic, sourcing manufacturers also saw employment dwindle - with 27% adding jobs (down from 31%) and 18% decreasing payroll (up from 9% in Q2’11).
  •     While operating costs still remain near the top of the list of concerns to both buy-side and supplier manufacturers, both rising taxes and access to capital have emerged rapidly as the greatest concerns to the European manufacturing base.
  •     Unlike their North American counterparts, European supply-side manufacturers show a much stronger inclination toward exporting to international markets. 32% of these manufacturers report they will look to increase exports to foreign markets, up from 23% in the previous quarter. Also, the percentage reporting they are not considering exporting fell to 19% from 26% in Q2’11.
  •     And in the most telling results that point to the worsening European economic conditions, both buy-side and supplier manufacturers state they will neither invest in technology or hiring in the coming months. Among sourcing manufacturers, 39% say they will make no investments (up from 31% in the previous quarter), while 37% of supplier manufacturers state they will make no investments (up from 25% in Q2’11).

About MFG.com:

MFG.com is the largest global sourcing marketplace for the manufacturing industry. MFG.com's platform enables companies to intelligently connect, source, collaborate and perform due diligence with transparency and intellectual property protection. MFG.com has the largest vetted supplier database comprising machine shops, fabricators, injection molders and contract manufacturers around the globe. MFG.com supports virtually all manufacturing processes required to go from drawings to parts including Machining, Injection Molding, Fabrication, Stamping, Casting, Assembly, Molding and Industrial Components. MFG.com facilitates the sourcing of billions of dollars worth of manufacturing each month between members in 50 countries. MFG.com is based in Atlanta and has regional headquarters in Shanghai and Paris. For more information: http://www.MFG.com.

About MFGWatch:

MFG.com conducts its MFGWatch survey as a quarterly snapshot of the North American and European manufacturing ecosystem. MFGWatch is based on separate but correlative input from the online marketplace’s membership of manufacturing Buyers and their Suppliers. For graphics and a complete report for downloading, visit http://www.MFG.com/en/mfgwatch.


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