Manufacturing

Article Dean Dorton

According to Leading Edge Alliance National Manufacturing Outlook Survey

We are excited to release the results from the 2017 Leading Edge Alliance (LEA Global) National Manufacturing Outlook Survey.

With more than 250 participants, this survey report contains the expectations and opinions of manufacturing executives in more than 20 states across the country producing a wide variety of products including industrial/machining, transportation/automotive, construction, food and beverage, and other products.

Results from the survey include:

  • 74% of small manufacturers and 69% of large manufacturers expect revenue to grow in 2017.
  • Manufacturers are more optimistic about their local/regional economies than the national or global economies.
  • The top priority for manufacturers in 2017 is “cutting operations costs.” However, high-growth manufacturing respondents are more focused on “research and development,” with 12% of high-growth respondents reinvesting more than 10% of annual revenue.
  • Labor continues to be a challenge for manufacturers with 67% of respondents expect labor costs to “increase” and an additional 7% expect labor costs to “increase significantly” in 2017.
  • Appropriate cost allocation and accurate and timely data will become required capabilities for successful businesses in the industry.
  • More manufacturers will be considering both sales and mergers in 2017, as well as strategic acquisitions.

U.S. manufacturing industry headwinds are significant and include both internal issues (such as high inventory-to-sales ratios), the cost of technology, labor shortages, and external issues like the price of raw materials and strength of the dollar.

Strategic manufacturers should have ongoing conversations with all of their advisors, including their accounting and tax provider, as to how to overcome these challenges and achieve their business goals.

View the Survey Results

For more information, contact Lance Mann at lmann@deandortonstg.wpenginepowered.com or Mike Harbold at mharbold@deandortonstg.wpenginepowered.com.

Article Dean Dorton

JPMorgan’s Global Manufacturing Purchasing Managers’ Index (PMI) is a measurement of economic health in the manufacturing sector that is produced through surveying private producers in several countries worldwide. An index figure of 50.0 indicates that the economy has remained unchanged. For April 2016, this rate was 50.1, indicating that the global manufacturing sector was nearly stagnant and new order levels were low.

In general, prices were higher in April 2016 than in previous months, which is a contributing factor to the stalling of growth in the manufacturing economy. The survey also noted a sharp decline in the PMI finished goods inventory index. Once inventory levels are more in line with sales levels, the index should begin to see an increase.
For more information on the survey results, see the internet links below.

Contact Lance Mann at lmann@deandortonstg.wpenginepowered.com for more information.

View Lance Mann’s Bio

Article Dean Dorton

According to the 2014 Report to the Nations on Occupational Fraud and Abuse, a study by the Association of Certified Fraud Examiners, the typical organization loses 5% of revenues to fraud each year and the median fraud loss in the manufacturing industry is $250,000. Billing schemes, corruption (kickbacks/conflicts of interest) and theft of non-cash assets are the most prevalent types of fraud in the manufacturing industry. Companies must be proactive in identifying and managing fraud risks that can be an expensive and potentially devastating drain on a company’s financial resources. A strong internal control environment will help you safeguard your assets and attract and retain capital by increasing the confidence investors, regulators, audit committee members and the general public have in the integrity of your organization’s financial reports.   We recommend that companies periodically consider having a fraud prevention checkup.

To determine the health of your internal control environment and the need for a fraud prevention checkup, answer the following questions:

  • Has your company ever performed a fraud risk assessment?
  • Are you setting a strong ethical tone in your organization that starts at the top?
  • Are you managing fraud risk through management review and monitoring of key metrics?
  • Do your employees know what to do if they observe unethical behavior (fraud, theft, safety concerns) and is there a mechanism in place to report concerns anonymously?
  • Do you have proper segregation of duties surrounding your cash disbursement and receipt processes?
  • Do you have proper controls in place to prevent and deter the misappropriation of inventory and fixed assets?
  • Do you have proper controls surrounding vendor management?
  • Do your employees have unusually close relationships with vendors or customers?
  • Do you have policies in place to restrict or require disclosure of related party relationships?
  • Do your employees understand what represents a conflict of interest?

Is it time for a fraud prevention checkup at your company? We have a team of Certified Fraud Examiners that can help. For more information on protecting your company’s assets, contact Nick Lynch at 859-425-7635 or nlynch@deandortonstg.wpenginepowered.com or Lance Mann at 502-566-1005 or lmann@deandortonstg.wpenginepowered.com.

View Lance Mann’s Bio

Article Dean Dorton

The U.S. Manufacturing PMI reading for December 2014, released in January, was 53.9, compared to 54.8 in November.   A PMI index reading above 50.0 indicates an increase or improvement on the prior month, while readings below 50.0 indicate a decrease.  While this latest information indicates a rise in manufacturing output, this reading for the last quarter of 2014 displays the weakest improvement since January 2014.

The main factor contributing to the weak expansion is uncertainty toward the global economy. Several manufacturers noted weak demand from the euro area and emerging markets compared to the relatively strong spending among domestic clients.

Despite the slow growth in the PMI reading, large (over 500 employees) and small (less than 100 employees) companies both continued to show growth in terms of output, new orders, and job creation during the last reading. New work increased throughout the month of December, ending the year with an expansion rate slightly higher than the 10-month low recorded in November.  Manufacturing payroll numbers also showed growth for the eighteenth straight month in December.

The sector that showed the greatest improvement was consumer goods, which was closely followed by intermediate goods.  The investment goods sector showed the slowest increase in output for all sectors, along with the weakest rise in payroll numbers.

Overall, the December PMI reading is positive for U.S. manufacturers.  The growth in output, employment, and new orders will continue to help the U.S. economy rebound from the losses experienced in prior years.

Chris Williamson, Chief Economist at Markit Economics, had this to say about the PMI data:

“The manufacturing sector saw growth of activity lose further momentum at the end of 2014, but that didn’t stop factories enjoying their best year since the recession. Even with the slowdown, the manufacturing output is rising at a robust pace. With factories keeping busy, higher production should help the overall economy remain on a firm upward growth trend in the fourth quarter, albeit with growth easing compared to the above-trend rates seen in the second and third quarters.”

“The big question of course is whether the pace of expansion will continue to weaken as we move into 2015. Companies are citing greater uncertainty about the outlook, especially in export markets, leading to some scaling back of expansion plans and a greater reluctance for customers to place orders compared to earlier in the year, which suggests a slowdown could become more entrenched unless demand revives.”

“In that respect, December saw growth of new orders lift slightly higher, suggesting the environment may already be starting to improve amid lower oil prices and a sustained flow of better than expected economic data in recent months, especially in relation to domestic employment and consumer spending. Even if global demand remains subdued, a buoyant domestic market should therefore help sustain factory growth in coming months.”

*********

PMI is a good report for many manufacturers to pay attention to as an economic indicator.  We recommend that companies consider comparing their own performance against the PMI to determine if the indicator is helpful in developing expectations for the future.  The PMI tracks many variables such as manufacturing output, new orders, stock levels, employment and prices in an effort to determine the current rate of expansion in the manufacturing, construction, retail and service sectors.  The manufacturing PMI is based on monthly surveys of over 600 companies in the United States. It can help your company in understanding the U.S. and global economic environment, which should be considered in strategic planning and growth strategies. Dean Dorton analyzes this index on a monthly basis to ensure we stay current on issues affecting our manufacturing clients.  If you would like assistance in creating a monthly reporting dashboard – please do let us know.

For more information on the PMI and to review the most recent figures, please visit the Markit Economics website.  A Dean Dorton manufacturing industry team member would be happy to discuss implications for your business.  For more information, please contact Lance Mann at lmann@deandortonstg.wpenginepowered.com.

View Lance Mann’s Bio