We are halfway through 2005, and my members, who are executives at manufacturing companies throughout Wisconsin and Illinois, are telling me that they are not confident about the economy and they are approaching things with cautious optimism.
Leading indicators keep plodding along on a mostly positive course, and it is hoped that this will continue.
A recent survey of our members was conducted to get a "reality check." I hoped to get clear trend lines on topics like sales, capital equipment, employees and health care. But it was a mixed bag. Even companies in the same industry, serving similar markets are reporting different results.
Survey participants shared some of their thoughts:
• "The ramp up in new business and the business from our current customers has increased more than we expected."
• "Steel continues to be priced higher than it should be. We expected that steel prices would have returned to 2003 levels by now."
• "Softening sales, the softening of the automotive industry and associated steel prices."
• "Activity in terms of new projects or quoting slowed late in the first quarter and is still lower than expected. There seems to be some reluctance to launch new products on the part of our customers."
• "Unbelievable increase in oil prices!"
• "A one-two punch: Steel surcharges were MUCH higher than anticipated, and are not coming down fast enough. Two: the steel suppliers are reaping the benefits with record profits! The market is out of balance with reality."
In January, 55 percent of our members reported they would be adding hourly employees during 2005, and that held true according to our recent survey.
The hiring of new employees and retaining the current workforce coincides directly with an increase in sales revenue. Our survey results show that 85 percent had an increase in sales. Even though sales have risen, profits have not increased at the same rate.
About 50 percent of the survey respondents bought capital equipment this year, and 25 percent plan to buy in the second half of the year. Capital equipment purchases are a sign of optimism in the manufacturing sector.
The areas of most concern remain pretty much unchanged … energy and oil, raw material (steel and resins in particular), China, health care and people.
Health care is a major issue … no surprise here. Most of our members planned for increases in their costs and, unfortunately, got it … anywhere from 5 to 25 percent. This was upsetting to some, because claims were down, and they hoped for that to reflect in lower costs … but it did not. No one reported a decrease in health care costs.
Here is a sample of what members had to say:
• "Even with the reduction in total covered employees, costs have risen."
• "I resent their attitudes and approach. We operate in a competitive world and must be responsive to our customers – they don’t."
There is a movement to exploring alternative health care plans …
• "Presently negotiating with modifications of the plan, e.g., higher deductible, cafeteria model etc."
• "Looking to implement HSA/HRA for 2006."
• "Changed from self-funded to GHC."
• "Although the increases have slowed slightly, there is still an unsustainable model of increases going forward. Need for national reforms on health care."
The bottom line is that change in the healthcare system has to be made …
• "Health care costs continue to increase and have a significant impact on our profitability."
When asked what manufacturers need to do to reach their goals for 2005, members responded with these key points …
• "Reduce the cost of raw material."
• "Technological upgrades for equipment and software."
• "Get the right people on the bus and get them trained in skill sets and leadership."
• "Continue to implement Lean Principles throughout the enterprise."
• "Consolidate operations to improve efficiencies."
• "Replace key people … realign markets."
• "Consciously positively moving our customer loyalty performance score."
• "Instilling a self-perpetuating ‘sense of urgency’ in everyone, everyday."
Despite the mixed results year-to-date, more than 80 percent of the survey respondents believe that things are positive, business is strong and goals will be reached and exceeded. Here is what some members had to say:
• "Overall, I feel very confident that we are moving in the right direction. We have increased business with a number of existing customers and have signed on two large new accounts. Attracting and retaining employees and increasing the expertise of the ones we have is challenging, but essential, to meet the increasing expectations of our customers. Competition is good and getting better all the time (globally and domestically)."
• "We are in an outstanding position right now to exceed all financial expectations. Our growth pattern has been significant and it’s time to regroup and revisit the Lean activities that are working for us."
• "Business is outstanding. We will meet our F’05 goals, and with the decisions being made by senior management (new products, new markets, leadership development/expectations), I’m optimistic that this trend will continue."
• "We have been very progressive and successful, and we have been really working hard with Lean the team concepts."
• "Incoming demand is very strong, but we still have difficulty maintaining profitability."
• "Business is strong and growing, with slight pressures coming from China."
• "Fairly confident in meeting goals – reasonably diversified in multiple markets with global presence in NA/ Europe and Asia."
• "We are more cautious about sales growth today than we were in January, yet still optimistic about growth. Foreign competition continues to erode our legacy core business, and new product introductions are beginning to take hold in the marketplace. Fewer small customers – bigger distributors dominate the marketplace."
• "Business is robust. We will exceed our plan at current run rates. The team is being strengthened with better talent and new blood. The economy must continue to stay healthy."
• "Rapid growth challenges us to add resources at the right time – adding them too soon is better than too late!"
The economy is moving in the right direction. Manufacturers, for the most part, are doing well through the application of Lean Principles. Although there is a sense of little control over the pricing of raw materials, some manufacturers have been able to pass price increases on.
Bright, talented, and well-trained people are key and manufacturers are hiring them. Today manufacturers are investing time and money into people with bottom line results.
So with fingers crossed, we cautiously move into the second half of the year. If all goes as expected (or hoped), 2005 should be a good year.
Linda Kiedrowski is the president of The Paranet Group Inc., an organization of high-level manufacturing company executives in Wisconsin and Illinois who are committed to continuous improvement.
July 8, 2005, Small Business Times, Milwaukee, WI
