RSM McGladrey 2009 Manufacturing and Wholesale Distribution Survey finds companies optimistic about economic recovery

Companies are focusing on revenue growth to survive recession; those with international manufacturing activity fare better than domestic-only manufacturers

MINNEAPOLIS – (June 22, 2009) – RSM McGladrey, the nation’s fifth largest accounting, tax and business consulting firm, today released the results of its fourth annual Manufacturing and Wholesale Distribution (MWD) National Survey. Respondents to the survey say they expect their companies to rebound from the current recession beginning in late 2009 and early 2010. In general, companies predict an earlier rebound for their own businesses than for their industry or the U.S. economy.

The 2009 RSM McGladrey survey results did, however, indicate a significant year-over-year decline in the reported health of companies. Forty percent of companies reported their business as “declining” this year, as compared to 12 percent in 2008. Some industries appear to be faring better than others. Medical Devices and Food and Beverage executives, for example, reported favorable growth prospects and stronger-than-average business conditions, following a trend seen in previous years.

More than 920 manufacturing and wholesale distribution executives completed the survey, answering questions on topics such as current business conditions, growth strategies, operations, technology costs and risk management.

Businesses React to Recession by Reducing Costs, Capacity and Reliance on Bank Financing
“Executives are reporting tough business conditions and as a result they have taken direct actions to reduce costs,” said Tom Murphy, RSM McGladrey’s executive vice president of manufacturing and wholesale distribution. “The survey also found companies are responding to the current economic conditions by implementing lean principles and streamlining operations. This should make businesses stronger and more competitive as we climb out of the recession.”

The 2009 RSM McGladrey MWD survey finds that a significant number of companies are planning capacity modifications this year. Twenty-six percent plan to reduce capacity and 25 percent plan to consolidate operations, while only 15 percent plan to expand capacity.

As companies try to strengthen their balance sheets and offset the impact of tighter credit requirements, they are relying less on bank financing and more on cash flow as a primary means to fund capital expenditures.

Businesses Find Stability in Global Markets
Companies with global business activities are likely to fare better this year than companies focused only on domestic sales, according to survey results. Of the companies reporting sales declines for the year, only 37 percent expect declines for international markets, compared with 62 percent predicting sales declines for domestic markets. Correspondingly, sales increases are projected to be higher in international markets than domestic markets.

“The significant difference between anticipated domestic and international sales underscores the importance of pursuing international market opportunities. Survey analysis indicates that companies with global strategies benefit through improved margins,” says Murphy.

Revenue-Generating Strategies, Product Innovations and Minimal Supply Chain Disruptions Critical
“Companies can’t cost cut their way to growth,” Murphy noted. “With the recession slowing demand for products, companies recognize the need for topline revenue growth. This is reflected in their focus on revenue-generating growth strategies.”

The top four 2009 growth strategies cited in the survey were to acquire new customers, increase sales in domestic markets, increase sales to current customers and increase brand recognition.

Additionally, 95 percent of companies surveyed have plans to innovate products or processes, with new product development and product line extensions reported most frequently. Green initiatives are also a growing priority. More than half of the respondents have implemented or will implement green initiatives in 2009, with most (62 percent) reporting concern for the environment as the driving force behind such initiatives.

“Companies that innovate generate new revenue, improve differentiation from competitors and drive down costs. They also enhance their customers’ experience through better products, decreased lead times and lower costs,” says Murphy.

Survey results suggest executives feel they are at low risk of supply chain disruptions. This runs contrary to risk management theory, where the more complex a business process becomes, the higher the risks. With current inventories at low levels, companies need to ensure supplier disruptions are minimized.

Workforce Reductions Continue; Demand for Skilled Labor Remains
Workforce reductions have been widely reported, as companies cut costs to stay competitive in the current market conditions – a trend reflected in the 2009 RSM McGladrey MWD survey results. Approximately twice as many survey respondents (52 percent) plan reductions in their U.S. workforces in 2009 as did in 2008. However, the outlook for 2010 appears brighter, with only 11 percent of respondents projecting cuts in their U.S. workforces and 44 percent planning to add employees.

Despite the recession and reductions planned, survey respondents continue to struggle to find workers with the skills required by today’s advanced manufacturing environment. Engineers, manufacturing technicians, supervisors and entry-level workers are needed by around 30 percent of companies surveyed. Sales persons are in high demand, according to survey results, reflecting the revenue-generating growth strategies reported by company executives.

“The demand for skilled workers in the face of current levels of unemployment underscores the lack of technological skills in the current workforce. Companies need to partner with the educational community, government, industry associations and organizations to identify the necessary skill requirements and develop training programs to fill this gap,” says Murphy.

Red Flags, Missed Opportunities
RSM McGladrey’s 2009 MWD survey results yielded key opportunities for manufacturing and wholesale distribution companies.

• Tax Planning – Tax planning is a critical tool for companies seeking to manage cash flow. Although the tax planning strategies identified in the survey are available to companies of all sizes, less than half report taking advantage of allowable tax breaks.
• Information Technology – Ninety percent of companies consider information technology (IT) a critical component of business operations, yet 50 percent of companies are deferring costs to upgrade or enhance systems due to business conditions. This type of short term action may prevent companies from realizing the benefits IT systems can offer.
• Risk Management – Despite the critical role that risk management should play for companies in this economic environment – only 56 percent indicate they have a risk management function in place. In addition, enterprise-wide disaster recovery plans are in place at just 35 percent of the companies.

Research Methodology
RSM McGladrey’s 2009 Manufacturing and Wholesale Distribution National Survey was conducted from March 11 to April 13, 2009. The survey analysis includes the results of more than 920 executives and managers of U.S.-based manufacturing and wholesale distribution enterprises. The online survey was designed to assess the current state of the industry and to ascertain what steps CEOs, CFOs and other executives are taking to grow their business and stay competitive.

More information on the RSM McGladrey 2009 Manufacturing and Wholesale Distribution National Survey Report

About RSM McGladrey
RSM McGladrey is a leading professional services firm providing accounting, tax and business consulting. RSM McGladrey operates in an alternative practice structure with McGladrey & Pullen LLP, a partner-owned CPA firm that delivers audit and attest services. Through separate and independent legal entities, they work together to serve clients’ business needs. Together, the companies rank as the fifth largest U.S. provider of accounting, tax and business consulting services (source: Accounting Today), with close to 8,000 professionals and associates in nearly 100 offices. RSM McGladrey Inc. and McGladrey & Pullen LLP are member firms of RSM International, an affiliation of independent accounting and consulting firms. RSM McGladrey is the official accounting, tax and business consulting firm of The PGA of America.