Job Shops and Contract Manufacturers Hiring Up Significantly, Overall Manufacturing Business Conditions Improve
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 Manufacturers, covering the second quarter of 2011.
Product Manufacturers report supply chain disruptions have jumped to its highest level in a year (48%). Hiring at job shops and contract manufacturers rose significantly in the second quarter of 2011 (36% added jobs, up from 27% that predicted they would in Q1). Job shops and contract manufacturers are resistant to exporting to foreign markets. Only 15% say they will begin or increase exports, while the remaining 85% state they will maintain, decrease or avoid exporting altogether. Top Supply Chain Concerns Among Product Manufacturers: Logistics & shipping costs; volatile fuel/oil prices; finding competent suppliers top the recent survey. Each rose significantly as concerns from the previous quarter. Fewer North American product manufacturers report that they've reshored production from foreign supply sources. Job shops and contract manufacturers see much better business conditions than expected, up 9% from as predicted in Q1'11. Operating & shipping costs, access to capital and availability of qualified labor are seen as the top challenges by job shops and contract manufacturers.
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Other findings in North American manufacturing from Q2 '11 include:
North American product manufacturing companies continue to seek out new suppliers and expand their stables of supply-side resources. In Q2 '11, 45% of these companies expressed a need for new suppliers at the same levels as they've expressed historically (compared to 46% in the previous quarter). 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 economic instability in supplier businesses. Product manufacturers put their money where their mouths were in Q2 '11, by hiring at the same rate as predicted they would in Q1 '11 (32%). However, for the 7th consecutive quarter these same companies decreased their staffs significantly over expectations from the previous quarter (17% actual vs. 3% predicted).
While the gains in employment are encouraging, the consistent inability to accurately predict lay-offs since Q4 '09 also point to strong, volatility in companies and markets. The number of product manufacturers reporting significant supply chain disruptions jumped substantially (to 48%, up from 42% in Q1), matching numbers not seen since Q2 '10. Interestingly, this significant jump in supply chain disruptions comes at a time as supply chains were said to be stabilizing after the disasters in Japan earlier in the year. As a matter of fact, this figure is the second highest response percentage since MFGWatch began monitoring supply chain disruptions in Q3 '09. Fewer Canadian and US manufacturers report repatriating production into or closer to North America than at any time since Q1 '10, significantly off from the 27% that reported examining reshoring in the last quarter. If any response has been most affected by the crises in Japan in early 2011, it may be this one -- to shore up supply chains impacted by the Japanese disasters, it is likely that these companies focused attention on recovery based on familiar logistics channels in lieu of any reshoring plans. Still, this downward trend over the last 3 quarters presents a clear cooling down in the reshoring phenomenon entering into the last half of 2011.
Despite the cooling off of reshoring in Q2, the number of North American product manufacturing companies planning to reshore production in the coming months rose back to the average maintained since Q1 '10 and offsetting the downward trend established by companies that had actually repatriated work in the past 3 months. These consistent expectations present a startling 'churn' in the supply chain management and stability, and present a real opportunity for US and North American job shops and contract manufacturers. However, as the percentage of product manufacturers actually reshoring production to North America continues to fall each quarter it is still uncertain whether returning production is a trend gaining momentum or something less. Regardless of market location, a substantial number of North American product manufacturing companies are adopting strategies to produce within or closer to the markets in which they sell. With over a third of manufacturers pursuing this strategy (35%), this represents an important acceptance of a shifting global manufacturing environment based on a lower carbon footprint, reduced logistics costs, improved market response, and more manageable production and supply chains. Direct costs continue to dominate the concerns of North American product manufacturing professionals, with logistics (47%) and fuel costs (32%) at top-of-mind. But supplier availability (45%) and stability (18%) have risen significantly as major perceived risks to supply chain stability. Obviously, the impact of Japan has elevated these concerns -- results from upcoming surveys will determine if this appreciation is trending or temporary. North American product manufacturers appear to be hedging their bets in regard to near-term investments and expansion. While the overall majority of manufacturers have intentions to invest, those investments appear to focus more on technology and less on jobs/labor. And with a full 35% saying they're standing pat, they also appear to be taking a 'wait-and-see' approach as global economic uncertainties continue. North American job shops and contract manufacturers have reported significant improvements in business conditions.
While the latest responses show a slight drop (-3%) from the previous quarter, the 43% reporting positive business improvements maintains levels over 40% for the fifth straight quarter. In the most encouraging and surprising response in this MFGWatch survey, job shops and contract manufacturers report a level of hiring not seen since the survey was launched in Q3 '09. The 36% reporting they had increased staff also rebounds from the drop shown in the last quarter, when that number slipped from the previous high of 31% in Q4 '10. Interestingly, the number of supplier manufacturers indicating heightened activity from product manufacturers in distress stayed virtually the same from last quarter, despite strong fluctuations between quarters for product manufacturers suffering supply chain disruptions. Still, the consistent reporting from one-third of suppliers receiving solicitations from buyers under duress and seeking to overcome supply chain disruptions matches the strong business conditions reported by North American shops and plants.
While the number of suppliers reporting overall increased inquiries for business dropped to 43% (from 52% in the last quarter), nearly 80% in total say that inquiries rose or stayed the same in Q2 '11 -- indicating a welcome level of stability in sector that needs just that to continue its recovery. By large margins, job shops and contract manufacturers have expressed a reluctance to export or enter the global manufacturing ecosystem. Over half (52%) say they are not considering exporting products to other markets. And of those remaining, few are looking to expansion or growth into foreign markets. This lack of activity underlines the need to promote and encourage the opportunities exporting offers to smaller North American manufacturers, particularly in the face of record trade deficits. Despite indicating strong performance in hiring and overall business conditions in Q2, job shops and contract manufacturing companies in North America are showing a relatively strong reluctance to invest in the coming months. The likely cause of these contradictions is near-term economic instability and uncertainty.
"Small and mid-sized manufacturing in North America continues to do what it does best -- innovate and create jobs," says Mitch Free, founder and CEO of MFG.com. "Improved hiring numbers and improving business conditions go hand in hand. Add to this the obvious difficulties buying and sourcing companies are finding in managing extended, complex supply chains, and conditions are right for these bedrock manufacturing suppliers to lead the recovery. But there's risk in this recovery -- looming expansion of regulation, operating costs and the specter of rising taxes could impede this growth, and manufacturers are rightly reluctant to go 'all in' with regards to investments in technology and employment."
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 second MFGWatch survey of buyer and supplier manufacturers in Europe for the second quarter of 2011.
European supply-side manufacturers saw a significant contraction of business activity in Q2 '11, with 44% saying business conditions grew (down from 57% in Q1 '11) For the second quarter in a row, a remarkable 52% of buy-side manufacturers in Europe experienced significant supply chain disruptions in Q2 '11 Similarly, nearly half (49%) of European supply-side manufacturers reported they've received queries or actual work from companies under duress from supply chain disruptions, up 19% from Q1 '11 Employment among European manufacturers was mixed in Q2 '11. Nearly 47% of supply-side manufacturers added staff in Q2 '11, up 7% from the previous quarter. However, fewer sourcing manufacturers added staff during the same timeframe (31.4%, down from 36% in Q1 '11) For the second straight quarter, buyers see Logistics & Shipping Costs (20.8%), Product Quality Compliance (16.5%) and Availability of Competent Suppliers (12%) as the 3 greatest risks to their supply chain strategies Fewer buy-side manufacturers returned production closer to Europe from a low cost country, with only 12.6% reporting such activity (down from 14% in Q1). However, 34.2% say they are examining moving or establishing production closer to or within markets of consumption, up over 3% from the previous quarter Approximately 70% of both European buy-side & supply-side manufacturers report they intend to invest in technology, hiring of new staff, or a combination of both in Q3 '11