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Middle-Market Manufacturers Eye Increasing Competition, Material Costs with Caution

June 19, 2018, 08:01 AM
Filed Under: Economic Commentary

The business climate for manufacturing in the U.S. has markedly improved over the past few years, driving both revenue and employment growth for middle market manufacturers. But the industry is also experiencing a period of transformation that is both benefiting and challenging manufacturing companies nationwide. A new report from the National Center for the Middle Market (NCMM) and Chubb on the state of manufacturing in the U.S. finds that while many are optimistic about new opportunities for growth, 62 percent of companies rank increased competition and rising raw material costs as their top concerns, with potential trade tariffs adding to their worries.

According to the report, the onward march of globalization was cited most frequently as the number one factor impacting the competitive business environment. Additionally, increasing demands for expediency are affecting both ends of the supply chain, and technology is transforming what manufacturers make and how they make it.

"Manufacturing is an industry in flux. Middle market manufacturers are experiencing overlapping waves of change – more intense competition, rapid changes in manufacturing technology, the need to offer new kinds of products and services, and more – requiring them to rethink and retool their entire operations to stay competitive," said Thomas A. Stewart, Executive Director of NCMM. "This change presents opportunities for companies that can take advantage of this industry evolution, while it creates huge risks for those who are unprepared."

The report is based on interviews with 250 strategic and financial decision makers from middle market manufacturing companies between March 26 and April 6, 2018. The vast majority – 86 percent – say the business landscape is more competitive today than it was five years ago. Rising costs are also becoming a major challenge, especially for component part manufacturers.

In this new environment, companies that have switched from a product-only model to selling value-added services are benefiting most. In fact, four out of five of the fastest-growing middle market manufacturers report adding new services and solutions in order to remain connected with their customers and consumers in more ways and for a longer part of the product's life cycle.

Although making up only about one-quarter of the product mix, companies producing Internet of Things-compatible products have boasted faster revenue growth, and predict better growth in the future.

Technology is also transforming the manufacturing process. In the past year, manufacturers have invested heavily in automation, robotics and advanced manufacturing techniques, and 20 percent of companies now utilize smart technology wearables on the factory floor to measure environmental conditions and monitor vehicles, as well as employee location and movement.

These technological advances are viewed as positive changes by nearly all (90 percent) of manufacturers surveyed. But these advances come at a cost. Not only is there an increased need for capital, but it also exposes companies to greater cybersecurity risks. And nearly two-thirds of manufacturers say it is a significant challenge to find workers with the right technical skills.

"Along with opportunities comes risk," said Mike Williams, Chubb's EVP and Manufacturing Industry Practice Leader. "The advancement of technologies is causing the business environment to evolve at a rapid pace. It has never been more critical for companies to review their risk mitigation strategies and ensure they have responsive insurance solutions in place to address a range of potential gaps and exposures."

"Companies should look to work with a knowledgeable insurance advisor to assess specific needs of the organization and customize programs to include features, benefits and complementary services, such as crisis management, that can help ensure business continuity during an unanticipated event," Williams said.

"Transformation is currently defining the manufacturing industry and is undeniably creating a challenging environment. Companies that are succeeding are not overwhelmed by these changes, but are focused on understanding and embracing them," said Doug Farren, Managing Director of NCMM. "They recognize the risks but have demonstrated that the rewards of evolving their business far outweigh any down-side."

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