“Today, we’re seeing that despite an increasing set of cost challenges, manufacturers are realigning their business models to prioritize top-line growth.” –Jeff Dobbs, global head of diversified industrials and partner with consulting firm KPMG
It would be a heartening trend for truckers if manufacturers follow through on what they told global consulting firm KPMG in a recent survey: to wit, despite the sluggish global economy and a myriad of other business challenges, many plan to from their previous emphasis on cost containment to focus on top-line growth as a priority over the next two years.
In sum, that means investing in new processes and new tooling to produce new and better products – all of which could lead to more freight volumes in the trucking space.
“Many companies emerged from the 2008-2010 [economic] downturn with significantly reduced cost structures, more cash and liquidity, and a laser focus on their customers and markets,” noted Jeff Dobbs, global head of diversified industrials and partner with KPMG.
“These 'survivors' have the mindset and strategy to define the standard of success in the next five years,” he added. “Companies have learned they can survive the challenges of economic uncertainty, political instability, and historic natural disasters with lean agile operating structures, enhanced risk management practices, and a focus on innovation.”
KPMG’s annual survey of 220 manufacturing executives – dubbed the 2011 Global Manufacturing Outlook – polls global companies with at least US$1 billion in revenue. Out of that 220, some 61 are U.S. manufacturing executives and KPMG found them in particularly to be “cautiously optimistic” on near term prospects – with many preparing to make capacity investments so as to capitalize on any market improvements.
Looking at their top priorities, 26% of the U.S. executives surveyed by KPMG said they will focus on top-line growth, followed by 13% focusing on research and development (R&D) plus innovation, with 12% indicating customer relationships.
By contrast, over the previous two years, U.S. executives were most focused on cost containment, followed by customer relationships and process efficiencies/shared services. Now, a whopping 79% of those U.S. manufacturing executives polled by KPMG say they’re either "very optimistic" or just "optimistic" about their company's business outlook for the next two years.
OK, so HOW do manufacturers plan to grow? Well, while 39% of them expect growth through mergers and acquisitions (M&A), joint ventures and alliances, a significant chunk -- some 30% -- plan do grow through increased production capacity, mainly in what they call “high-growth” markets.
U.S. respondents, however, cite increased production capacity (36%) as their top growth pathway, followed by M&A, joint ventures and strategic alliances (31%), research and development (23%), and new sales offices (10%).
When asked to compare the primary focus areas of their growth strategies in the next two years with the two previous years, Dobbs said KPMG’s survey revealed a significant shift in focus: 56% of global manufacturers are planning to sell new products in new and existing markets over the next two years, up from 37% in last year’s poll.
And where will the raw materials be coming from? [Stuff that’s now been branded with the exceedingly dull term “sourcing components”] KPMG said China will remain the leading “sourcing destination” for global manufacturers [thus the leading source of “raw materials,” which I think sounds better], while the U.S. nabs second place, followed by India, the United Kingdom and Brazil.
All of that’s big deal for a couple of reasons. First, to sell new products into either new or existing markets, you’ve got to TRANSPORT them to those markets … and thus we get freight volume increases.
Second, to MAKE all those products, you need lots of raw materials … and thus you need transportation services to bring said materials to your factory. And, thus again, we get freight volume increases.
There’s another side to this growth coin, too, that the transportation sector could really benefit from: a focus by global manufacturers on reshaping their supply chains.
To better manage volatility, 56% of manufacturers surveyed by KPMG said they are reshaping their supply chain models, with “standardization” as one of their key strategies. Some 55% of manufacturers polled by the consulting firm said they plan to standardize their production process, while 45% will require standardized inputs. Further, just over 40% said they will focus on cost reduction through a shortening of the overall product development life cycle.
Here’s another goodie: Nearly half of the respondents to KPMG’s annual survey said they will invest in technology to improve visibility across the supply chain, which they consider to be the single most important tool for managing risk. Again, this benefits the transportation sector.
Now, of course, all of these wonder pronouncements are just that – pronouncements, or, in other words, “just talk.” If – and only if manufacturers – start acting on these plans, will we see an uptick in freight. Still, it’s nice to know growth plans are afoot that could create a nice bump up in tonnage that manufacturers will need truckers to haul.