Manufacturing and Wholesale Distribution Survey finds companies cautious but ready for growth

McGladrey, one of the nation’s leading assurance, tax and consulting firms, has released the results from its 2010 Manufacturing and Wholesale Distribution (MWD) National Survey. More than 1,060 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.

Cautious Optimism

Respondents to the survey say they are seeing signs of an improving economy and have begun to increase growth through innovation, capacity expansion, and a focus on existing customers.

At the same time, company leaders remain concerned about credit availability, increasing healthcare costs, and the uncertainty of recent and pending legislation and future tax increases.

Capacity Expansion

This year’s survey shows that 30 percent of companies are expanding capacity which is twice the number of the 2009 survey.  Only 8 percent plan to reduce capacity compared to 26 percent in 2009. Capacity expansion will primarily relate to increasing sales to existing customers rather than new customers. In prior year surveys, new customers have been the focus for growth. This indicates overall economic improvement but also is a response to significant inventory and capacity reductions in 2008 and 2009.

Innovation Remains Important

“In the 2010 survey, 95 percent of businesses say they are investing in innovation activities, with new product development and product line extensions leading the way,” says Tom Murphy, McGladrey’s executive vice president of manufacturing and wholesale distribution.

All companies, regardless of size, place significant emphasis on innovation, specifically new product development. The most challenging element is “rapid implementation from concept to market.”

Concerns over Health Care

While it is too early to evaluate the effect of health care reform, companies expect near-term costs to continue upward.  Ninety-four percent say they are “very concerned” or “somewhat concerned” about how health care policy will affect their companies.

Even without the effect of this legislation, over half of the survey respondents say they expect health insurance costs to increase at least 10 percent this year. The most used effective cost reduction strategy in this instance is to pass costs down to employees. However, according to Murphy, “smaller companies are taking a stand against passing health care cost increases to their workers.”

Unfortunately, many of these concerns and uncertainties aren’t expected to be relieved anytime soon since the most significant aspects of health care reform aren’t expected to be fully implemented until 2013.

Tax Savings Strategies Underutilized

Many companies are not taking full advantage of federal, state, local, and international tax planning tools.

The most significant strategies that continue to be underutilized are the federal research and development tax credits and the domestic manufacturers’ deduction (DMD). Another strategy is cost segregation studies which provides companies with the opportunity to separately depreciate certain assets associated with a building more quickly. Only 19 percent of 2010 respondents have used this strategy.

At the state and local tax (SALT) level, manufacturers report greater use of tax planning strategies. Apportionment planning was mentioned as a useful strategy that is being used. Tax strategies should be reviewed at least annually in order to maximize tax savings available for your company.

Opportunities and Other Concerns

McGladrey’s 2010 MWD survey results yielded other key opportunities and concerns for manufacturing and wholesale distribution companies.

Sales Growth – Domestic sales are expected to improve at a greater rate than international sales for 2010. However, strategic advantages will be gained if companies continue to improve sales in global markets.

Going Green – Most companies surveyed say that although they have increased their production of “green” products, the profitability of those products is not known. Developing performance measurement techniques by product is becoming increasingly important.

Employment – U.S companies have increased hiring since 2009. As a result, companies will need to carefully determine how to attract and retain high performers. With an increase in demand, employers need to be selective in order to increase productivity while increasing in costs.

For More Information

For more information or to receive a copy of the RSM McGladrey 2010 Manufacturing and Wholesale Distribution National Survey Report, e-mail your request to bkennedy@hsccpa.com or call 812-464-9161.

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