December 1996 € Volume 6 € Number 12

Real World

Midsize manufacturers foresee higher orders, profits in 1997

U.S. manufacturers, remaining upbeat about the nation's economy, anticipate robust product demand and profits for the coming year, according to a national study by Grant Thornton LLP.

In interviews with 253 top executives from manufacturing companies with annual sales of $10 million to $500 million, Grant Thornton learned the following:

• Two-thirds (66 percent) of manufacturers say they are optimistic about the economy as a whole.
• Six manufacturers in 10 (61 percent) say their companies' 1996 profits will increase. Slightly more (68 percent) expect earnings to escalate next year.
• Healthy customer demand for recent and projected product orders appears to be driving manufacturers' buoyant outlook. Nearly six manufacturers in 10 (57 percent) report that orders for their products increased in the third quarter of this year. Looking to 1997, 71 percent of manufacturing executives predict that sales will surpass those levels.

Although the future is never certain, few midsize manufacturers believe a recession is imminent, the survey shows. Only 15 percent say the U.S. will enter into a recession in the next 12 months, while another 27 percent foresee a slowdown within the next two years.

Manufacturing MRO survey

More than 25 percent of U.S. companies in manufacturing-related industries plan to reengineer the way they obtain maintenance, repair, and operating (MRO) supplies, according to a W.W. Grainger Inc. nationwide survey of 300 functional MRO decision makers at all sized U.S. companies.

One way companies are reducing complexity is by reducing the number of MRO suppliers used, according to one-third of survey respondents. Almost half the survey respondents from manufacturing companies had 10 or more MRO suppliers.

Other likely actions cited by respondents were changes in inventory methods (20 percent), changes in internal staffing (14 percent), and upgrades in technology (14 percent).

Manufacturers have made progress in reducing their total number of MRO suppliers. About 20 percent said they've decreased suppliers over the past two years. Despite such improvements, a third of the respondents still have plans to reduce the number of MRO suppliers they use.

The survey also states that when choosing MRO item suppliers, purchasing decision makers are looking for three critical criteria:

• Quality customer service (rated very important by 88 percent)
• Order accuracy (88 percent)
• Billing accuracy (86 percent)

Interestingly, respondents in manufacturing-related industries placed more importance on the following criteria than did their counterparts in service companies:

• Geographic capabilities (50 percent in manufacturing-related industries rated very important vs. 40 percent in service companies)
• Breadth and depth of product lines (51 percent vs. 35 percent)
• Billing system compatibility (50 percent vs. 33 percent)