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MFGWatch Survey: Employment Activity Uneven; Supply Chain Disruptions, Reshoring Activity Drop

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MFG.com has conducted the latest MFGWatch survey of North American manufacturers (select this link for the complete survey results and a downloadable PDF). The survey focused on their activities in the third quarter of 2010, and on their expectations for the fourth quarter. Nearly 1400 Buyer organizations and small/medium-sized manufacturers responded to the most recent MFGWatch survey.

MOJO's Take: North American manufacturers say they may be seeing higher margins resulting from uplift following deep cuts in labor, but they aren't rushing to rehire - at least not to the levels any of us would like to see. And this is while 40% report growth in their businesses. Uncertainty appears to rule the day in US manufacturing, as the enormity of the deficit, austerity actions, an unstable EU, a stubborn housing market and the impact of potential costs via government reform begin to sink in.

Highlights of the most recent survey involved employment, supply chain disruption and the reshoring of production from low-cost countries back to the U.S.

  • Employment at large North American manufacturers rose slightly in the 3rd quarter. However, more cut jobs than anticipated in the previous quarter.
  • Small & medium manufacturers report flat employment activity from the previous quarter.
  • At the same time, a consistent number of small & medium sized manufacturers from previous MFGWatch surveys stated that their businesses are growing which, when married with their employment activity indicates uncertainty regarding current economic conditions, government policy and future opportunity.
  • The number of large buying manufacturers experiencing a significant supply chain disruption dropped by over 10% in the most recent quarter. This is the first decrease after rising for 4 straight quarters. The number of small supplier manufacturers reporting they had been contacted by a buyer under durress & seeking an alternative source also fell.
  • Large North American manufacturers indicating that they have brought production back from low-cost countries remained relatively constant from the last quarter, as did the number that say they will investigate repatriating production in the next quarter.

Here are more details and analysis from the most recent survey:

Asked of BUYERS (Large North American Manufacturers)

How has/will your company adjust staff?

Analysis: North American Buyers in Q2 ’10, appear to have reverted to the employment activity numbers of Q3 ’09, with 23% indicating they’ve decreased staff at their companies (compared to just 10% in Q1). The number of these companies that increased staff in Q2 fell to 20% from 27% in Q1.

In the past 3 months, has your company experienced a significant supply chain disruption that caused you to investigate or select new suppliers?

Analysis: For the first time since Q3 ’09, fewer Large Manufacturers in North America have experienced a significant supply chain disruption than from the previous quarter. The 40% that stated they’d experienced those disruptions represents a significant drop from the previous quarter (51%); however, 40% still represents a significant level of risk and pressure on spend and supply chain management resources across industries.

MOJO's Take: Call this wild supposition, but it may be possible that this drop in reported supply chain disruption may be seasonal. In other words, in the heat of the moment of managing demand chains to stock shelves and inventories for the holiday seasons, is it possible that large manufacturers are willing to accept quality or delivery challenges that would not otherwise at less hectic times of the year? This will be an interesting point to trend through future MFGWatch surveys in 2011.

In the past 3 months, has your company returned any portion of its production into or closer to North America from a low-cost country?

Analysis: The number of Large North American Manufacturers that have repatriated production from low-cost countries – 19% – is only slightly less than those from the previous quarter (21%). However, while this percentage still represents a significant increase from Q1 ’10 (12%), recent trade and other economic policies put in place should impact these figures in the first 2 quarters of ’11. Also worthy of note are imminent economic policies related to the reduction of the U.S. deficit and their impact on business conditions.

In the next 3 months, will your company be researching bringing any portion of its production into or closer to North America from a low-cost country?

Analysis: Fewer North American OEMs & Large Manufacturers say that they expect to research bringing production closer to North America in the coming months (33%, compared to 38% in Q2 ’10). While this drop represents the most dramatic shift of the year, the 33% is still larger than the 31% of respondents seen in Q1 ‘10.

Asked of SUPPLIERS (Small/Medium Sized North American Manufacturers)

How has/will your company adjust staff?

Analysis: In alignment with contracting business conditions (see MFGWatch Report page), Small/Medium Manufacturers state that they are not hiring. Employment in this sector remained virtually the same in Q3 ’10, with 26% adding jobs (compared with 29% in the previous quarter) and 18% reducing headcount in both Q2 and Q3. However realities trumped expectations, as only 5% predicted staff reductions prior to this most recent MFGWatch survey.

In the past 3 months has your company received queries or actual work from companies suffering from supply chain disruptions and in need of immediate assistance?

Analysis: North American Suppliers in Q3 ’10 reported less activity from larger sourcing manufacturers under duress from supply chain disruptions than in the previous quarter (37% and 42% respectively). These responses are in line with Large North American Manufacturers’ lower reported incidents of actual disruptions. However, the most recent 37% virtually matches the levels reported in the same quarter of ’09.

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