state of the industry update andhow thriving companies succeed

© 2012 McGladrey LLP. All Rights Reserved.© 2014 McGladrey LLP. All Rights Reserved.© 2012 McGladrey LLP. All Rights Reserved.© 2014 McGladrey LLP. All Rights Reserved.

2014 McGladrey Manufacturing &

Distribution Monitor

© 2013 McGladrey LLP. All Rights Reserved.

September 10, 2014

Global Automation and Manufacturing Summit State of the Industry Update and

How Thriving Companies Succeed

© 2012 McGladrey LLP. All Rights Reserved.© 2014 McGladrey LLP. All Rights Reserved.

About McGladrey

Founded in 1926

Largest provider of accounting, tax and business consulting services in the U.S. focused on the middle market

Serve more than 8,000 mid-size manufacturers and distributors across the country

U.S.: 75 offices, with 6,700 professionals

Worldwide: Offices in 100 countries, with 32,000 professionals

2


2012 2013 2014

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%Real Gross Domestic Product

(Chained 2005 Dollars)

Real GDP Forecast:↑ 1.9% (2013)↑ 1.6% (2014)↑ 3.0% (2015)

Source: Bureau of Economic Analysis, NAM calculations using Moody’s Analytics simulation model

Real GDP


Mining

Utilities

Wholesale Trade

Finance, Insurance, Real Estate, Rental, and Leasing

Professional and Business Services

Arts, Entertainment, Recreation, Accommodation, and Food Services

Retail Trade

Government

Other Services, Except Government

Educational Services, Health Care, and Social Assistance

Information

Construction

Transportation and Warehousing

Agriculture, Forestry, Fishing, and Hunting

Manufacturing

$0.46

$0.54

$0.54

$0.57

$0.62

$0.63

$0.66

$0.69

$0.69

$0.72

$0.80

$0.86

$0.99

$1.11

$1.32

Indirect Economic Activity Generated by $1 of Sector GDP

Source: Bureau of Economic Analysis, 2012 Annual Input-Output Tables

Manufacturing’s multiplier effect


2008 2009 2010 2011 2012 2013 20146

7

8

9

10

11

12

13

14

4%

5%

6%

7%

8%

9%

10%

11%

Durable Goods Nondurable Goods Unemployment Rate

Millionsof Workers

Unemployment Rate

Source: Bureau of Labor Statistics

Employment situation


Furniture and related productsPetroleum and coal products

ChemicalsNonmetallic mineral products

Miscellaneous durable goods manufacturingFood manufacturing

Electrical equipment and appliancesWood products

Miscellaneous nondurable goods manufacturingPlastics and rubber products

Primary metalsMachinery

Fabricated metal productsTransportation equipment

2.52.5

7.98.79.9

18.421.021.425.1

52.352.7

151.9194.2

231.9

Manufacturing Sectors with the Largest Net Employment Gains YTD, in Thousands of

Employees(December 2009 to June 2014)


Largest net employee gains


LouisianaNorth Carolina

MissouriColorado

UtahIllinois

OregonFlorida

IowaGeorgia

KentuckyTennesseeMinnesota

South CarolinaWashington

WisconsinOhio

IndianaTexas

Michigan

9.111.312.612.612.713.815.215.917.318.8

20.724.525.626.7

29.441.0

63.066.3

76.8107.4

December 2009 to June 2014(in Thousands of Workers)


Top 20 states for manufacturing job creation


Manufacturing Jobs Offer Greater Compensation

9

Manufacturing Non-Manufactur-ing

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

Wages and Salaries Benefits

Ave

rage

Com

pens

atio

n in

Dol

lars

per

Ful

l-Tim

e E

quiv

alen

t Wor

ker,

2011

Source(s): U.S. Bureau of Economic Analysis and MAPI


Jan-13

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-14

Feb Mar Apr May Jun45

50

55

60Global Markit Manufacturing

Purchasing Managers’ Indices

Global U.S. China Eurozone

Source: Markit

Global Markit


5.0%

10.0%

7.1%

2.5%

0.5%

13.3%

5.7%

0.7%

5.1%

1.4%

6.8%

-0.1%

-2.0%

2.4%

-0.4%

5.7%

2.0%

4.8% 4.7%

-6.7%

1.1%

Percent Growth of Manufactured Goods Exports, 2012–2014

2012 2013 2014 YTD

Source: U.S. Department of Commerce

Export growth


2005 2006 2007 2008 2009 2010 2011 2012 2013 201420

30

40

50

60

70

80

90

100

110

120

70

75

80

85

90

95

100

105

110

University of Michigan Consumer ConfidenceConference Board Consumer Confidence

Consumer Confidence Indices NFIB Small Business Index

Source: University of Michigan/Thomson Reuters, Conference Board, National Federation of Independent Business

Monthly business and consumer sentiment surveys


2005 2006 2007 2008 2009 2010 2011 2012 2013 20148

10

12

14

16

18

20

22

(in Millions of Units)

Source: Bureau of Economic Analysis

Total vehicle sales


2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

500

1,000

1,500

2,000

2,500

0

10

20

30

40

50

60

70

80

Housing Starts Housing PermitsNAHB Housing Market Index

NAHB Housing Market IndexHousing Starts, Permits (in thousands of units)

Source: U.S. Census Bureau, National Association of Home Builders

Housing market situation


The 2014 Manufacturing & Distribution Monitor

Monitor survey has been conducted for 9 consecutive years

Fielded: Spring 2014

Survey participants: 1,147 total- 80%: United States- 20%: Brazil, Canada, France,

Germany, Mexico and the United Kingdom

15


16

2014 Monitor highlights


How do so many companies thrive where others only hold steady or decline?

2009 2010 2011 2012 2013 20140%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

40%

10%3% 5% 7% 5%

52%

66%

53%56%

61% 60%

9%24%

45% 39%31% 36%

Declining Holding own Thriving

Six year business conditions


18

The strategic investments of thriving companies

InfrastructureInformation technology, equipment and machinery, R&D

External challenges

Regulations and compliance

ProcessContinuous improvement

GrowthMergers and acquisitions,

innovation

Supply chainRelationships and service


19

Infrastructure:Establishing the foundation, continued

Information technology Equipment and machinery Research and development

17%

11%

6%

10%9%

5%

7% 7%

3%

Thriving Holding steady Declining

Investment increases in next 12 monthsAverage, by business condition


20


Upgrading technology in-frastructure

Upgrading technology software

Investing in mobility

23% 24%

45%

13% 14%

40%

7% 7%

32%


Investment increases in next 12 monthsAverage, by business condition


21

11%

48%

34%

6%

1%

1=Not at risk 2 3 4 5 = Very much at risk


Awareness of information and data risk

59%Believe they are at little or not risk


22

Growth:Thriving companies grow through strategic M&A activities

Reasons for M&A activity by thriving companies

Create stronger position with suppliers

Expand distribution channels

Create cost synergies/improve margins

Improve current market position

Expand product lines to reach new customers

20%

20%

33%

35%

37%


23

Growth:Thriving companies grow through innovation

Thriving companies continually ask “What’s next?”

Thomas Alva Edison (center) and his close team members

“Leaders today don’t have to have all the answers. But …they need to ask ‘what’s next?’ in provocative ways.”

Sarah Miller CaldicottPower Patterns of Innovation


24

Continuous improvement: Thriving companies regularly seek new ways to improve

Operations- Productivity increases due to:

• Process improvements• Improved labor utilization• Improved equipment utilization

Workforce- Improved company performance due to:

• Leadership and management development• Workforce education and training

Information technology- Improve customer satisfaction - Minimize corporate risks


25

Supply chain:Working up and down the supply chain

Decisions are made to address the needs and values of the end user.

“Begin with the end in mind.”

Stephen R. Covey, The 7 Habits of Highly Effective People


26

Supply chain:Companies are finding reasons for on shoring operations

Closer to customers and markets with better lead times

Improve logistics costs

Seek less costly and burdensome regulatory environment

Reduce inventory carrying costs

Decrease supply-chain cycle times

Improve product and process quality

Intellectual property

Energy costs

Top circumstances for bringing operations back home:


27

Supply chain:Brand in the U.S.A.


28

External challenges: “How will the following external issues affect your company’s growth in the next 12 months?”

Availability of skilled workforce

Competition from other companies

Government regulations

Material and components pricing

Taxation


29

External challenges:Managing external pressures to lessen their impact

Impact of external factors by business condition

Availability of skilled work-force

Material and components pricing

Competition from other companies

Government regulations

Taxation

41%

72%

80%

76%

66%

52%

59%

70%

71%

62%

46%

48%

50%

56%

57%



30

External challenges:Managing external pressures to lessen their impact

Scenarios resulting from the ACA

Lay off workers to offset the costs of ACA compliance

Change some workers from full-time to part-time to reduce ACA-related costs

Reduce wages to offset the costs of ACA compliance

Implement wellness programs to encourage healthier lifestyles

Provide health plans that include incentives for healthy living

4%

5%

5%

45%

46%


60 65 70 75 80 85 90 95 2000 05 10 1414%

16%

18%

20%

22%

24%

26%

28%

Federal Government Receipts & Expen-ditures as a % of Gross Domestic Prod-

uct, 1960 to Present

Federal Receipts as a % of GDP Federal Expenditures as a % of GDP

22.7%

18.4%

Source: Bureau of Economic Analysis


32

Benefits: Strategic investments lead to improved company performance…

Lead generation/sales practices

Leadership and management development

Marketing strategy and execution

Product/process innovation

Operations and practice capability

0% 10% 20% 30% 40% 50% 60% 70% 80%



33

Benefits:…and IT environment effectiveness in particular

By business condition

Improve customer satisfaction

0% 10% 20% 30% 40%

21%

25%

33%



34

Benefits:Thriving companies expect sales and workforce growth


35

What are thriving companies doing?

• Making investments in information technology, equipment, workforce personnel development, marketing and other areas.

• Growing through strategic acquisitions.

• Staying innovation-focused and utilizing continuous improvement techniques.

• Working with suppliers and enhancing their value proposition for customers.

• Managing external challenges, looking for opportunities to minimize the financial impact of government regulations and taxation.


The 2014 Manufacturing & Distribution Monitor reports

Manufacturing and distribution Industry sector reports:

- Distribution- Consumer products industry- Food & beverage industry

Geographic reports:- Mexico- Brazil- U.S. state (11)

Customized reports:- Participants- Associations

36


Questions?


38

Karen L. KurekNational Industrial Products Practice Leader McGladrey [email protected](312) 634- 3920

Contact me

mailto:[email protected]


For a copy of the full 2014 McGladrey Monitor report —as well as state, industry sector and country and reports—

please visit our website at www.mcgladrey.com


This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person.

McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey®, the McGladrey logo, the McGladrey Classic logo, The power of being understood®, Power comes from being understood®, and Experience the power of being understood® are registered trademarks of McGladrey LLP. © 2014 McGladrey LLP. All Rights Reserved.

This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey®, the McGladrey logo, the McGladrey Classic logo, The power of being understood®, Power comes from being understood®, and Experience the power of being understood® are registered trademarks of McGladrey LLP. © 2013 McGladrey LLP. All Rights Reserved.

state of the industry update andhow thriving companies succeed

Data & Analytics