Supplier Woes

Manufacturers are always on the search for stable, cost-efficient, and timely suppliers, but 45% of North American product manufacturing companies expressed a need for new suppliers, according to the MFGWatch Quarterly Survey of North American Manufacturers, covering the second quarter of 2011. The survey noted 48% experienced a significant supply chain disruption in the past three months, up from 42% last quarter and 37% from fourth quarter 2010, causing them to investigate or select new suppliers. This is the second highest response percentage since MFGWatch began monitoring supply chain disruptions in the third quarter 2009. It also represents a considerable opportunity for suppliers to gain -- or lose -- customers.

Top supply chain concerns among buyers during the second quarter 2011: Logistics & Shipping Costs: 47% (up from 21% in the first quarter); Availability of Competent Suppliers: 45% (up from 15%); Product Quality Compliance: 37% (up from 12%); Fuel/Oil Prices: 32% (up from 25%); Supplier Financial Health/Stability: 18% (up from 7%); Unstable Labor Costs: 16% ( up from 4%); Intellectual Property Protection: 14% (up from 6%); Separation of Production from Design or R&D: 9% (up from 3%); and Civil Instability: 5% (up from 1%).

That's a considerable amount of nervousness among manufacturers, especially when you consider half are worried about transportation, almost half about competence, and over a third about quality. The latter two directly impact the reputation of a company, and once the notion of waning product quality gathers momentum, it can be difficult to regain the confidence of customers -- and that's an indirect cost on top of a direct cost of replacing/repairing products.

Reshoring

The *idea* of reshoring -- bringing manufacturing back to the US from overseas -- picked up some steam in the second quarter 2011. Of those surveyed, 31% said they were researching the concept, up from 27% last quarter, while those who said they weren't dropped to 47% from 54%. The biggest jump came from those who didn't know -- 30% in the second quarter, up from 19% in the first quarter.

The *reality* of reshoring lagged behind the concept: only 15% relocated production to North America during the second quarter, down from 17% from the first quarter and 25% from the fourth quarter 2010, while 78% of those surveyed did not, up from 76%. This represents a cooling off of the trend, although any increase in supply chain problems will likely trigger a renewal of reshoring.

These numbers represented somewhat of a churn in the supply chain management and stability sectors, and present real opportunity for US and North American supplier manufacturers. However, as the percentage of manufacturers actually reshoring production to North America continues to fall each quarter, it is still uncertain whether returning production is a trend or just a notion. As prices rise, transportation snags increase, and quality decreases, expect more movement back to US shores.

Hiring

The survey found that 32% of manufacturers increased hiring in the second quarter 2011, up from 27% in the first quarter, however 17% laid off employees, up from 9% in the first quarter. Of note, only 3% of manufacturers expected to lay off workers in the second quarter, so 17% represented strong, unexpected economic instability in many companies and markets.

As for the second half of the year, 20% are aggressively investing in new technology and expanding our workforce; 32% are aggressively investing in new technology but not expanding our workforce; 13% are hiring, but not investing in new technology; and 35% are neither hiring, nor investing in new technology.

Bottom Line

Overall manufacturing business conditions continued to improve, although supply chain disruptions increased significantly in North America -- again -- and threatened to derail economic progress.