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This is likely to present a challenge for the 67 percent of companies that expect most of their growth will come from existing markets – i.e., the United States. While CFOs seem to be confident in their company’s ability to succeed, the external factors impacting their businesses are significant. Price pressure from competitors is the top concern for financial professionals; anxiety over customer demand continues to be a problem; and CFOs’ third biggest headache is foreign competition.
These concerns usually have a direct impact on manufacturers’ supply chains. For example, customer demand issues are often improved by better communication or visibility among supply chain partners. But fifty-four percent of CFOs cite cutting operational costs as one of their top three priorities this year, outranked only by developing new products and services (63 percent) and growth in existing markets (67 percent).
It appears that executives’ view of the supply chain lies somewhere between “strategic opportunity” and “cost center.” In a separate manufacturing survey released last week, cost-cutting was identified as the top priority among U.S. supply chain executives. One market expert points out that the strategic goals of an effective supply chain are often at odds with the level of investment a corporation is willing to make.
“Manufacturers expect to face major supply chain challenges in 2016 stemming from external factors beyond their control,” said Greg Kefer, VP for corporate marketing at GT Nexus. “The data suggests their execution roadmap may be misguided, being focused more on cost cutting, for example, than more mission-critical things like having a senior supply chain leader in place.”
GT Nexus recently polled a base of U.S. manufacturing companies about their supply chain strategies. While cost cutting is important, efforts that support a strategic supply chain vision are also important, Kefer said.
Specifically, he said, the supply chain may be missing out on opportunities to better manage external factors. The key, Kefer and others believe, is data. Data sharing among manufacturing companies under models such as EDI don’t show the entire picture of a manufacturer’s supply chain. Information should be collected across a spectrum of partners including logistics providers, as an example. If a manufacturer knows a shipment is being held up in transit, it can make alternative arrangements before the supply chain is disrupted.
Here’s where PrimeAdvantage members expect to be spending money this year: Research and development continues to be a laser focus for 2016 with 94 percent of respondents indicating that they will increase or maintain their investment from the previous year. Manufacturing equipment remains the main application of capital investment for the fourth consecutive year, as 89 percent of financial decision makers plan to spend in this area. For the third straight year, there has been an increased focus on plant expansion and modernization, now mentioned by 46 percent of those responding.
PrimeAdvantage members pool their resources as part of a buying consortium to better leverage their spending. Members overall feel they have a pretty good grasp on their spending. Ninety-three percent of respondents believe they do a good job of managing direct spending. Indirect spend tracking could use some improvement as 71 percent believe their indirect spend supervision is “good” to “above average,” with only 11 percent specifying that they perform the task extremely well. This has been aided by 89 percent of respondents stating that they have implemented technologies to keep their purchases under control.
Other highlights of the survey include:
- Eighty-one percent of member companies are relishing in the positive impacts of decreased oil prices. The good news is mainly taking the form of increased margins, due to lower component costs and savings on freight expenses. This contrasts a bit with manufacturers polled by the Institute of Supply Management which say oil prices are hurting their business because a significant portion of oil producers are their end customers.
- Medical insurance expenses take over the top spot of internal concerns for manufacturers, with 68 percent of respondents listing healthcare costs in their top three concerns. Attracting and retaining qualified employees comes in as a close second, at 64 percent. Preserving morale and productivity continues to be an initiative of note, with 36 percent of financial professionals listing this concern. On the bright side, there was a 24 point decrease in respondents worrying about their ability to maintain margins in comparison to last year. This result is possibly attributable to dwindling concern over the price of raw materials and components, which saw an 11 point decrease.
"The results of our 2016 CFO Survey indicate a continuing state of manufacturing optimism, coupled with strong expectations for increased revenue for our members and endorsed suppliers," said Louise O'Sullivan, founder, president and CEO of Prime Advantage. The survey included financial executives from companies in more than 25 industries with annual revenues ranging between $10 million and $4 billion. "This is quite encouraging as it follows four previous years of growth and innovation for our manufacturing members," she concluded.