What is top of mind for the manufacturing and distribution (M&D) industry in 2021? LBMC’s fourth annual Business Outlook Survey Report addresses this question and offers insights into business trends, challenges, and levels of optimism across seven major industries in the U.S., including M&D.

M&D organizations made up about 13.5% of the survey’s 517 respondents, mostly in C-level positions. Approximately 44% of M&D participants represented companies with $50 million plus in revenue. The report provides insights into the business landscape over the last 12 months and expectations for the new year. Specifically, the report focuses on current business challenges, impacts of the pandemic, election sentiment, economic conditions, and businesses’ goals for the coming year.

Current Business Challenges

According to the survey, in 2020 COVID-19 was the top challenge of M&D businesses, cited by 59% of respondents. Domestic economic conditions and materials/supplies/equipment cost round out the top three business challenges for M&D companies. Materials/supplies/equipment cost is a greater challenge for M&D than any other industry.

“Though there has been a lot of disruption, manufacturers have proved to be very resilient, and the American workforce continues to strive and thrive amidst adversity in almost every manufacturing environment. In addition, there are areas where demand spiked during the pandemic, causing further challenges in industries such as the recreational industry (boats, campers and RVs).”

– John Mark McDougal, CPA, Shareholder, Practice Leader Audit and Advisory Services

Top external business challenges that manufacturing and distribution companies are currently facing in 2021

Impacts of COVID–19

Three-fourths of M&D businesses were negatively impacted by COVID. Only the non-profit/education and healthcare sectors had a higher negative impact. When asked about the part of their business most affected by the pandemic, M&D companies’ top three responses were loss of sales/revenue, staffing availability/costs, and productivity/delays. When M&D companies were asked which operating assumptions they plan to revisit as a result of the pandemic, staffing/recruiting was the top response (33.3%), followed by remote work/office setup (20%).

Business impact of COVID-19 on manufacturing and distribution industry

Election Sentiment

Nearly 60% of M&D companies believe the recent election will have a negative impact on their business. Only one in five M&D businesses believe the result of the recent election will have a positive impact.

Election impact on business expectations

Future Outlook/2021 Goals

Of all the industries in our study, M&D companies have the highest level of optimism about the U.S. and world economies. Regional optimism has greatly decreased since last year, while prospects for the world economy have increased slightly. The top goals of M&D companies in 2021 are growing sales, improving financial performance, and increasing business value. 86.8% of M&D companies believe they will achieve revenue growth in 2021.

Optimism in US Economy - Industry Comparison

Top Business Goals for Manufacturing and Distribution Industry

Sales & Profitability Strategies

When it comes to strategies for increasing profitability, M&D companies are most focused on improving productivity/efficiency, followed by decreasing their operating expenses. M&D companies are most focused on selling existing products to existing markets in 2021, diverging from a historical preference for selling to new markets.

Through the pandemic, most M&D businesses experienced productivity disruptions, so it is not surprising that improving productivity/efficiency was the top response. Getting production back to full capacity and maintaining it, while managing new disruptions, are top of mind and with emphasis on the fundamentals – the existing products and existing markets. For companies selling multiple products, a thorough analysis of gross and net margins can lead to decisions that produce higher profitability and increased cash flow.

Sales Strategies for Manufacturing

Capital Spend

M&D is the industry with the most aggressive plans to increase capital spend. Growing M&D businesses plan on investing an average of 23% more, while no growth businesses plan to invest just 8.4%. When allocating capital spend in 2021, M&D businesses are most likely to acquire new locations or facilities. Growing M&D companies are twice as likely to increase capital spend in acquiring new locations and three times as likely to increase spend on employee training than their no growth peers.

Capital Spending in Manufacturing

Acquiring/Retaining Talent

M&D companies overall were more likely to shed employees than hire new ones. Among the growing group, however, that trend was different. Over the past 12 months, more M&D companies decreased the size of their staff (39.4%) than increased it (30.4%). 58.8% of growing M&D companies increased their employee ranks in the past 12 months, while only 11.8% of no growth companies increased their hiring.

M&D businesses are focused on hiring in 2021, with more than 55% poised to expand their workforce. In 2021, over 44% of M&D companies plan to prioritize acquiring and retaining talent. While 55.4% of companies plan to increase their hiring, only 3.6% plan to decrease it.

To find and keep quality talent, over 40% of M&D companies plan to raise their compensation. Training and development and offering temporary-to-full-time positions were number two and three on the list. Only 8.3% of companies plan to offer flexible or remote work arrangements. This is likely due to the labor-intensive nature of their work.

“With a majority of manufacturing and distribution companies experiencing growth, plant management staffing needs are close to pre-pandemic levels. The candidate demand in the marketplace makes it even more crucial for companies to increase salaries in order to attract and retain employees who possess the experience, skill set, education and industry knowledge required.”

– Jeff Otto, Executive Recruiter, Staffing Solutions

Technology Usage

When managing their business technology, M&D companies look first to improve their existing systems. 37% of no growth companies plan to replace existing systems, while none of the growing companies plan to do so. These growth firms focus primarily (60%) on improving the performance of existing systems.

28.6% of M&D companies plan to prioritize technology in 2021, a lower percentage than most industries in the study. Of the technologies that M&D companies plan on investing in during 2021, data integration is the top choice (73.3%). Last year, ERP software was a top priority in the industry. This year it falls to the bottom of the list.

“The data is very telling in a few ways. First, a full system implementation is a massive undertaking, even for the most planned and disciplined of organizations. Couple that with the general notion that most system capabilities are underutilized at a given point in time, and you see preferences to add best of breed tools to existing systems and enhance the usefulness of existing systems as well. Considering those factors, the data results are not too surprising.”

– Jim Meade, CPA, Shareholder, Audit and Advisory Services

Cyber & Data Security

More than one in five M&D companies plan to prioritize cybersecurity in 2021. Of the M&D businesses that prioritize cybersecurity, most plan to use new software security tools.

To see more insights from the M&D industry, download the LBMC 2021 Business Outlook Survey Report.

About the Business Outlook Survey Report

The report was based on results from the national Business Outlook Survey, where more than 500 business leaders, mostly in C-level positions, reviewed business activity over the past year and provided insight into the business landscape over the next 12 months. More than half of the participants represent companies with $15 million plus in revenue and at least 50 employees. For the first time, this year’s report also surveyed high growth companies – businesses with a growth rate of at least 20%.