As Downturn Takes Toll, Contract Manufacturers Chart New Business Roadmaps

A recent survey of contract manufacturers reveals a surprising level of optimism, as many make tough choices to steady the bottom line and boost operational efficiencies.

As manufacturing continues at a 26-year low in the United States, a surprising 45 percent of 570 North American contract manufacturers and suppliers of custom manufacturing services are projecting growth in 2009, according to a recent survey, while an additional 28 percent project their business to remain at last year’s level.

The survey, conducted in January 2009, is the latest MFGWatch Survey conducted by (, a global online marketplace for the manufacturing community. The survey covered topics such as the state of the global economy, current business conditions, and survival plans to combat the economic downturn. Overall, the results show that manufacturers are making tough choices to steady the bottom line and boost operational efficiencies.

Economic impact

The MFGWatch survey asked if participants were optimistic about the global industry rebounding in 2009. 37 percent of respondents stated they were optimistic, 28 percent were neutral on the possibility, and 34 percent thought a 2009 rebound was unlikely.

Queried about overall business conditions, 51 percent replied that their businesses were experiencing declining conditions, with 49 percent stating improving or excellent business conditions. Those respondents were also asked if they noticed an increase or decrease in new demand over the past six months. 50 percent responded there has been a decrease in demand, while 28 percent report there has been no change in customer demand. 18 percent experienced an increase in business from their current customers. 3 percent were not sure.

When participants were asked if they had noticed an influx of work coming back to the United States from overseas, 54 percent said they had not seen work coming back to the United States, 16 percent said they had noticed an influx of work coming back to the United States and 30 percent were unsure

Growth expectations

Questioned about the potential of company growth in 2009, 36 percent project they will grow between 1 percent and 24 percent in 2009; 9 percent project they will grow between 25 percent and 50 percent in 2009; and 28 percent are planning no growth. Meanwhile, 17 percent plan to downsize between 1 percent and 24 percent; 3 percent plan to downsize between 25 percent and 50 percent; and 1 percent don’t plan to be in business by the end of 2009.

Suppliers were also asked if their customers had increased or decreased the volume (both value and quantity) of their orders in the past six months. 61 percent responded their orders had decreased, 22 percent had no change in business, while 15 percent were experiencing an increase in orders from their client base. 2 percent were not sure. Survey participants were asked a follow-on question: If their customers have decreased the volume, have they increased the frequency of their orders? 89 percent responded no, 7 percent had an increase in frequency of order, and 3 percent were not sure.

Belt tightening

Survey respondents were asked if their companies had to reduce their profitability margins to increase customer demand and new customer acquisition. 53 percent responded affirmatively, while 39 percent said they had not decreased their profit margins. 7 percent were not sure. The survey also inquired if these manufacturers had implemented changes during the current economic downturn. The replies were:
• 28 percent shortened shifts or work hours
• 26 percent replied, None—it is business as usual
• 23 percent had layoffs at their company
• 9 percent canceled shifts
• 6 percent implemented automation to reduce payroll
• 3 percent added overtime
• 2 percent added shifts
• 2 percent opened new facilities
• 1 percent closed facilities.

Suppliers were also asked if they had postponed or canceled any major purchases due to the current state of the economy. The responses were:
• 18 percent stopped hiring new employees
• 15 percent postponed or cancelled capital equipment purchases
• 12 percent have not stopped any purchases to date
• 11 percent stopped hiring replacement employees
• 11 percent curtailed business travel to customers and trade shows
• 8 percent cancelled their memberships in professional or industry associations
• 7 percent halted facility expansion
• 7 percent will not purchase software
• 4 percent will not pursue business expansion,

Expanding business

In reference to expanding their business, 75 percent of suppliers stated they were looking to expand their offerings into other industries. 25 percent had no plans for cross-industry growth. The respondents saw promise for additional contract manufacturing business in a variety of industries including: wind power, solar, power generation, alternative energy, medical, marine, biotechnology and pharmaceuticals, mechanical assembly, subassembly and test, automotive accessories, agriculture, aerospace, apparel and textiles.

Respondents are looking at a variety of strategies to acquire new customers in 2009: 24 percent of respondents plan to increase their Web presence, 19 percent intend to enter new markets, 16 percent will attend more trade shows, 12 percent are retaining a sales representative or broker, 8 percent are expanding their outside sales staff, and another 5 percent stated they were expanding their inside sales team. 17 percent were not employing any of the tactics above.

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