Global manufacturers' survey supplier failure is biggest concern listed

Amid the current economic turmoil, the uppermost concern in the minds of manufacturers around the world is the resilience of their supply chains and the possible failure of suppliers' businesses, according to a new global survey.

This concern comes ahead of issues like reduced access to capital, protectionism fears and cost volatility, reflecting the manufacturing sector's heightened fear of corporate defaults.

The Manufacturing Confidence survey was conducted by the Economist Intelligence Unit in February and March of this year. It involved 354 executives in a range of manufacturing industries. About one-third of the respondents came from each of North America, Europe, the Middle East and Africa and Asia-Pacific. Interviews with senior executives and independent experts supplemented the survey results.

Nearly two-thirds (63 per cent) of respondents said the collapse of suppliers would have an immediate impact on their business.

Despite bleak figures from the manufacturing sector over the past six months, many firms expressed a high degree of confidence in their ability to find and recruit highly skilled workers and take advantage of good-value merger and acquisition opportunities.

Still, stresses are being felt. The survey and report, sponsored by Siemens Product Lifecycle Management Software, shows that on many issues, including access to capital, profitability, returns on equity and ability to increase output, manufacturers do not believe that in 2009 they can achieve the targets they reached a year ago.

But the report also shows that many companies have clear ideas about implementing progressive strategies - not simply riding out the downturn - and emerging in a stronger position once economic recovery is in sight.

"Many manufacturers realise that simply cutting costs is a blunt instrument that can only go so far towards strengthening their competitive position," said Iain Scott, senior editor of the Economist Intelligence Unit.

"While most may be forced to trim expenditure in some way, leading companies recognise that taking more strategic steps can enhance their business both now and when the recovery materialises."

Measures include rationalising supply chains and establishing robust relationships, seeking new sources of supplies, walking away from some businesses while embracing others, and viewing operational slowdowns as opportunities to eliminate inefficiencies from their processes.

Other key findings from the survey include:

l This will be a tough year, but few manufacturers anticipate a prolonged downturn. Many respondents (39 per cent) expected conditions to improve for their company's business within two years, and almost one-half (47 per cent) expected an improvement affecting their industrial sector as a whole.

l Cost-cutting is the most common response to the economic downturn's impact on business. Many respondents said staff and benefits cuts (44 per cent) would do most to improve their cash positions, followed by new partnerships with low-cost suppliers (41 per cent) and reduced energy consumption (36 per cent).

"Pushing back on costs" was cited by the largest group of respondents (62 per cent) when it came to ensuring the resilience of their supply chains.

Manufacturers see the downturn as a time to enhance their efficiency. The biggest group of respondents (63 per cent) believed improvements to operational efficiency, both externally by rationalising supply lines and internally by using downtime to work on enhancing process efficiency, would do most to enhance their company's competitiveness. Almost one-half (46 per cent) cited changes to their organisational structure.

Companies see a variety of business benefits emerging from the recession. Almost one-half (45 per cent) of respondents saw the growing availability of talented workers as helping their business, compared with 42 per cent who pointed to the advantages of reduced competition as other companies in their sector failed. Merger and acquisition possibilities ranked highly (39 per cent) as business opportunities, along with lower interest rates (37 per cent).

The Economist Intelligence Unit's full Manufacturing Confidence report is available for free download from www.eiu.com/siemensplm/manufacturingconfidence.