In short:

  • Manufacturers in general took a cash flow hit from COVID-19; less than 7% in our survey reported being unaffected by the pandemic.
  • Supply chains continue to be the biggest single challenge, with overall cash flow still a concern going into 2021.
  • Faced with changing customer demands, many manufacturers are looking to increase their marketing efforts. It’s the number one spending priority in our survey.

Manufacturers who are thriving in the U.S. know something about adaptability. For most, the past year was just the latest challenge in a string of challenges over decades. However, unless you consider globalization as a single factor, nothing has so universally affected manufacturers as COVID-19. In our recent survey, conducted with Thomas for Industry, 88% of the manufacturers who responded said pandemic-related disruptions have affected their business. For perspective, the next most common factor impacting business, cited by just over half of participants, was supply chain disruption and many of those were also pandemic induced.

And yet, most manufacturers have either a somewhat positive (38%) or very positive (25%) outlook for 2021, and 18% have a neutral outlook. We’re not surprised, since this is a group that’s managed through global competition, tariffs, skills gaps, increased regulation and ever-changing customer demands. This, it seems, is just one more obstacle to overcome.

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The impacts, of course, have not been trivial. Of those impacted by the pandemic, 76% took a hit to cash flow, and 58% suffered staffing and supply chain issues. Half of those who reported staffing issues had to lay off part of their workforce. Cash flow issues manifested primarily as postponed orders (76%) and reduced sales (77%). Some 40% said they’d had orders canceled. Forty percent said their customers were slow to pay.

survey 1

When it came to supply chain issues, sales channels, component sourcing and raw material sourcing were all affected. The typical challenge was price increases for components and raw materials. On the sales channel side, the primary complaint was increased shipping costs.

When compared to our other more general surveys, the results largely mimic broader findings. In those surveys, manufacturers fared better than most retail businesses, but not as well as many B2B service sectors. Unsurprisingly, supply chain issues were a leading concern, where more broadly, staffing and remote work tended to dominate. Cash flow issues for small manufacturers have been a bigger issue than for businesses more generally.

Expectations for 2021

Our survey, conducted in October, asked manufacturers about their expectations for the next six months. Sixty-four percent expect cash flow issues, half predict supply chain challenges, and 40% expect staffing issues.

survey 2

Manufacturers predict the above impacts will be partly due to global factors unrelated to the pandemic, though half of respondents expect it to be the leading cause. Just behind the pandemic, in a statistical three-way tie at 48%, are: supply chain issues, the presidential election and trade and tariff uncertainties. It could certainly be that the pandemic so consumed manufacturers in the previous six months that they weren’t worried about much else, but it’s remarkable that they believe so many more factors will affect business in the next six months than in the previous six months. Only the pandemic and supply chain disruptions affected more than half the respondents in the past six months, so taken in that light, manufacturers expect more upheaval to come.

survey 3

This is likely constructive paranoia as much as anything else. Recall that this data was collected in October, so chances are slim that election outcomes and changes in tariffs will significantly affect business within the six-month window. Long-term, of course, it’s a different story. One would expect that supply chains would be at least as reliable as in the previous six months as more businesses understand how to maintain productivity until vaccines are broadly distributed.

A New Focus on (Digital) Marketing

Regardless of the motivating drivers, survey respondents have a solid set of priorities for the next year. Topping the list is an increase in marketing efforts (72%), with expanding sales channels, improving cash flow and controlling costs following closely together, with about 60% selecting those.

When priorities are translated into spending, the emphasis on improving marketing becomes clear. Some 65% of respondents expect to spend more on marketing: either a little (42% at less than a 5% increase) or a lot (23% at more than 5% increase). In our broader surveys, new spending was focused — by far — on technology, with marketing, payroll and sales rounding out the top four priorities. Technology spending was fourth for manufacturers in this survey, behind marketing, payroll and capital spending. Clearly manufacturers don’t have the same work-from-home issues as many other sectors — business either happens onsite, or it doesn’t happen at all. However, we suspect some technology spending will happen in support of the increased marketing efforts of manufacturers.

Elsewhere in the survey, we see emphasis on running production facilities closer to capacity and working to improve efficiency. Those are perennial goals for manufacturers, but it seems now that order size is down, payments are late, and some customers may have gone out of business, marketing has become a priority. The answer for those woes is new customers, and smart money is being directed toward online marketing.

It’s not just that trade shows and other face-to-face events are on hold. GE Capital Retail Bank’s second annual Major Purchase Shopper Study found that 81% of consumers do their homework online before making a major purchase. That behavior is following consumers into their work life as they research new products and services for their businesses. So if you’re looking to up your sales volume, get to where your customers are: online.

We didn’t ask extensively about customer retention, but if marketing efforts are broadly increasing, then clearly customer retention is an issue. The chart below shows that less than a third of respondents are watching customer support as a key KPI. It’s easy to think you know your customers and how they feel about your products — and if you primarily have just a handful or clients, or if your work comes through bids, you may have a good handle on whether clients are truly pleased. However in most other cases, customer satisfaction is a changing thing and the only way to really know is to measure regularly.

The KPIs You Use

And, as it turns out, sales volume is viewed as most important. Not only is it the most commonly available KPI for decision makers (79%), but it’s also the most commonly used business decision criteria (59%) in our list of 11. Second on the list — both in terms of availability as a KPI and use in business decisions — is cost of goods sold (54%).

It’s not hard to see why sales volume tops the list here: It’s the data your salespeople will have readily available and operations people will need for their planning. Similarly, COGS is what you can control, so it deserves a close look. We recommend getting just as good at tracking cash flow, though. The data shows that it’s been common to have accounts receivable issues and orders canceled or reduced.

survey 4

The KPIs that respondents calculate and use here are different from those used by our more general audience (similar in average annual revenue). Only 64% of respondents say they’re calculating operating cash flow, and just 44% say they’re using it to make business decisions. Yet, more than 63% say they’re worried about cash flow over the next six months. More generally, we’ve found that cash flow is the primary worry for most businesses, and it’s tracked most closely, particularly by businesses under $50M in annual revenue.

One bright spot for manufacturers who are mid-supply chain: Many companies are rethinking their own supply chains, with many of them contemplating onshoring and nearshoring. So, the increase that many contemplate in their marketing budgets makes a lot of sense — and will likely be money well spent.

Mark Bianco

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