With the manufacturing industry becoming more competitive every year, and as profit margins shrink with each passing quarter, executives must do what they can to streamline production and boost profits. This in turn creates business for Engineer To Order manufacturers who specialize in material handling, turnkey solutions and automation.
A contracting industry
The manufacturing sector is currently undergoing a slowdown, although the move isn’t as dire as it might seem at an initial glance.
“This marks the first contraction in manufacturing in three years.”
According to the monthly Report on Business released by the Institute for Supply Management, November saw economic activity in the manufacturing sector contract to a reading of 48.6, a 1.5 percentage-point drop from October’s 50.1 percent reading. Despite the overall economy expanding for the 78th consecutive month, this marks the first contraction in manufacturing in three years, going back to November 2012. As Bloomberg Business noted, November’s reading underperformed even the most pessimistic projections, with an average forecast amongst economists of 50.5.
Although the industry as a whole experienced a drop in activity, several sectors remain strong and saw significant growth during the past month, including printing and related support activities; food, beverage and tobacco products; transportation equipment; nonmetallic mineral products; and miscellaneous manufacturing.
However, according to another report, Markit’s Flash U.S. Manufacturing Purchasing Managers’ Index, December’s reading came in at 51.3, a drop from the reading of 52.8 in November. While the index did signal a decline in the manufacturing sector, it did remain above 50, indicating positive territory.
Overstocked inventories
Perhaps the most telling aspect of the ISM survey was the reading indicating customer inventories barely budged from its October level of 51, shedding a mere 0.5 percentage points. According to the institute, this represents the longest stretch this number has remained over 50 during an economic expansion, going back to the beginning of 2007.
“Many manufacturers are sitting on a considerable amount of unused stock.”
The lingering high levels of inventory during a period of economic expansion mean many manufacturers are sitting on a lot of unused stock. As companies begin paring orders to better align supply with demand, it could potentially cause some manufacturers to end up sitting on this inventory for a considerably longer time.
Fortunately, ISM Factory Survey Chairman Bradley Holcomb noted that the contraction will probably not be that severe due to the strength of U.S. consumer spending, according to Bloomberg Business.
“My sense is this is a short-term thing where hopefully we’ve found bottom in this particular cycle,” Holcomb said. A recovery would involve, “… consumers going back to the store and buying products. Certainly December is a month that that can certainly happen.”
Engineer To Order manufacturers might see an increase in business as manufacturers tighten up production and look towards automation.
Dollar remains strong
One of the factors hurting the manufacturing sector the most is the continued strength of the dollar versus other foreign currencies. The strong dollar is causing American-made goods to not look as attractive to overseas buyers since products from Europe, where the euro is weaker, are much less expensive. This is especially true in China, one of the largest purchasers of American-manufactured goods, where not only is the strong dollar slowing sales to the world’s second-largest economy, but China’s economic slowdown is also contributing to stalling of U.S. exports for manufactured products.
Implementing a quality ERP
As companies strive to find ways to cut costs and boost revenue, the first route engineer-to-order companies should consider is implementing a configurable enterprise resource planning system like Total ETO. Using this intuitive ERP system, Engineer To Order companies can integrate the platform with their familiar accounting system. This syncs up purchases, receiving and payables by batching the information in detailed and easily manageable modules.
Not only does Total ETO streamline the accounting aspects for Engineer To Order manufacturers, it’s also extremely affordable for small- and mid-sized enterprises. Plus, with its unique configurable options, it will easily match the way you naturally do business, which alleviates the need to learn a complex new system and greatly reduces the downtime typically associated with implementing many of the more complex ERP systems.
Learn more about Total ETO by requesting a demo today!