U.S. Is Driver of Top-Line Global Growth as Manufacturers Ready for Upswing

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Manufacturers worldwide remain optimistic about the near-term outlook for their businesses. They are using the low-growth environment to become leaner and more efficient. Since 2011, manufacturers have become slightly more bullish that an upswing in the global economy is imminent. They are ramping up their innovation activity, finding ways to increase efficiency (for example, by improving the ways they manage costs and optimize their supply chains), and add value to their offerings simultaneously. This is stated in "Global Manufacturing Outlook 2012: Fostering Growth Through Innovation," an Economist Intelligence Unit (EIU) report sponsored by KPMG.

"The downturn has given our most sophisticated customers a zero-waste mentality," says David Fischer, CEO of Greif Incorporated (NYSE:GEF) (Delaware, Ohio), the world's largest manufacturer of rigid industrial packaging. "As a result, they will have a much greater advantage as the recovery builds. I think the recovery has grabbed hold, but I don't think it will prove quick. I think the global economy will take two to three years to crawl back to healthy levels of growth."

Profitable growth is the new manufacturing mantra, says the report. The demand for this high-margin business will come from some predictable places. Worldwide, 43% of survey respondents see the U.S as a key source of demand for top-line growth over the next 12 to 24 months and another 41% as a key source of bottom-line growth for their organizations.

The next most popular locales are more than 10 percentage points behind. Yet among respondents from emerging markets, the U.S lead is less pronounced--here it is cited by 38% of respondents, followed closely by China (35%), India (29%), Brazil (19%) and Singapore (12%).

Worldwide, 41% of respondents belie over a 12 to 24 month horizon that input cost volatility is the biggest challenge facing their business over a 12 to 24 month horizon--the same proportion as in 2011. The Institute for Supply Management Prices index, for example, which gauges cost inputs for U.S manufacturers, reached 61.5% in February 2012, up six percentage points against the previous month. Yet the report predicts that the price of industrial raw materials will fall on average by 12.8% in 2012, while that of crude oil will rise 3.6%.

Respondents do not expect cost pressures to abate over the next 12 to 24 months: Less than 10% expect decreases in energy and transport costs, and less than 15% anticipate decreases in skilled labor and raw material costs. The remainder is fairly evenly split between flat or increased costs.

The factory of the future will be one in which "every step of the production process is optimized using innovative software systems," says Professor Siegfried Russwurm, CEO of industry sector at Siemens. Many of the necessary technologies already exist, but few companies have been able to integrate them all, he says."The key to success is the fusion of the digital product-lifecycle-management (PLM) world with the real world of production. The latest industrial software enables products, processes and even layouts of entire production lines to be simulated on computers before a single physical component is touched. With virtual prototyping, engineers can design multiple solutions to a problem, compare them and analyze their performance with no restrictions."

Link these technologies together using the latest IT and automation standards, and you have a factory that can be adjusted on the fly to accommodate design variants and improvements with maximum speed and efficiency.

It does not matter if you're talking about the automotive industry, the consumer goods industry or the machine-building industry. When product design and production planning function simultaneously, time to market can be shortened drastically. It's a paradigm shift for the whole manufacturing sector," said Professor Russwurm.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.