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Manufacturers Brace for Baby Boomer Exodus

Manufacturers Brace for Baby Boomer Exodus

These are heavy days for US manufacturers, according to CliftonLarsonAllen's fourth-annual Manufacturing and Distribution Outlook survey. Manufacturers and distributors are planning the succession from Baby Boom leadership, they're investing in foreign markets, and they're tapping out on capacity and ready to expand. On the gloomier side, they're concerned over economic uncertainty, rising health care costs, and finding and retaining good employees.

The survey polled 350 manufacturers and distributors, asking questions about leadership, execution, growth, markets, financial needs, and the future. The responses revealed that manufacturers and distributors are generally bullish on the future, and they are planning ahead for leadership, growth, and overall quality.

MORE FROM DESIGN NEWS: Manufacturing Growth Threatened by Lack of Interest from Millennial-Age Workers

Bracing for the Boomer exodus

The oldest Baby Boomers are pushing 70. Even the youngest ones are in their 50s. An estimated 9 million of America's 15 million business owners are part of the Boomer generation -- those born before 1964. CliftonLarsonAllen estimates that $11 trillion will transfer from one generation to the next over the coming decade.

Most survey respondents say they are prepared for the coming generational shift in leadership. Seventy-three percent are either very prepared or somewhat prepared for the transition. Only 4% described themselves as very unprepared. As for the timing, 45% see it coming within the next five years, while another 27% see it happening in six to 10 years.

Execution means improvement

On the execution side, manufacturers and distributors are coping with increasing customer demands and pricing pressure. Part of their response is to engage in continuous improvement efforts, reducing costs, and managing customer expectations. Forty percent of respondents named cost reduction as the primary goal for improvement. Another 20% said increasing capacity, while 19% stated quality as the goal.

Surprisingly, only 3% set inventory reduction as the primary improvement. This could indicate inventories are already as low as they can go without risking customer demand shortfalls. Continuous improvement is top of mind, however, as 86% have either a very positive or somewhat positive view of continuous improvement's impact on the business.

Growth means new customers and new products

Keeping existing customers and finding new customers ran even as the top priorities for growth. A close third was developing new products and capabilities. Lower in the ranking was the acquisition of new capabilities or the acquisition of similar capabilities. Read this as companies looking to do more with existing capabilities. Sixty-five percent of respondents sell into the global economy or source globally, while 35% focus on the domestic market for sourcing and sales.

Financing comes from cashflow and banks

On the financial side, 62% of respondents saw their revenue grow over the past year, while 15% saw contraction, and 23% drew even. Most see a bright 2015, with 79% expecting revenue to grow and only 4% expecting contraction. Companies named economic uncertainty as the top financial challenge, with rising healthcare costs a close second. As for the source of funding, 62% reach into company cash flow, while 23% turn to banks. Surprisingly, only 2% use equity financing -- a world of difference from Silicon Valley.

As for investment priorities, 39% include expanding capacity (people, plants, equipment) as a top priority, while 33% include product development. Customer diversification and workforce development made the list at 24% and 20%, respectively. Down at the bottom of priorities was industry diversification and increased sales.

Rob Spiegel has covered automation and control for 15 years, 12 of them for Design News. Other topics he has covered include supply chain technology, alternative energy, and cyber security. For 10 years he was owner and publisher of the food magazine, Chile Pepper.

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