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Manufacturers fear inflation.

Manufacturers fear inflation Inflation is replacing price competition as the factor most feared by North American manufacturers. Nonetheless, the mood among manufacturers remains buoyant. Almost three fourths (74 percent) feel the overall competitive position of North American manufacturing will improve. Of 522 manufacturing companies in the US and Canada surveyed, only three percent believe their company's competitive position will worsen.

The annual survey conducted by Touche Ross & Co, New York, NY, the Big Eight accounting and consulting firm, classifies responses by size, industry, manufacturing process, and geographic region. The machine tool, automotive, and computer industry segments are especially bullish. While still confident, the food, chemical, and consumer goods segments are less optimistic. Although there is little difference by regional area, but the West, Midwest, and Canada view prospects for 1989 somewhat more confidently.

"In my opinion, the manufacturing resurgence has been so strong that company executives are beginning to worry about an overheated economy," says Tom Slaight, Partner in Manufacturing Services in the New York Office. Slaight adds that manufacturers are "investing in technology to improve the production process and plant expansion in order to extend their capability to meet increased demand." The survey also indicates that "North American manufacturers are beginning to feel confident that they again can hold their own against foreign competition," continues Slaight.

Even though salaries will increase in line with the anticipated inflation, manufacturers believe that overall direct labor costs will decline. In a related response, manufacturers rated the shortage of skilled labor as having a significant impact on their business. "Manufacturers, like the rest of the economy, are nearing the demographic cliff created by the wanning of the baby boom. Now that the youngest members of the baby boom are turning thirty, manufacturers will continue to feel the shortage of skilled labor capable of working in a highly technological environment," observes Slaight.

The survey disclosed that manufacturers are spending 39.2 percent of their investment budget on technology for labor-saving improvements in the production process and 16.9 percent for product design. Another 18 percent of their investment budget is directed toward plant expansion to meet increasing demand.

"This continues the trend we've been noting as the industry increases its investment in integrated manufacturing technology," reports Jim Schwendinger, the Houston, Texas, parner who directed the survey. "This investment in nearly all cases translates to greater penetration of automation and systems, which in turn, displace direct labor."

Manufacturers consistently cite overhead reduction among the top two factors having a significant impact on their company's profitability during the coming year. "Executives of companies with too much fat in their overhead-cost structure are challenging the real value of such nonvalue-added costs," notes Schwendinger, and "companies that have high overhead costs fear a takeover knowing that new ownership must slash overhead--and maybe executives--so they can make their interest payments."

Other leading factors influencing profitability are sales volume, inventory reduction, and factory productivity. As a concern, inventory reduction increased to 27 percent compared to only 3 percent in the 1987 survey. According to Schwendinger, "As inflationary fears and interest rates increase, manufacturers are becoming more concerned with keeping inventories more closely aligned with sales."

In addition to business issues, the survey included questions involving the makeup of the investment in advanced manufacturing technology. "Manufacturers have continued to focus on implementing lower cost technology concepts to achieve operating improvements," Schwendinger says. Manufacturing Resource Planning and Total Quality Control are the most popular of the new Manufacturing concepts or philosophies. While relatively new to the majority of manufacturers, Just-In-Time (JIT) showed the greatest percentage increase from last year's survey with nearly twice as many respondents indicating they are in some stage of JIT implementation.

In contrast, other expensive technologies, such as Flexible Manufacturing Systems (FMS) and Cellular Manufacturing, remain relatively untried by North American industry. Of course, those technologies require higher capital investment in machines and equipment. This is a continuation of last year's emphasis on applying technology to improve profit-ability and realize a return on investment in technology. "Maybe manufacturers have learned not to invest in technology for technology's sake," comments Schwendinger.

Computer Aided Design (CAD) has become an essential technology standard for product and process design. CAD techniques greatly reduce development time required to go from product idea to finished product. Yet, it is surprising that after all of the success stories about CAD, it has been implemented in no more than 60 percent of the North American manufacturing facilities. Other related technologies aimed at assisting the design of products are Computer Aided Engineering (CAE), Computer Aided Process Planning (CAPP), and Computer Aided Testing (CAT). "The increased use of computer aided technologies indicates a continued emphasis on the importance of these technologies as a key to producing high-quality cost-efficient products with shorter lead times," Schwendinger concludes.

Establishing evaluation criteria for selecting manufacturing technology continues to be a difficult issue according to the survey, as preferred evaluation criteria continue to shift. This year the leading criteria were: improved profitability, cost reduction, and proven technology. This represents significant changes from 1987, when none of these factors rated higher than seventh.

The Touche Ross survey polled a broad cross section of geographic regions and industries in North America. Nearly half of the participants had annual sales greater than $ 100 million. The companies represented were evenly divided between job shops, assembly, and process manufacturers.

For more information about the North American Manufacturing Survey of Manufacturing Technology Trends, contact Touche Ross & Co, Manufacturing Services, 1633 Broadway, New York, NY 11019, Phone (212) 489-1600.
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Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Publication:Tooling & Production
Date:Feb 1, 1989
Words:919
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