2024 Business Outlook Trends for Manufacturing

In our survey, more than 60% of business leaders across industries agreed that lessons learned during the pandemic have better prepared them for future economic challenges. In the manufacturing and distribution sector, preparedness is job one. That’s why executives are focusing heavily on digital strategy within their operations and customer and vendor interfaces to improve forecasting, timing of purchases, and end-to-end delivery methods.

A trend toward reshoring and regionalization has taken hold for the purposes of restoring reliability and timeliness of supply chains through order fulfillment. Skilled labor shortages and compliance with carbon emission reduction throughout the supply chain will impact future costs of revenue.

Top Business Challenges for Manufacturing Companies

“With a majority of manufacturing and distribution companies experiencing growth, plant management staffing needs are high. The candidate demand in the marketplace makes it even more crucial for companies to increase salaries in order to attract and retain employees who possess the experience, skill set, education and industry knowledge required.” SHERRIE WHATTON, PRESIDENT/CEO, LBMC STAFFING SOLUTIONS

Digitization

Digital solutions are a double-edged sword in manufacturing and distribution. While improved technology infrastructure can create more efficient production and real-time updates for supplies and distribution, digitization may also commoditize some areas of hardware manufacturing.

CFOs and owners must have the cash flow to invest in more efficient equipment and processes while also paying attention to emerging digital competition and how to get ahead of it. Training is also a key concern as technologies evolve on the factory floor and in the office.

Skilled Labor

Increased wages and signing bonuses have helped some manufacturers and distributors attract unskilled talent who can be trained on the job. However, the industry is struggling to attract STEM professionals who expect simplified user interfaces and integrated teams not yet found on the factory floor or in logistics. More companies are turning toward outsourced and automated solutions to fill talent gaps and improve capacity and margins.

Those Who Experienced Increased Costs Over the Past Year Cite Areas Primarily Around Labor And Materials/Supplies

Areas of Business Where Costs Have Increased

Sustainability

A macro trend that must be addressed in manufacturing and distribution is compliance with federal and state greenhouse gas emissions reduction throughout the value chain. Executives are tasked with not only their own sustainability and energy optimization practices, but also those of their suppliers and customers. Over the last few years, environmental supply chain compliance has not been a high priority for executives, but it may need to be sooner than later.

Growth Opportunities & Optimism

Among the top growth industries in Tennessee, advanced manufacturing and supply chain management are two of the strongest. Lower cost of doing business relative to other states as well as a strong transportation system make Tennessee attractive for growth of these industries.

Although the sector did experience more layoffs in Tennessee compared to other industries, overall manufacturing leaders are expecting increased revenues in 2024 by targeting new customers and increasing sales in existing and new markets.

“Over the next two to three years, there are going to be dramatic changes to how businesses run their day-to-day operations. Between inflation, threats of a recession, struggles to retain workforce and access to capital, Nashville businesses are either going to sink or adapt so they can swim, and a good chunk of adaptation will likely occur in the artificial intelligence space.” JEFF DRUMMONDS, TAX SHAREHOLDER

Business Performance and Strategies for Manufacturing Companies

Sales & Profitability Strategies

As more manufacturers must train their workforce on the job, there will be increased focus on streamlined training and development modules.

This may require more reliance on outside partners as part of new technology investment and implementation. In the coming year, we anticipate further investment in robotics, sustainable supply chains, and research and development. In the long run, these investments can produce efficiencies and innovation that allow management to focus more of their time on division strategy and growth.

“M&D businesses should look for opportunities to stabilize and improve cash flows. For companies with multiple divisions and/or selling multiple products, a thorough analysis of gross and net margins can lead to decisions that produce higher profitability and increased cash flow. For many businesses, divisional and product line margins have been abnormal since 2020, with variable materials costs, increasing labor costs, and more expensive debt as contributing factors. Precise and timely cost accounting processes will help these companies navigate volatile and disruptive periods.” ANDREW J. USERY, CPA, CIA, CMA, AUDIT SERVICES SHAREHOLDER, MANUFACTURING AND DISTRIBUTION SEGMENT LEADER

Capital Spending

Capital spending will be down in manufacturing and distribution except for focus areas on employee training and development or efficiency tools. From our survey and CFO outlooks, CFOs want to improve inventory management, automate more business processes to cut down on manual labor, and create more agile teams with diverse skill sets.

“In the second half of 2023 there has been an increased focus on optimization. With much of manufacturing in the relative doldrums, a growing number of leaders are pulling back on discretionary spending, including on contractors and consultants, to hone in on what’s proven and profitable. Driving their thinking are higher labor costs and lingering supply- chain issues that have lead times still higher than where they were pre-COVID.

There’s really an element of getting the engine running on all cylinders; there’s not much concern among our clients about a serious economic downturn over the next two years. People are taking what’s working and focusing on that.

That includes getting more from relatively recent investments in both technology and workers. New software, including nascent artificial intelligence tools, and equipment haven’t been maximized, and staff hired since the depths of the pandemic are often just now hitting full stride. On the flipside, some leadership teams are abandoning projects that haven’t progressed as planned to safeguard some of their capital.

Things have stabilized, and now companies are looking for a return.” AARON HALE, SHAREHOLDER IN THE AUDIT DIVISION OF LBMC

M&A Activity

Small and mid-sized manufacturers will be the targets for M&A in 2024. Investors will go downstream for more reasonable deals while business executives seek growth opportunities by merging with or acquiring competitors.

Distribution companies have even more options with M&A, but they need to consider their entire operation in the deal to realize scale and ongoing growth — without sacrificing customer experience.

Key Business Topics for Manufacturing and Distribution Industry in 2024

Data Security

Although many manufacturers have increased their data security measures since 2021, the industry must remain vigilant about unauthorized access to data and malware attacks. Downtime due to security breaches can cost thousands of dollars and impact talent retention. As manufacturers and distributors automate more processes, cybersecurity measures will advance in tandem.

Rising Costs

Labor costs, supply chain costs, automation investment costs, elevated interest rates…the list of rising costs in manufacturing and distribution seems endless. Business leaders in our survey did not appear concerned overall about their financial security, but smaller manufacturers with under $10 million in revenue may be among those worried about access to capital if a recession hits. Though interest rate cuts are forecasted, cost of debt will remain elevated through 2024.

While supply chain issues have improved in the past year, there is still disruption, and the continued rising cost of goods and services has placed significant pressure on gross margins. In 2024, we expect to see increased pressure on EBITDA, cash management, and debt covenant compliance.” JIM MEADE, CEO, LBMC, PC

2024 Outlook for Manufacturing and Distribution Companies

While the manufacturing and distribution sector is optimistic about increased revenue in 2024, the realities of rising costs and necessary digital investments may weaken their operating results in the coming year. Leaders who learned valuable lessons from the pandemic can enjoy growth through increased efficiency and retained talent as well as secure, sustainable supply chains.