Updated: July 14, 2014
Industry Intelligence from First Research, a division of Hoover's (a D&B company)
More Automation, Less Labor - Productivity has steadily increased in manufacturing because of the increasing use of machines and, especially, computers. Generally, the US industries that have prospered in the past decade have been those where the most automation has been possible and where technology content is high. Manufacturing output per hour between 2010 and 2011 increased nearly 40 percent.
Outsourcing and Leasing - To increase operational efficiency by concentrating resources on primary production and marketing functions, many companies have outsourced services they previously did themselves, such as parts manufacture, maintenance, computer and payroll services, and benefits management. As product life cycles get shorter, building proprietary assembly lines becomes less practical. Contract manufacturers have made it possible for some companies to operate without owning any brick-and-mortar factories. Many manufacturers have also increased the efficiency of their assets by leasing, rather than owning, equipment and facilities.
More Service Required - The greater technological content of many machines and products requires more complicated support such as training, maintenance, operations, and services. Some companies, like IBM, sell more services related to their product than they do the product itself. Large-scale use of computers has created demand for IT services in many industries.
Manufacturing Globalization - The development of international logistics networks that can efficiently deliver raw materials and finished products to many parts of the world has increased the reach of US manufacturers and international competitors. US manufacturers in labor-intensive industries such as apparel now have most of their production facilities abroad. Factories are frequently located in countries for tax, labor costs, or political reasons, rather than proximity to raw materials or markets, as was once the case.
More Alliances, Strategic Investments - The large resources required for many business enterprises, especially in the international sphere, encourage manufacturers to ally with other companies. In some cases, partners produce different components for a product; in others, one partner makes the product while the other provides distribution. Relationships between manufacturers and their suppliers also often take the form of alliances, with strong integration of information systems and regular production consultations. Many large companies now hold "strategic stakes" in smaller companies that are developing new products or markets, enabling them to essentially farm out their R&D efforts.
Reshoring US Manufacturing - Rising wages in the developing world and the complications of far-flung supply chains are causing some US manufacturers to bring back jobs that had been outsourced to other countries. "Reshoring" hit a milestone in 2013 when the US brought back as many jobs as it exported, according to the Reshoring Initiative. In a survey of manufacturers by the Boston Consulting Group, 70 percent found manufacturing in China to be costlier than anticipated, and more than 90 percent felt China's wages would keep rising.
Strong Growth of Industry Revenue - Compared to other industries, revenue growth for distributors has been above average. Over the last decade, distributor revenue grew nearly 55 percent, compared to 40 percent for retailers. Computers, electrical goods, and machinery have been among the leading revenue categories for the wholesale sector.
Increases in Labor Productivity - Industry employment has been cyclical in response to economic slowdowns, but worker productivity has steadily increased in the past 10 years as efficient logistics methods and sophisticated computer systems have become widespread. During the late 2000s recession, industry jobs fell about 10 percent, but productivity held steady. Between 2001 and 2011, industrywide labor productivity increased 30 percent.
Industry Consolidation - In response to the growth of customers who need regional or nationwide service, and because of the greater purchasing power and transportation economies that large operations can produce, some segments of the industry have consolidated. In tires, medical supplies, wine and spirits, and drugs, the largest 50 distributors hold more than 70 percent of the market. About 5,000 distributors have annual revenue over $100 million.
More International Suppliers - Low international freight costs and prices for some foreign goods have encouraged distributors to buy a greater volume of goods from foreign manufacturers. US imports dropped to abnormally low levels in 2009 due to the global economic slowdown, but between 2009 and 2011 total US imports of manufactured goods increased about 15 percent. Imports from China increased 35 percent. As the economy improves, import levels have started to normalize. Large distributors may have buying offices in Hong Kong or other foreign cities; smaller distributors buy through sales offices that foreign companies have set up in the US.
Warehousing & Storage Trends
Logistics Services - From being a passive provider of storage space, the warehousing industry has evolved in the direction of providing logistics services, providing customers with the ability to identify, track, and expedite individual items through the supply chain. Many warehouse facilities are considered high throughput distribution (HTD) facilities rather than long-term storage buildings.
Larger Warehouses, Electronically Equipped - To fulfill sophisticated distribution functions for customers, new warehouses are bigger: 1 million square feet is now a common size. With computer systems now controlling the identification and throughput of individual items, special wiring and outlets are installed in warehouses. In some warehouses, a grid of wires in the floor allows computer-guided forklifts to know exactly where a stored item can be found.
Specialized Equipment - As more warehousing and logistics companies specialize, they require more customized material handling equipment. More site-specific, comfortable, and safe products are especially in demand. Many special requests, such as side restraints to protect drivers if a lift truck tips could eventually become standard.