Manufacturers are planning to continue to invest in their operations in 2023 to grow and to bolster resiliency, despite challenges that include an uncertain economic outlook, erratic supply chains, and a continuing chip shortage. They plan to improve their decision-making using Industry 4.0 and to align their supply chain and tax strategies to mitigate risk, according to the "2023 BDO Manufacturing CFO Outlook Survey."
Some highlights of the survey include:
- 69% of manufacturers saw revenue and profitability increase in 2022.
- 68% will expand US operations.
- 70% say supply chain disruptions will pose some or significant risk to their business in 2023.
- 38% will pursue mergers and acquisitions to respond to a higher cost of goods sold.
- 36% will pursue Industry 4.0 investments.
While 70% of respondents see risk caused by supply chain disruptions, why do nearly an equal number say they will expand their US operations in 2023?
Insulating supply chains from global disruption
“The push to expand US operations reflects manufacturers’ desire to insulate their supply chains from global disruption,” Bill Pellino, partner, manufacturing practice leader at BDO, told PlasticsToday. “The hope is that by expanding US operations along with onshoring and nearshoring, their supply chains will be less exposed to issues like port congestion and tariffs. Onshoring is not a cure-all, however; even manufacturers entirely located within the United States will not be free from disruption. They will still need to contend with costs, domestic extreme weather events, and chronic labor issues.”
That’s why 70% fear supply chain disruptions, but only 23% plan to onshore production to the United States, according to the survey.
“Onshoring is a major supply chain decision that requires significant time and resource investment, and it does not make sense for every manufacturer,” Pellino told PlasticsToday. “I would say that 23% is still a significant figure and add that many more are likely considering onshoring but aren’t ready to get started. For some manufacturers, it may not make sense to onshore from a cost standpoint, and they may choose instead to shift operations to a country neighboring China like Bangladesh or Vietnam, while others might nearshore to Mexico.
No mass exodus from China
“The decision of whether and where to move operations will depend heavily on the specific supply chain involved, meaning the products and materials, availability of labor, cost, and customer base” Pellino told PlasticsToday. “It is also worth noting that 26% of manufacturers plan to expand in China in 2023, per our survey data. Some types of production cannot easily be moved outside of China, whether for cost or material availability reasons. Looking ahead, it’s clear that while manufacturers are rethinking their global footprint, there will be no mass exodus from China. We expect manufacturers will pursue a hybrid model, keeping some operations in China and move certain product lines or facilities to other countries, including the United States.”
The survey said that the chip shortage continues to impact all sectors of manufacturing. It will take years to build enough manufacturing capacity to fully alleviate the shortage and meet long-term demand for chips. Despite this, CFOs said they anticipate some of the effects of the chip shortage to ease over the next 12 months.
“Their optimism has to do with near-term demand for chips pulling back from historic highs, which will put less strain on supply,” Pellino told PlasticsToday. “Long-term demand for chips, however, will continue increasing as more companies pursue digital transformation initiatives and consumers continue to buy products that require chips. The imperative to build more production capacity for chips has not changed. We also won’t see the impact of any new semiconductor manufacturing capacity that was recently announced for a few years, as it takes significant time to get those operations online.”
While the "BDO Manufacturing CFO Outlook Survey" did not specifically target plastics processors, Pellino offered some insights into the plastics industry as it relates to labor and supply chains.
“The plastics industry is experiencing a skilled labor shortage. Competition between plastics manufacturers has caused the cost of labor to rise and strained existing workforces,” Pellino told PlasticsToday. “Some manufacturers have turned to automation to provide relief to the talent shortage. By automating manual processes and improving efficiencies, manufacturers can reduce overhead labor costs and alleviate pressure on current employees. Beyond alleviating labor shortage pressures, it has also been proven that more digitally mature manufacturers have an edge over their competition. Plastics manufacturers who do not invest in automation run the risk of falling behind the competition, as we expect to see increased investment in automation in the coming year. In fact, 36% of all manufacturers plan to invest in digital transformation in 2023.”
Supply chain visibility becoming a priority
Managing evolving supply chains and related regulations will continue to be a challenge.
“Plastics manufacturers are facing evolving supply chains. To maintain regulatory compliance and manage circular supply chains, investments in visibility will be key in the coming year,” said Pellino. “By having greater insight into facilities, people, customers, and materials, manufacturers can make more informed decisions and maintain transparency. In 2023, we expect to see supply chain visibility become a greater priority, as 42% of CFOs surveyed plan to improve supply chain visibility.”
Some plastics manufacturers have reversed course when it comes to managing their supply chains.
“Plastics manufacturers have consolidated vendors over the years to optimize costs. Some are now changing that strategy to build redundancy into their supply chain while knowing that it will likely negatively impact costs. Those manufacturers are willing to sacrifice some profit for decreased supply chain risk,” Pellino told PlasticsToday. “For many US manufacturers, a significant percentage of their supply chain is already located onshore. To decrease supply chain risk, selected plastics manufacturers are outsourcing some product lines to companies located around the United States to limit geographic risk and provide redundancy. According to the survey, 30% of all manufacturers plan to move production to a geopolitically close ally. Finally, some plastic manufacturers are improving relationships with suppliers with favorable payment terms to ensure that when the supply of certain materials decrease, they may continue to receive material.”
The 2023 BDO Manufacturing CFO Outlook Survey, conducted in October 2022, polled 125 US manufacturing CFOs with revenues ranging from $250 million to more than $3 billion. The survey was conducted by Rabin Research Co., an independent marketing research firm, on behalf of BDO, an accounting and professional services firm.