Every January, companies make predictions about the year ahead and what trends they should expect. Bobby Bono, the U.S. industrial manufacturing leader at PwC, has assembled a list of trends he is predicting for the manufacturing sector moving forward.  Bono believes that some of the key challenges industrial manufacturers may face include expecting demand to remain muted in the near term, customers taking longer to make decisions on new orders, investment levels remaining weak, especially in India and China, and more stringent emissions rules causing higher capital expenditures. 

According to Bono, areas of focus for 2014 among industrial manufacturers will be around diversifying and improving the product portfolio mix to adapt to changing market conditions, acquisitions to further broaden capabilities and increase geographic reach, increasing security effectiveness, monetizing non-core assets, and customizing products and services according to customer needs. 

Below is a summary of Bono’s predictions by category.  For more insight on trends that are impacting business, please visit PwC’s website

 Areas of Focus

  • Growth in long-term attractive markets (particularly emerging markets) which adds long-term stability and strength to earnings
  • Diversifying and improving the product portfolio mix to adapt to changing market conditions
  • Acquisitions to further broaden capabilities and increase geographic reach
  • Structurally improving operational performance across the enterprise
  • Reassessing supply chain so that large projects are executed well
  • Increasing effectiveness in the security area
  • Conducting a majority of M&A work outside the US
  • Improving margins and cash flows, and generating strong shareholder returns
  • Realigning efforts toward opportunities for future growth and improved profitability
  • Monetizing (divesting) non-core assets and focus on core businesses
  • Winning new customers around the world, while keeping a close watch on costs and asset levels
  • Customizing products/services according to customer needs
  • Modifying pricing to maintain or improve margins

Key Challenges

  • Companies’ results are impacted by volatile currency movements
  • Emerging markets are experiencing slowdowns in sectors such as mining, infrastructure, etc.
  • Investment levels remain weak, especially in India and China, as projects see delays and cost overruns
  • Declining commodity prices are starting to limit some of the investments
  • Cautious consumer spending is causing slowdowns in some industries (e.g., electronics)
  • More stringent emissions rules are causing higher capital expenditures
  • Pricing competition in low end products, especially in China and Europe
  • Economic recovery is slow and is taking longer than expected
  • Demand is expected to remain muted in the near term
  • Customers are taking longer to make decisions on new orders
  • Customers are trimming production schedules and tightly controlling their inventory levels

Strategic Initiatives

Manufacturing costs and productivity initiatives

  • Initiatives to right size overhead costs for the current level of revenues
  • Aligning structural cost to the slower pace of demand in the current environment
  • Improving productivity and optimizing use of assets to control costs
  • Restructuring actions aimed at reducing headcount and improving cost savings
  • Optimizing supply chain to reduce costs either through higher supplier discounts or operational improvements
  • Monitoring growth of costs vs. growth of sales
  • Managing costs prudently with a sharp focus on select investments
  • Aligning cost structure to better leverage the markets as they return to growth

Debt reduction/working capital management/capital deployment

  • Deriving more efficiencies with vendors and customers to drive working capital benefits
  • Reducing leverage in the current environment, improving working capital conditions
  • Prioritizing near-term cash redeployment toward debt reduction
  • Optimizing inventory to reduce working capital needs
  • Returning capital to shareholders through share buybacks and higher dividends

R&D/product development/expansion

  • Broadening the product base and vendor base to win new customers
  • Adding more products to become a one-stop shop for customer supply chain needs
  • Penetrating the value chain of the diversified, industrial end-user population
  • Investing in innovation and product development opportunities that have expansion potential (from both a geographical and customer point of view)
  • Focusing on localizing products according to geographies
  • Increasing spending on engineering and sales resources

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About Bobby Bono

Bobby is the U.S. industrial manufacturing leader for PwC and is based in Charlotte.  He has served a variety of clients from international, publicly-traded companies to emerging development stage companies.  His experience includes significant involvement with multinational companies and SEC registrants in US GAAP accounting, Sarbanes-Oxley internal control and PCAOB auditing standards, financial reporting, SEC reporting, public registration statements, debt offering and comfort letters and mergers and acquisitions.  He has instructed a variety of technical trainings include revenue recognition, stock compensation, business combinations and current accounting hot topics.