“The State of Manufacturing”

Scott Bjornstad,
Regional Business Development Leader, McGladrey

© 2012 McGladrey LLP. All Rights Reserved.© 2013 McGladrey LLP. All Rights Reserved.
2013 McGladrey Manufacturing & Distribution Monitor
National Association of Manufacturers 2013 CMA Summer Meeting
Presented by Scott Bjornstad, McGladrey LLP
July 29,2013
Strategies for Growth: 2013 Monitor Results

About McGladrey
 80+ year history
 Fifth-largest provider of accounting, tax and business
consulting services in the U.S.
 We provide services to more than 8,000 midsize
manufactures and distributors across the nation
 75 U.S. offices; offices in 85 countries worldwide
 6,500 professionals nationally, 32,000 worldwide
4

Economic Update
5

Source: Bureau of Economic Analysis, NAM calculations using Moody’s Analytics simulation model
Real gross domestic product
(Chained 2005 dollars)
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Real GDP Forecast:
↑ 1.8% (2011)
↑ 2.2% (2012)
↑ 2.1% (2013)
↑ 3.2% (2014)
NAM
Forecast
6

Source: Bureau of Labor Statistics
Employment situation
4%
5%
6%
7%
8%
9%
10%
11%
6
7
8
9
10
11
12
13
14
Nondurable Goods Durable Goods Unemployment Rate
Millions
of workers
Unemployment rate
7

Source: Bureau of Labor Statistics
Manufacturing sectors with the largest
net employment gains
1.1
2.8
5.5
7.3
11.9
20.3
45.0
46.2
124.4
178.7
182.6
Chemicals
Petroleum and coal products
Miscellaneous durable goods manufacturing
Electrical equipment and appliances
Miscellaneous nondurable goods…
Food manufacturing
Primary metals
Plastics and rubber products
Machinery
Fabricated metal products
Transportation equipment
Manufacturing sectors with the largest net employment
gains YTD, in thousands of employees
(December 2009 to June 2013)
8

Source: U.S. Census Bureau, National Association of Home Builders
Housing market situation
Housing starts, permits
(in thousands of units)
NAHB Housing
Market Index
0
10
20
30
40
50
60
70
80
0
500
1,000
1,500
2,000
2,500
2005
2006
2007
2008
2009
2010
2011
2012
2013
Housing Starts Housing Permits NAHB Housing Market Index
9

Source: Institute for Supply Management
ISM Manufacturing Indices
20.0
30.0
40.0
50.0
60.0
70.0
Purchasing Managers Index New Orders Index Employment Index Inventories Index
10

The 2013 Manufacturing &
Distribution Monitor
11

The 2013 Manufacturing & Distribution Monitor
 Fielded - March 2013
 Report release - June 19, 2013
 1067 total participants
 80% private or closely held businesses
 12% private equity-owned businesses
 C-level executives
- 51% CEO
- 29% CFO
12
Demographics/Profile of participants

 The McGladrey Monitor is considered the ―the voice‖ of M&D in the
middle market
 Strategic partnerships with 118 trade associations to leverage the
Monitor results (i.e. National Association of Manufacturers, National
Association of Wholesale Distributors, Illinois Manufacturers’
Association, etc.)
 This year we issued a total of 23 reports
- Manufacturing & distribution report
- Distribution-only report co-branded with the NAW
- Food & beverage report
- Consumer products report
- 13 state benchmark reports
- 6 customized association reports
13

Topics covered in the 2013 McGladrey Monitor
 Business conditions
 Business optimism
 Corporate objectives
 New products and services
 Sales growth and strategies
 Cost expectations and maintaining margins
 Workforce
 On-shoring
 Information technology
14

Business conditions year over year
15
40% 10% 3% 5% 7%
52%
66%
53%
56%
61%
9%
24%
45%
39% 32%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013
Five-year business conditions
Declining Holding own Thriving

Business conditions year over year
16
40% 10% 3%
5% 7%
52%
66%
53%
56%
61%
9%
24%
45%
39% 32%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013
Five-year business conditions
8% 6%
61% 62%
31% 31%
All Manufacturers NAM
Decline Holding steady Thriving

F&B businesses are most likely to be thriving
Industry Sectors 2009 2010 2011 2012 2013
Aerospace — — — 34% 20%
Automotive (OEM and aftermarket) 53% 45% 29%
Biotech, life sciences, medical equipment and supplies 25% 37% 47% 45% 38%
Building materials 6% 8% 32% 28% 33%
Chemicals, petroleum and plastics 13% 33% 49% 40% 33%
Computers, electronics, electrical components and appliances 9% 17% 52% 41% 29%
Energy and cleantech — — 62% 48% 19%
Food and beverage 19% 49% 47% 47% 40%
Furniture and fixtures 16% 32% 34% 23%
Industrial and commercial machinery 5% 21% 62% 43% 27%
Metal fabrication 6% 15% 48% 41% 19%
Textiles, apparel and accessories 21% 35% 16% 20%
Transportation 5% 28% 49% 50% 27%
Wood, paper products and printing 7% 16% 31% 29% 31%
Other — — — 41% 33%
Percentage of thriving businesses
17

Key findings
18
 Business optimism
 Growth challenges
 Workforce
 Business proximity
 Technology

Key finding ‒ Business optimism
19

Key finding ‒ Business optimism
50%
62%
78%
90%
17%
47%
71%
83%
33%
49%
73%
85%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
World economy
U.S. economy
Your industry
Your company
2013
2012
2011
Business optimism year-to-year
20

Business optimism by NAM respondents
30%
43%
65%
84%
33%
49%
73%
85%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
World economy
U.S. economy
Your industry
Your company
All respondents
NAM respondents
Business Optimism
NAM Respondents vs. National Aggregate
21

Optimism highest among thriving businesses
Percentage that reported optimistic or very optimistic
All businesses vs. Thriving businesses
22
41%
61%
87%
98%
34%
49%
73%
85%
World economy
U.S. economy
Your industry
Your company
All businesses Thriving businesses

Key findings ‒ Regulatory and policy affects on
growth
23

Key findings ‒ Regulatory and policy affects on
growth
52%
52%
57%
63%
67%
69%
71%
74%
43%
46%
40%
28%
27%
28%
24%
15%
1%
1%
2%
8%
2%
1%
1%
8%
4%
1%
1%
1%
5%
2%
4%
3%
Increase in capital-gains/dividends
Increase personal tax rate highest-earning
bracket
Skills shortages
Material/Components pricing
Federal deficit
Increase in payroll taxes for SS/Medicare
Implementation of Obama care
Government regulations
Limit or Significantly limit No effect Improve or Significantly improve Don’t know
24

Regulatory and policy affects NAM respondents
65%
60%
75%
74%
67%
87%
52%
52%
66%
69%
71%
74%
Increase in capital-gains/dividends
Increase personal tax rate highest-earning
bracket
Federal deficit
Increase in payroll taxes for SS/Medicare
Implementation of Obama care
Government regulations
All respondents NAM Respondents
Regulatory and policies that will limit or significantly limit
25

Sales changes (% of businesses)
63%
57%
69%
82%
31%
29%
10%
7%
6%
14%
21%
11%
Non-U.S. Sales
NEXT 12 months
Non-U.S. Sales
PAST 12 months
U.S. Sales NEXT
12 months
U.S. Sales PAST
12 months
Increased No Change Decrease
26

U.S. sales changes (averages and medians)
27
7%
8%
5%
6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
U.S. Sales Past 12 MonthsU.S. Sales Next 12 Months
Average
Median
NAM 6%
NAM 5%
NAM 7%

Non- U.S. sales changes (averages and medians)
28
7% 7%
0% 0%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Non-U.S. Sales Past 12 MonthsNon-U.S. Sales Next 12 Months
Average
MedianNAM 3%
NAM 5%
NAM 6%

Price changes in next 12 months (averages
and medians)
29

Costs trends consistent across business types
Types of Costs Respondents expect an Percent of businesses
Inventory/material/components
Decrease 9%
No change 7%
Increase 84%
Transportation/fuel
Decrease 2%
No change 9%
Increase 89%
Energy/utilities
Decrease 5%
No change 15%
Increase 80%
Cost of debt
Decrease 6%
No change 56%
Increase 37%
30

Key finding ‒ Workforce
31

Key finding ‒ Workforce
Employment changes in next 12 months (all businesses)
1.6 %
increase
4.4 %
increase
4.3 %
increase
% of Increase for NAM responses:
Total employees 4.0%
U.S. employees 4.7%
Non-U.S. employees 1.1% 32

Thriving businesses will lead 2013 hiring
Percentage of businesses expecting employee increases in next 12 months
26%
23%
25%
46%
59%
59%
62%
79%
81%
Non-U.S. employees*
U.S. employees
Total employees
Thrivng
Holding steady
Declining
 Thriving - 6.9% total employee increase (average)
 Holding steady - 3.6% total employee increase (average)
 Declining - 1.2% total employee decrease (average)
 Thriving NAM respondents indicated a 7.1% total employee increase (average)
* based on businesses currently with non-U.S. employees
33

Workforce – Employee costs are a concern
72%
91%
93%
28%
7%
5%
1%
2%
2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Other benefits
Health care
costs
Wages
Increase No Change Decrease
Healthcare costs are expected to increase by
an average of 10.2 percent!
Wages to increase by 3.5%
Other benefits to increase by 3.4%
34

Workforce – Percent of increase for employee
costs
76%
94%
94%
72%
91%
93%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Other benefits
Health care
costs
Wages
All respondents NAM respondents
10.2 % average increase
NAM- 11.2% average increase
Percent of increase
35

5% 44% 44% 6% 1%NAM
Many businesses are have trouble finding
skilled talent
Percentage of businesses finding the talent they need
6%
6%
6%
51%
58%
47%
37%
31%
40%
6%
5%
7%
All Businesses
Distributors
Manufacturers
Always Most of the time Some of the time Rarely Never
43%
51%
36

Internal training is key in developing skills
Percentage of businesses using the following techniques to prevent or address skills
78%
33%
31%
22%
21%
18%
14%
6%
5%
10%
Internal training and skills-development programs
Collaboration with vocational/technical schools
Collaboration with colleges and universities
Apprenticeship programs
Outsourcing activities for which skills are lacking
Collaboration with trade associations
Collaboration with high schools
Recruiting talent from outside the United States
Other
Not doing anything to address skills gaps
37

Specific capital-expenditures changes in the
next 12 months
38

Specific capital-expenditures changes in the
next 12 months
39

Key finding – Business proximity
Key finding ‒ Business Proximity
40

Importance of business proximity
41
16%
28%
13%
12%
13%
14%
20%
15%
28%
52%
31%
41%
1%
13%
3%
Customers
Engineering, R&D, product
development
Supply chain
1 = Not important 2 3 4 5 = Very important

Importance of business proximity to NAM
respondents
42
19%
24%
12%
15%
13%
16%
20%
16%
29%
22%
18%
26%
21%
25%
16%
Customers
development
Supply chain
1 = Not important 2 3 4 5 = Very important
16%
28%
13%
12%
13%
14%
20%
15%
28%
52%
31%
41%
1%
13%
3%
Customers
development
Supply chain
All respondents
NAM respondents

On-shore vs. Off-shore
43
87%
85%
92%
9%
11%
4%
5%
5%
4%
All businesses
Manufacturers
Distributors
Relocate some U.S. operations/functions overseas-offshore
Not likely Somewhat likely Very likely

On-shore vs. Off-shore
44
87%
82%
95%
10%
12%
5%
4%
5%
1%
All businesses
Manufacturers
Distributors
Bring some operations/functions back to the United States-onshore
Not likely Somewhat likely Very likely

Why the optimism toward a manufacturing
comeback?
 Cheap U.S. natural gas and
other increased energy
production are helping to power
U.S. factories more
efficiently, with gas especially
providing inexpensive raw
materials for U.S. manufacturers
of plastics, tires, certain
pharmaceuticals and other
petrochemical products.
 Higher wages in China and
other foreign export markets are
making outsourcing less
profitable to U.S. firms.
 Congressional approval in 2011
of trade agreements with South
Korea, Colombia and Panama
and other agreements being
negotiated now with Asia and
Europe are promising to open
more foreign markets to U.S.
products.
 High U.S. unemployment is
relieving pressure on factory
owners to increase
wages, helping to make U.S. labor
costs more globally competitive.
 Major technology advances
have steadily boosted factory
efficiency and worker productivity.Source: AP- April 4, 2013
45

Key finding ‒ Technology
46

2%
5%
7%
9%
9%
11%
12%
12%
13%
15%
16%
17%
22%
25%
0% 5% 10% 15% 20% 25% 30%
Enterprise asset management
Product lifecycle management
Supplier management system
Manufacturing execution system
Transportation management systems
Financial management system
Warehouse management systems
Other
Social media applications
Business analytics
Mobility solutions (including tablets)
Enterprise resource planning
Customer relationship management
Internet and web applications
IT new purchases or major upgrades (% of businesses)
Key finding ‒ Technology
27% of NAM respondents
stated that they plan to
purchase /make a major
upgrade to Internet and
web applications
47

68%
26%
6%
All businesses
Not at risk/Some risk Neutral At risk/Very much at risk
Technology – Data risks
66%
27%
6%
Manufacturers
70%
25%
6%
Distributors
Perception of information/data risks (% of businesses)
68% of NAM respondents also believe they are not at risk/some risk
48

Majority of businesses use social media
Percentage of businesses using social media for business activities
4%
4%
5%
15%
13%
13%
40%
39%
38%
12%
13%
15%
25%
27%
26%
3%
4%
3%
All businesses
All
manufacturers
NAM
Extensive use Moderate use Some use
Plan to use No plans to use in future Don't know
59%
49

Best practices of thriving and growing companies
50
 Continuous improvement
There is a strong correlation between those companies that consistently deploy process improvement and
quality programs and those that are thriving.
 International expansion and exporting
Overseas sales are recognized by thriving companies as a key driver for growth. Companies that have
expanded their customer bases outside the United States tend to have better financial performance.
Training and productivity
Training the workforce to operate increasingly sophisticated technology helps close the skills gap and
increase productivity. Not surprisingly, most thriving businesses will provide internal training and skills
development programs.
 Information technology
Investing in new or upgraded information technology allows these companies to develop innovative
products, decrease cycle time and increasing productivity. Management can also invest in software to gain
access to corporate performance information that they can translate into actionable plans, thereby giving
them a competitive advantage over their competitors.
 Measuring procurement
Strategy sourcing practices allow businesses to manage their vendor relationships by measuring and
tracking their procurement delivery and costs. On-time delivery is rated a top priority for thriving
companies.

Questions?
51

For a copy of the full 2013 McGladrey Monitor Report please
visit our website at www.mcgladrey.com
52

Contact me
53
Scott Bjornstad
Senior Director
McGladrey LLP
scott.bjornstad@mcgladrey.com

 This year we will also be issuing
State Benchmark Reports (SBRs)
for the states that meet the minimum
sample size requirement.
 Those states are:
- California - Illinois
- Indiana - Iowa
- Maryland - Minnesota
- New York - North Carolina
- Ohio - Pennsylvania
- Texas - Washington
- Wisconsin
54

Example State Benchmark Report (SBR)
55

Example State Benchmark Report (SBR)
56

Each participant will
receive a Customized
Benchmark Report
(CBR) which compares
their results to the
national aggregate and
those within their
industry sector.
57

Example Customized Benchmark Report (CBR)
58

Example Customized Benchmark Report (CBR)
59

U.S. sales changes by business condition
60

“The State of Manufacturing”

“The State of Manufacturing”

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