A large majority of manufacturers in the United States are considered small, whether a lower middle-market firm or a true small business. In 2015, there were 251,774 firms in the manufacturing sector, with roughly 74% of the firms having 20 or less employees and 98.5% of the firms having less than 500 employees. (Source: US Census Bureau, Statistics of US Businesses)
Having worked with a significant number of manufacturing, consumer and industrial products and food processing clients over the years, particularly in the middle-market arena, we have observed five key areas that can be better managed and improved to increase business performance and profitability. Participants in the lower middle-market, and larger small businesses typically reach a threshold where many of these issues, if not properly managed, can significantly reduce profitability and performance.
Additionally, when revenue is increasing, management is less cost sensitive. Further when growth occurs a fast rate over a short period, inefficiencies can develop and margins can sometimes drop. For manufacturing in the US, solid growth occurred. Overall, the Manufacturing Sector: Real Output increased in the 4th quarter of 2018 to 109.04. The previous year’s 4th quarter level was at 105.9. This is a solid three percent gain year over year. This measurement is indexed at 2012 levels 2012 = 100). (Source: US Bureau of Labor Statistics, Manufacturing Sector: Real Output [OUTMS], retrieved from FRED, Federal Reserve Bank of St. Louis)
Addressing one or more of these areas can have a dramatic impact on your company’s profitability. In many cases, your organization can begin with a relatively simple assessment by an outside professional or internal resource. However, make sure to get the right professional with expertise in that area to assist your organization so you can make the most of the effort and maximize your cost savings or value add.