Industry Insight

Great Lakes plants lag behind others throughout the country when it comes to efficiency, according to Grant Thornton's “2008 Great Lakes Manufacturing” report, which analyzes financial and operational information using benchmarking data from the IndustryWeek/ Manufacturing Performance Institute 2007 Census of Manufacturers.

Nationally, 75 percent of designed plant capacity is in use, compared to just 70 percent among Great Lakes manufacturers, according to the second annual report. And while plants in other regions have seen production volumes rise by a median 5 percentage points over the last three years, Great Lakes plants have only risen by a median 1.5 percentage points.

Those gaps may hold the potential for gains by many companies.

“We want to help manufacturers in the Great Lakes region maintain their global leadership,” says Rick Gross, an audit partner and Consumer and Industrial Products (C&IP) industry group leader for the Cleveland office. “The goal is to help guide them and improve their facilities.”

The report, a three-part series, takes an in-depth look at different manufacturing activities, comparing the performances of Great Lakes plants (including Ohio) versus facilities in other states.

The first report focuses on costs and investments among Great Lakes manufacturing plants, covering three primary topics: production volumes, controlling costs and capital investments.

Although Great Lakes manufacturers have seen an uptick in their overseas sales, the increases in production costs continue to rise faster, leading to price increases. Seven out of 10 manufacturers in the region increased their pricing over the past year, with the vast majority of them increasing prices from 1 to 10 percent over last year.

“Often the price increases are meant to combat the capacity issues,” Gross explains. “There are few production costs that haven’t risen over the last few years, but the impact of those costs continue to increase.”

In fact, components/materials and utilities/fuel were by far the biggest production cost increases for the region, with some companies reporting a double-digit rise. All Great Lakes manufacturers reported an increase in wages, benefits and transportation costs.

No manufacturer can build a long-term strategy on aging or outdated equipment. The report revealed Great Lakes manufacturers are not investing in capital equipment as much as those in other regions —an area that may be holding them back in terms of growth and innovation. However, approximately 43 percent of Great Lakes plants indicated they planned to increase capital-equipment spending in the next year.

“That’s a sign they realize that a strategic plan should be put into place for capital investments, which, in turn, will lead to lasting ability to improve profitability,” Gross says.

The second part of Grant Thornton’s report series covering operations was released in April, and the final report on human resources issues will be this summer.

Grant Thornton maintains its focus, experience and expertise in the manufacturing sector, an industry that falls under the umbrella of C&IP. Both locally and nationally, C&IP remains the firm’s largest industry group and accounts for approximately 60 percent of the Cleveland office client base.

For more information or to request a report, visit www.grantthornton.com.Grant Thornton’s manufacturing report looks into the challenges faced by manufacturers in the Great Lakes.

By Amanda Stephenson