Product revenues rising, challenges remain

According to an Institute of Supply Management survey of about 400 purchasing and supply management executives, revenue in the U.S. manufacturing economy is expected to grow at three times the pace of the service sector in 2008. The survey showed an expected 6.8 percent revenue increase in manufacturing and that 62 percent of manufacturers project higher revenue in 2008.

This upbeat outlook for the manufacturing industry is welcome news, as this sector undergirds the economy and is a generator of wealth in this country. Manufacturing’s chief contribution to economic growth lies in its innovation, productivity and the multiplier effect of generating more business in other sectors of the economy.

All things are not rosy, however, and the manufacturing industry continues to face challenges.

Manufacturing in the United States is like working in shifting sand, and manufacturers must be resilient and adaptable to changing conditions. While challenging, it’s also part of the allure of the industry. With ongoing pricing pressures and rising costs, manufacturers cannot afford to sit back, or else they will soon be overtaken.

Another tremendous challenge facing manufacturers is the escalating cost of health care. Access to affordable health care has been, and will continue to be, a major quest for employers. Manufacturers historically have provided generous benefits for their employees, and almost 85 percent provide health care benefits – surpassed only by the government. As costs continue to rise, however, some companies are now spending more than 30 percent of their sales on health care expenses. This level of spending, coupled with annual increases, will not be sustainable in the future.

In 2005, SAMA received a waiver from the Missouri Department of Insurance to pilot an association health plan so that its members could form a consortium and leverage their buying power. In 2006, the SAMA I Health Care Consortium was formed, consisting of 32 member companies and representing about 2,000 covered lives. This provided access to affordable health care, with six of these companies now able to offer group health care for the first time. A change in Missouri insurance law in 2006 provided the opportunity for SAMA to form additional consortiums. Beginning Jan. 1, the SAMA I Health Care Consortium will be enlarged to represent almost 50 groups with more than 3,000 covered lives. Not only does the SAMA I Consortium provide access to affordable health care, but employers also receive extensive data and reports to analyze what is driving costs. As a result, consortium members have implemented wellness programs in their companies and will continue to research measures that can improve the health of their employees and reduce costs.

Another major hurdle facing the manufacturing industry is a shortage of skilled workers. More than 80 percent of respondents to the 2005 Skills Gap survey conducted by the National Association of Manufacturers stated that they could not find qualified workers to fill their job openings. In the survey, 90 percent said they could not find enough skilled production workers, and 65 percent said they could not find enough scientists and engineers. A January 2007 survey of SAMA members in southwest Missouri indicated a similar shortage, especially of entry-level production workers.

Another challenge – what’s new? Stay tuned to see how manufacturing overcomes this latest challenge.

Rita Needham is the executive director of the Southwest Area Manufacturers Association.

She may be reached at rneedham@samamo.org.