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Home > Coronavirus > U.S. manufacturing sector hit hard by COVID-19, new RSM data shows

U.S. manufacturing sector hit hard by COVID-19, new RSM data shows

May. 15, 2020 by Jason Alexander

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The recession in the U.S. manufacturing sector that began in the second half of 2019 has been sharply exacerbated by the COVID-19 pandemic, new proprietary data from RSM shows.

Significantly more middle market manufacturers reported losses to U.S. revenue and greater disruptions to operations and their supply chains than the retail, technology and fintech sectors, according to survey results from the second quarter RSM US Middle Market Business Index, a measure of business sentiment among midsize U.S. companies.

Seventy-one percent of the 107 manufacturers polled in an industry-focused data oversample—a weighted component of the survey—said they had lost U.S. revenue at the time the survey was fielded between April 8 and April 23, while 73% experienced disruptions to domestic operations or production. More than 60% said they expected those problems to continue over the next six months.

Additionally, some 69% of manufacturers experienced delays in their supply chain, a higher incidence than that of the retail, technology and fintech counterparts in the oversample of 416 executives. Seventy-one percent see the delays continuing during the next six months.

China is at the heart of many global manufacturers’ value chains for a wide array of goods. It should come as no surprise that value chains in the manufacturing sector have been severely constrained by the pandemic, with factories and businesses coming to a standstill following government-backed closures to slow the virus’s spread.

Over the past thirty years, a significant portion of global manufacturing production has transformed into what are commonly referred to as global value chains. Raw materials and intermediate goods are moved around the world, assembled in one location and ultimately re-exported to consumers across the globe.

Source: RSM US Middle Market Business Index, Q2 2020 oversample; data compiled by the Harris Poll.

Lowest cost will not prevail in new world order

Because of COVID-19, many manufacturers have already begun rethinking approaches to their global supply chains and international outsourcing of production. A new view is emerging, focused on avoiding future supply shocks while increasing supply chain resilience. That compares to past practices where the primary desire was to optimize operations by minimizing costs, reducing inventories and driving up asset utilization.

Beyond supply chain changes, manufacturers are facing new conditions at their plants as they bring their operations back online. Those polled in the oversample have taken a host of measures to offset COVID-19 risk, with 70% or more asking sick workers to stay home, increasing the cleaning of workplace surfaces, providing hand-washing facilities stocked with soap and paper towels, and encouraging workers to avoid face-to-face meetings, among other moves. Manufacturers will also have to consider potential social distancing protocols and other safety measures that may have a negative impact on overall output.

It is clear that this pandemic is disrupting manufacturing and global value chains, with consequences for businesses, consumers and the global economy that are not going to be fully seen for some time. Research has shown that companies that increase their R&D in downturns significantly outperform their peers.

Manufacturers should leverage their investments in technology to increase the visibility of value chains, reevaluate their supply chains with a more regional focus, and look for ways to shorten supply chains to be nearer to their customers.

They should also use this time to be offensive, looking for new sources of revenue, including evaluating direct-to-consumer models and partnerships, as well as aftermarket services, especially around value-added activities.

Over the past few months, businesses have had to become agile and move in ways that would previously have been thought impossible; they should leverage this new momentum to continue to drive efficiencies in their value chain. Ultimately, the COVID-19 pandemic underlines the need for manufacturers to shift their focus to risk competitiveness and away from the traditional model optimized for cost competitiveness.

Read the full second quarter MMBI Q2 report, and visit RSM’s Coronavirus Resource Center.

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Filed Under: Coronavirus, Economics, Industrials Tagged With: coronavirus, Covid-19, manufacturing, middle market

About Jason Alexander

@jaalex53

Jason assists clients in the industrial products, consumer products and financial services industries and has more than 15 years of experience serving large multinational clients with particular emphasis on SEC clients, Fortune 500 and middle market companies. Jason has previously advised clients in the areas of accounting, risk management, mergers and acquisitions, process design and improvement, internal audit, regulatory compliance, internal and external financial reporting and information technology system implementation. Strong record of accomplishment of people, team and practice development across North America, Europe, Latin America, Africa and Asia.

Jason is also on the Board of Directors of the RSM US Foundation and a member of RSM’s cutting edge Industry Eminence Program, which positions participants to understand, forecast and communicate economic, business and technology trends shaping the industries RSM serves.

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