Research Alert: Manufacturers Targeting 1.5 Percent Cost Reduction in 2013 To … – MarketWatch (press release)

MIAMI & LONDON, Mar 07, 2013 (BUSINESS WIRE) —
US manufacturers are targeting an aggressive 1.5 percent reduction in
cost of goods sold (COGS) for 2013 in an effort to drive margin growth,
according to a new study from The
Hackett Group, Inc.

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With GDP growth stabilizing in major regions of the world, manufacturers
are expecting reduced sales forecast uncertainty, enabling them to plan
supply requirements and manufacturing capacity with far greater
confidence, the study found. The Hackett Group’s research showed that
companies are taking advantage of this stability by looking inward for cost
reduction opportunities and other improvements: companies are
turning to strategic
sourcing, improving their operations, and optimizing their supply
chain networks.

According to the research, the focus for 2013 cost improvements will
continue to move away from outsourcing and towards internal
manufacturing productivity, which is expected to contribute nearly 50
percent of the overall improvement. The Hackett Group found that while
companies aggressively used outsourced manufacturing to reduce costs
through 2011, starting in 2012 companies shifted away from this
strategy, and expect to be much less reliant on outsourcing for savings
in 2013 as well.

Last year The Hackett Group issued research
showing that the tide has begun to turn on the flow of manufacturing
jobs from the U.S. to China and other low-cost countries. The research
found that some companies are already reshoring a portion of their
manufacturing capacity, and this trend is expected to reach a crucial
tipping point by 2015, as the total landed cost gap between the two
nations continues to shrink, driven in part by rising wage inflation in
China and continued productivity improvements in the U.S. The new
study’s findings indicate that manufacturers are indeed shifting focus
of improvement initiatives away from offshoring and outsourcing.

“Over the past few years major companies have outsourced the large
majority of the activities that can be managed by third parties, to take
advantage of low-cost locations,” said Dave Sievers, a Principal and the
Practice Leader of The Hackett Group’s Strategy & Operations Practice.
“But in many cases the labor cost gap is shrinking, making on-shore and
near-shore manufacturing much more attractive. At the same time, new
opportunities for cost reduction are emerging, including internal
optimization, materials cost cuts, and reduced energy prices. For 2013,
companies are clearly focusing on building the skills and infrastructure
they need to take advantage of these trending opportunity areas.”

The Hackett Group’s research found that manufacturers are targeting a
1.5 percent reduction in the cost of goods sold for 2013. A significant
portion of this will be driven by a planned 1.7 percent reduction in
internal manufacturing costs, which is on top of a 1.8 percent reduction
in 2012. In addition to internal manufacturing efficiencies, purchased
material cost reductions are expected to reach 0.5 percent of total
materials cost in 2013, 0.3 percent lower than 2012, as companies
continue to lock-in savings from favorable commodity price markets.

Favorable energy prices as well as stable aggregate demand also helped
spur a 1.8 percent reduction in logistics and 1.5 percent reduction in
warehousing costs during 2012. This trend is expected to continue in
2013 with companies anticipating additional savings of 2 percent in
logistics costs and 1.7 percent in warehousing costs. “With demand
really beginning to stabilize in 2012, companies began to optimize their
existing distribution networks, reducing overhead and operating costs.
We expect this to be a significant trend going into 2013,” said Len
Prokopets, Associate Principal, The Hackett Group’s Strategy &
Operations Practice.

In order to achieve these performance improvements, companies are
focusing on supply
chain strategy, and plan to increase investment in their supply
chains by nearly 3 percent in 2013. Interestingly, the research showed
that only 20 percent of the total investment will go toward upgrading or
building new capacity (down by half from 2012). Instead, key 2013
investment priorities will include IT, skills and training to improve
processes, and supply partners to develop joint capabilities and
products.

More details on the research findings are available on a complimentary
basis, with registration, at: http://www.thehackettgroup.com/research/2013/manufacturing-cost/

About The Hackett Group

The
Hackett Group

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, a global strategic business
advisory and operations improvement consulting firm, is a leader in
best practice advisory, business
benchmarking, and transformation consulting services including
strategy and operations, working
capital management, and globalization advice.

Utilizing best practices and implementation insights from more than
7,500 benchmarking studies, executives use The Hackett Group’s
empirically-based approach to quickly define and implement initiatives
that enable world-class performance. Through its REL group, The Hackett
Group offers working capital solutions focused on delivering significant
cash flow improvements. Through its Archstone Consulting group, The
Hackett Group offers Strategy & Operations consulting services in the
Consumer and Industrial Products, Pharmaceutical, Manufacturing, and
Financial Services industry sectors. Through its Hackett Technology
Solutions group, The Hackett Group offers business application
consulting services that help maximize returns on IT investments. The
Hackett Group has completed benchmark studies with over 2,800 major
corporations and government agencies, including 97% of the Dow Jones
Industrials, 86% of the Fortune 100, 90% of the DAX 30 and 48% of the
FTSE 100.

More information on The Hackett Group is available: by phone at (770)
225-7300; by e-mail at info@thehackettgroup.com.

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SOURCE: The Hackett Group

        
        The Hackett Group 
        Gary Baker, 917-796-2391 
        Global Communications Director 
        gbaker@thehackettgroup.com
        

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