Manufacturers look to cut costs, focus on supply chain in 2013

The economy has picked up recently and manufacturers are getting operations back into the normal swing of things. Recent data from the Federal Reserve found industrial production during February rose 0.7 percent, and industry capacity utilization reached 79.6 percent last month, it's highest level since March 2008's 80.1 percent.

Now that business conditions have stabilized and companies can take some comfort in production increases, manufacturers are setting their sights elsewhere: cost reduction. A new study found manufacturers are taking advantage of the stable economy to investigate cutting costs, and a big part of the plan is bringing jobs back to the United States and optimizing the supply chain. Businesses looking for a fresh perspective on reducing costs and making their supplier networks more efficient can work with supply chain recruiters to find the most able talent.

Target is margin growth, outsourcing jobs less common
The Hackett Group, a global business consulting firm, recently announced the findings of a study that showed U.S.-based manufacturers have targeted "an aggressive" reduction of 1.5 percent in cost of goods sold (COGS) for the year ahead. Researchers noted the cost reduction initiative is being pursued in a bid to spur margin growth.

The study found manufacturer outsourcing cooled dramatically, which is good news for domestic business and manufacturing recruiters alike. The Hackett Group said outsourcing was a popular cost reduction strategy in 2011, but by 2012, a number of firms moved away from the practice.

The research tipped 2015 as a critical turning point in the re-shoring effort, as Chinese labor wages continue to increase and productivity boosts stateside draw more manufacturing jobs back to the country.

"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, principal and 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."

Investment in supply chain efficiency
While improving internal productivity through re-shoring jobs remains a top priority in the quest to cut costs, Sievers also noted there were a number of other opportunities manufacturers were considering, including reducing energy prices and material costs, improving infrastructure and focusing on the supply chain.

The Hackett Group said manufacturers are looking to increase supply chain investments by 3 percent in 2013. The majority of those investments, researchers said, will go toward IT, skill training and supplier partnerships.