Manufacturers have seen three strong years of EBITDA growth and leaders are optimistic. Many are planning to make new capital expenditures of over $200,000, investing in physical locations, nearshoring, and diversifying. Two in five expect to hire significantly more people over the next three years.

That said, some economic indicators are moving in the wrong direction. Interest rate hikes typically take two years to slow an economy and in the last quarter of 2023, we started to see those effects.

What can manufacturers and distributors make of the present market? In our latest report, 2024 Opportunities in Manufacturing and Distribution, we shared a look at the market. Below is a brief summary. Unless otherwise stated, all data is from the report.

EBITDA growth suggests a strong economy

Ninety-four percent of survey respondents saw their revenues grow, many for the third consecutive year. Given all we’ve heard about supply shocks, that growth may surprise outsiders, but it’s evidence that these companies have successfully navigated disruption.

“This speaks to a really strong economy,” says Dr. Anirban Basu, Chairman and CEO of Sage Policy Group. “Any weakness has occurred in just the last few months. This is remarkable given continued inflation pressure on all fronts, from labor to insurance, healthcare to products.”

Inflation overtook supply chains as the #1 concern

This is not to say the year was without its obstacles. Inflation overtook supply chains as the largest challenge and 81% of manufacturers say inflation has impacted their spending. Consumers are likely feeling the same cost pressure and 61% of manufacturers believe consumer spending will slow as a result. There has been some slowdown in the past few months, but for the present, the economy is still running strong.

Product performance drove EBITDA growth

Last year, 50% of manufacturers and distributors said their products performed “much better” compared to 27% the year prior. That’s an impressive increase.

Supply chains and demand drove product performance

Supply chains improved, demand increased, and demand for other products stabilized. An overwhelming 90% of manufacturers said their supply chain stabilized. “That’s a big number,” says Dr. Basu. “And necessary for growth.” At the same time, manufacturers also listed supply chains as a top challenge. It continues to be an area of increased opportunity and risk.

As part of that stabilization, manufacturers have diversified (52%) and nearshored (43%). This data suggests they’ve mostly overcome any loss of any prior supplier relationships.

Manufacturing-related construction increased, as did inventory

Companies are building factories across North America and inventory levels are up. This could be cause for concern, but so far it’s been offset by the increased demand. Fifty-four percent of manufacturers said they had excess inventory in the last quarter of the year and factory orders were down. A survey by the National Association of Manufacturers found that 45% expect inventories to fall in 2024. (Whereas 41% expect no change.)

Shipping prices remain high

At the same time, shipping prices are up according to the Baltic Dry Index. They fell from a pandemic spike, but have remained high and are rising again. “This is one of my favorite leading indicators of the economy,” says Dr. Basu. “Ships full of raw materials means eventual production.” This is promising. But the question is, will the demand still be there by the time the products are produced? If not, it could create inventory issues.

Seventy-three percent of manufacturers anticipate the cost of inventory will be higher in the next 12 months, which includes rising freight prices. One of the fastest-rising costs was insurance — global maritime insurance premiums rose 8.3% in 2022.

To keep up the momentum, manufacturers need a strategy for managing costs

If consumer demand falters, many manufacturers will be caught with excess inventory, which is both expensive and growing more expensive to hold. A sudden shift could quickly change the EBITDA story.

To better control your future, create systems for detecting cost increases and automatically including them in customer costs on no less than a quarterly basis. Continuous forecasting and better ERP data can be a big help, as can better financial talent.

For a full readout and four opportunities you can act on right now, get your copy of the report.

Want to learn more? Read the report: