Research Alert: Manufacturers Targeting 1.5 Percent Cost Reduction in 2013
To Drive Margin Growth as Global Demand Stabilizes
New Study from The Hackett Group: Manufacturers Abandoning Outsourcing To
Drive Down Costs, Shifting Focus to Internal Operations, Supply Chains
MIAMI & LONDON -- March 7, 2013
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. (NASDAQ: HCKT).
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
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:
About The Hackett Group
The Hackett Group (NASDAQ: HCKT), 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 email@example.com.
Photos/Multimedia Gallery Available:
The Hackett Group
Gary Baker, 917-796-2391
Global Communications Director
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