U.S. tech firms cautiously optimistic about economy

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Updated Nov 12, 2010

Truck Technology

U.S. high-tech manufacturers are cautiously optimistic as they emerge from the recession, but say they’re trying to find new ways to serve an unpredictable global customer base while simultaneously driving down costs, a new survey shows. High-tech companies report that they are placing a greater emphasis on areas that proved to be weaknesses during the recession – responsiveness, resiliency and cost containment – as they face the future with some new-found optimism.

Looking ahead, these companies are keeping their eyes on the bottom line, naming their top business priorities over the next 18 months as operating more efficiently (66 percent) and improving margins (60 percent). The “Change in the (Supply) Chain” survey, conducted by IDC Manufacturing Insights and sponsored by UPS, targeted decision makers in the areas of operations, supply chain and logistics and distribution at high-tech companies across the country.

The survey was designed to uncover the biggest business and supply chain issues for high-tech companies during the recession and reveal how their supply chains changed as a result. The survey also identifies how future plans are likely to change supply chains in the high-tech industry going forward.

In an industry dependent on globalization, high-tech companies expect demand for their products over the next 3 to 5 years to be driven primarily by customers in North America (86 percent) and Asia Pacific (71 percent), with Europe coming in third (61 percent), similar to today’s demand patterns.

When the topic turns to modifying supply chains to satisfy demand, the survey found the executives predicting the three biggest things that would drive them to make changes would be cost (68 percent), responsiveness (40 percent) and matching rapid changes in customer demand (34 percent).

High-tech companies recognize the need for change in their supply chains, yet several barriers exist. Companies reported the weakest links in their supply chains today are a lack of end-to-end visibility (48 percent), unstable suppliers (44 percent) and challenges with demand planning (44 percent).

Another challenge for high-tech companies historically has been the reverse logistics process of handling product returns and repairs. Survey respondents reported that meeting customer expectations was their greatest business concern when it came to reverse logistics, cited by 46 percent of companies. The greatest supply chain challenge was in getting customers to comply with returns processes (22 percent).

“Survey findings clearly reveal an ongoing conundrum in the high-tech industry to better serve customers while reducing costs, yet manufacturers haven’t mastered the critical function of reverse logistics,” says Charlie Covert, UPS vice president of customer solutions for the high-tech and industrial manufacturing sectors. “When done right, reverse logistics not only can drive down supply chain costs, it also can become a key competitive advantage as it improves the customer experience.”

Despite cost concerns, 46 percent of companies are preparing to invest in new product development to keep up with customer demand over the next 18 months. When asked their “secret weapon” for future supply chain success, companies cited supply chain flexibility through a variable cost structure.

High-tech manufacturers also see little chance of meeting President Obama’s goal of doubling U.S. exports in the next five years. Sixty percent of high-tech companies said it was “very unlikely” or “not likely at all” that the president’s goal would be achieved. The overwhelming reason, cited by 60 percent of the companies surveyed, was the belief that the United States is “too expensive” for high-tech manufacturing. A mere 3 percent of companies thought it was “very likely” that the export goals would be met.

“Input from businesses about the challenges of meeting export goals is invaluable to a better understanding of the problem as well as working to remove barriers to international trade,” says Scott Davis, chairman and chief executive officer of UPS and a member of the President’s Export Council. “Despite the pessimism in some quarters, I believe this goal can be attained. The United States still is the world’s largest manufacturer, and it’s been demonstrated time and time again that foreign trade creates U.S. jobs. And when an American company limits its business to the United States, it’s turning its back on 96 percent of its potential customers. This is an issue of economic growth, and UPS is committed to helping our customers grow their businesses.”