Increases in material and input costs combined with supply chain challenges that continue to delay production are putting a dent in manufacturers’ optimism at the start of 3Q 2022, according to a new report.

The Sikich Industry Pulse: Manufacturing and Distribution report, which surveys manufacturers and distributers on a range of business issues, found that 58 percent of manufacturers rated their optimism about business prospects over the next six months at a 7 or higher on a scale of 1 to 10, compared to nearly 70 percent of manufacturers that rated optimism at a 7 or higher in the previous quarter.

All respondents reported material cost increases over the last 12 months with 99 percent of these companies passing a portion of the price increases on to customers. The majority (69 percent) of these companies are passing between 50 and 100 percent of the increase on to customers.

Even with the higher prices, manufacturers reported that they are struggling to keep up with increased demand. Half of the companies with less than $100 million in revenue reported being unable to keep up with their current demand, and 70 percent of respondents from companies with more than $100 million in revenue reported similar problems. More than 40 percent of respondents cited supply chain challenges as the reason they cannot meet demand, while 39 percent blamed employee shortages.

“Given current economic trends, it’s understandable that manufacturers’ optimism is declining,” said Jerry Murphy, partner-in-charge of manufacturing and distribution services at Sikich, in a press release. “Yet, increased demand offers some promising news. To keep up, business leaders should diversify their material suppliers and challenge logistics providers to find ways to tighten delivery times. And, to address employee shortages, companies must revisit their talent strategies and implement comprehensive recruitment and talent development programs.”

Improve Talent Acquisition Strategy

“Just as manufacturers are struggling with inflation, so are the people companies are trying to hire,” said Laura Fischer, a managing director on Sikich’s human capital management and payroll consulting team.

Fisher says that one way to attract more talent is to offer sign-on bonuses to shift workers. Currently, only 28 percent of respondents offer sign-on bonuses. The majority of manufacturers offering sign-on bonuses are offering between $500 and $1,500 and require new hires to stay with the company for up to 12 weeks before receiving the bonus.

Fisher also says that manufacturers competing for high-demand skillsets must prioritize their recruitment strategy, training programs and workplace culture to attract and retain top talent.