For the manufacturing and distribution industry, 2024 will demand a mix of innovation and resiliency as the industry continues to transform through mergers and acquisitions, shifting supply chain dynamics and ever-evolving technology. In some ways, this year will be more of the same as organizations face ongoing economic uncertainty, skilled labor shortages and supply chain challenges. At the same time, digital technological advances offer new options for the industry to address current challenges and prepare for the future.

Despite modest growth projections for 2024, industry leaders are optimistic about the future, with 88% anticipating increased revenues in the year ahead, according to a survey by the Association for Advancing Automation. Take a look at these five strategic opportunities to help manufacturing and distribution businesses avoid potential obstacles and capitalize on developing trends in the year ahead.

1. Supply chain disruption rate slows, but strategic transformation continues.

While supply chain disruptions aren’t drawing as many news headlines compared to 2020 and 2021, they’re still happening. The first half of 2023 saw a 3% increase in supply chain disruptions over 2022, with labor strikes, port disruptions and mergers and acquisitions among the top causes. Despite the increase, the Global Supply Chain Volatility Index continues to fall, recording the lowest levels of stress since mid-2020, reflecting strategies and investment aimed at increasing resilience and transparency.

Supply chain resilience is improving thanks in part to strategic supply chain planning, risk management and investment in digital technology. Enhanced technology, analytics and AI can automate manual processes, identify potential bottlenecks and proactively address issues. Rather than a return to pre-2020 practices, the lessons learned post-pandemic are resulting in improved collaboration and transparency throughout upstream and downstream supply chain partners.

The current trends are expected to continue into 2024. As manufacturers and distributors see the positive impact of enhanced supply chain management, their focus will remain on improving end-to-end visibility, risk mitigation and digitization.

2. M&A preparation makes business sense in today’s environment.

Following record-setting merger and acquisition (M&A) totals in 2021 and 2022, deal volume slowed slightly in 2023 as inflation and interest rates made dealmakers more selective. However, indicators point to pent-up demand and an uptick in M&A activity for 2024, with companies seeking deals to accelerate technology transformation and position the business for long-term success.

In today’s dynamic environment, preparing for a possible acquisition is a smart business strategy, even when a company isn’t actively pursuing a sale. Taking proactive steps helps manufacturers and distributors respond to unexpected merger or acquisition opportunities with competitors or investors. Strategic preparation also helps navigate management turnover, financing needs and regulatory changes.

3. Cybersecurity risk assessment extends to include operational technology.

With manufacturing and distribution now the most targeted industry for cyberattacks, cybersecurity must be a top priority. In addition to risk assessment and security strategies addressing information technology (IT) networks and platforms, manufacturers must expand the scope to include operational technology (OT).

Operational technology includes both hardware and software that’s used to monitor and control physical devices, processes and infrastructure. Historically, a manufacturer’s machinery and production processes existed standalone or off the internet. Today’s OT systems are increasingly connected to the internet and enterprise IT platforms to provide enhanced automation, monitoring and analytics. Legacy OT systems, not designed with cybersecurity in mind, create cybersecurity vulnerabilities. Cyberattacks on OT systems have high costs, including damaging expensive equipment and shutting down sites for extended periods.

Manufacturing and distribution businesses can reduce their risk by integrating OT into their overarching cybersecurity plans, assessing gaps and increasing collaboration between IT and OT teams.

4. Tax incentives offer additional opportunities for significant savings.

Optimizing available tax incentives is a perennial strategy for all types of businesses. Here are three opportunities worth exploring — or re-exploring — in 2024:

• Maximize the 48C tax credit: As of 2023, manufacturers can qualify for an expanded Advanced Energy Credit, Section 48C, aimed at strengthening domestic clean energy manufacturing. Manufacturers can seek up to 30% of the total amount invested in new or upgraded facilities that build or recycle renewable energy components.
• Revisit qualifications for IC-DISC: Forming an interest charge domestic international sales corporation (IC-DISC) offers significant tax savings for manufacturers, distributors and component part makers producing goods with expected use outside the U.S. This type of tax-exempt corporate entity acts as a sales commission agent for export businesses; however, many don’t realize they qualify. It’s worth looking into.
• Bonus depreciation: Always an important tax-saving tool, bonus depreciation allows businesses to accelerate the depreciation of qualifying assets, including equipment. Doing so reduces tax liability by lowering taxable income. While the 100% write-off of eligible assets ended Dec. 31, 2022, property placed in service in 2023 and 2024 qualifies for 80% and 60% write-offs, respectively, in year one. In addition, proposed legislation may extend the 100% allowance for assets placed in service before Jan. 1, 2026.

5. The tight labor market is projected to continue through 2024 and beyond.

Employee recruiting and retention remain top of mind for manufacturers heading into 2024, with 74% saying it’s their top challenge. According to a study by the Manufacturing Institute, an estimated 2.1 million manufacturing jobs could go unfilled by 2030, costing the industry $1 trillion in 2030 alone. To address the issue, short-term strategies, such as increased wages, are showing results. Across the industry, hourly earnings increased by 4% in the first quarter of 2023 compared to 2022. During the same period, there was a 19% decrease in the average number of voluntary employee separations.

In the longer term, companies are investing in growing the skilled workforce by collaborating on educational programs with high schools and colleges. In parallel, businesses also need to expand efforts to upskill and reskill their current workforce for roles requiring advanced digital skills.

The manufacturing and distribution industry experts at CBIZ can help you hone and optimize your company’s strategies in the new year. Connect with a member of our team and gain access to more resources here. 

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