Tips for Manufacturers Facing Inflation, Supply Chain Disruptions, and Other 2022 Challenges

As we move into 2022, manufacturers continue to report strong demand and increased production. However, the labor market remains tight and the global supply chain disruptions, inflation, and the omicron variant continue to present obstacles for companies. These are the highlights of the National Association of Manufacturers (NAM) Fourth Quarter 2021 Outlook Survey.

NAM surveyed 389 manufacturing companies to compile the results. The respondents included small, medium and large manufacturers. Nearly 87% of the companies were positive about their entity’s outlook. These companies have a combined expected revenue growth rate of 5.2% for 2022 and also expect full-time employment to increase 3.4% over the next twelve months. The expected growth rate of product prices was 5.9%, an all-time high for the survey that began in 1997. This figure is consistent with numerous recent inflation indices that continue to indicate inflation that we have not seen in quite a long time. Another record high reported by the survey is that the respondents expect employee wages to increase 3.8% in the coming year. Similarly, the companies expect raw materials to increase at a pace of 6.5% and health insurance costs to increase a whopping 8.1%.

Given the above, what can your company do to be prepared for the near-term future, while keeping an eye out for the long-term, and how can HBK Manufacturing Solutions assist?

First, it is imperative that you review and update your budgets and forecasts for the coming year. In particular, sales forecasts, cash projections and inventory levels should be compiled and monitored. It is also recommended that tax projections be prepared as the year comes into focus. Companies using the LIFO method to account for inventory should integrate a LIFO projection with the tax projection, as inventory levels and materials costs may have a dramatic impact on LIFO in 2022.

We also recommend that your company review and update your strategic plan to adjust for any possible changes to the plan as a result of the expected circumstances. Reviewing and updating a strategic plan is always a good idea and now is as good a time as any, considering the constantly changing landscape.

As it becomes increasingly difficult to find, train and retain qualified employees, we recommend that companies evaluate their hiring, training and retention methods and look for new and innovative ways to enhance your workforce. Consider engaging an outside company that works with manufacturers to accomplish this goal.

Finally, review your capital investment requirements and plan accordingly. With the global supply chain issues, lead times have been stretched considerably. It is important that your capital investment requirements, sales projections, production and cash forecasts are properly aligned.

HBK Manufacturing Solutions has a team of experienced professionals that can help you with all of these items and more. Please contact us if we can be of assistance in helping your company thrive in 2022.

About the Author(s)

Jim is a Principal of HBK CPAs & Consultants and the National Director of HBK Manufacturing Solutions, a group of specialists focused on manufacturing clients and their unique needs.

After joining the firm in 1988, Jim has spent his career working in a variety of industries, including manufacturing and distribution. As the National Director of HBK Manufacturing Solutions, Jim advises manufacturing clients on issues including tax planning, finance, succession planning, mergers and acquisitions, and ESOP transitions. In addition, he shares his knowledge and experiences with manufacturing specialists throughout the firm as well as local and regional organizations and trade associations focused on the manufacturing industry. To recognize his accomplishments, Jim was named Business Professional of the Year in August 2019 by the Youngstown Warren Regional Chamber of Commerce.

In addition to his HBK role, Jim is Chairman of the Board of the Youngstown Business Incubator, an internationally recognized incubator focused on programs including the use of additive manufacturing and advanced manufacturing technologies in the Mahoning Valley and Northeast Ohio.

Jim’s accomplishments include:

  • Evaluating and implementing strategies including the LIFO (last-in, first-out) inventory accounting method, cash basis accounting method, research & development tax credits, Interest Charge Domestic International Sales Corporations (IC-DISC), and cost segregation studies with manufacturing clients in a variety of sub-industries.
  • Supporting clients with cash flow projections and financial statement projections, including companies with annual revenues in excess of $100 million dollars.
  • Assisting a company in securing an asset-based line of credit with a financial institution for $30 million dollars.
  • Helping companies analyze state income and sales tax filings requirements in order to minimize liability and maximize compliance.
  • Aiding a manufacturing client in obtaining state tax credits based on their investment in expanding their manufacturing capabilities.
  • Representing clients before the Internal Revenue Service and state and local taxing authorities.
  • Developing a training program for the HBK Manufacturing Solutions team, to improve internal capabilities and overall manufacturing expertise.
  • Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.