2021 Manufacturing and Distribution Pulse Survey Report

A YEAR LIKE NO OTHER

AND WHAT IT MEANS FOR THE FUTURE.

MANUFACTURING AND DISTRIBUTION

PULSE SURVEY, SPRING 2021

THE PANDEMIC IS TEMPORARY, CHANGES IN BEHAVIOR ARE PERMANENT

Foreword by Anirban Basu, Chairman & Chief Executive Officer, Sage Policy Group, Inc.

A LOOK TOWARD THE POST-PANDEMIC WORLD

From a public health perspective, the pandemic is ending. But while the masks are coming off, the rippling economic effects on global supply chains and consumer behavior unleashed by the crisis remain. The pandemic has ushered forth a set of permanent changes that will likely be associated with faster reshoring of manufacturing to North America, realigned global supply chains, stepped up e-commerce market share gains, and a twonation chase for global supremacy that will likely reshape American trade and investment policy.

Not only did the public health crisis alter the world’s economic trajectory, so too have the policy responses. The pandemic will leave in its wake massive federal public debts, higher inflation expectations, and greater demand for assets not denominated in government-supported currencies. What the pandemic will not leave behind is a significantly shrunken economy. By the end of 2021’s initial quarter, US GDP had risen to $22.06 trillion on an annualized basis, above the previous peak attained during 2019’s final quarter ($21.75 trillion).

While it is true that through April 2021 the nation was still down approximately 8.2 million jobs from its pre-recession peak, the nation has managed

to add several hundred thousand jobs a month through 2021’s initial stages. What’s more, the primary issue has not been the demand for workers, but rather their availability. By the last business day of March 2021, the number of available, unfilled jobs in America had reached a record high of 8.1 million.

Economists have theorized about the inability of employers to staff up quickly in the context of unemployment that remains well above prepandemic levels. Among the proffered explanations are stepped-up unemployment insurance benefits, children who are still learning remotely, and lingering fears in the context of many who are

frightened both by the risk of infection and by the perceived risk of vaccination.

Between February 2020 and April 2021, America’s labor force shrank by 3.5 million people, meaning that many people have simply given up looking for work. As the pandemic approached, the labor force participation rate stood at 63.3%, which while far lower than the 67% rate that prevailed early in the century, was still the highest recorded since 2013. Given large numbers of Baby Boomers, it has required unusually strong economic growth for the nation to hold labor force participation steady. During the worst of the pandemic, labor force participation had shrunk to 60.2% (April 2020). One year later it had recovered to 61.7%, but remains well below pre-pandemic levels.

Conventional wisdom holds that many people will return to the labor force later this year as many schools reopen for in-person instruction and as federal supplements to state unemployment insurance fade into that good night. But as manufacturers and distributors know, it is not

enough to have people engaged in the job search process. They also need to have the right sets of knowledge, skills, and abilities. If America is to recapture greater global market share in production activities, there must be more machinists, welders, and other skilled tradespeople who can effectively transform inputs into outputs while maintaining safety protocols, exacting specifications, and working with emerging technologies.

Growth in the number of unfilled manufacturing job openings in America has simply been jaw-dropping in recent months. In April 2020, as plants were being shutdown and workers laid off in large numbers, in part so that they could benefit from sizeable federal unemployment supplements, there were 279,000 available manufacturing jobs in America. By March 2021, the number had skyrocketed to 706,000, an increase over the pandemic-induced low of 153 percent. Opportunity abounds in America.

SUPPLY CHAINS IN FLUX

The economic shock of a global reawakening has overwhelmed supply chains that were already in flux. Recent years have been associated not only with reshoring and a new trade deal in North America, but also with trade disputes, shifting technologies, beleaguered global infrastructure, and shifting immigration policies. Alas, it comes as little surprise that surging demand for a variety of products has produced shortages of many items, ranging from softwood lumber and semiconductors to chlorine and seafood. The result has been a marked rise in global inflationary pressures.

Upward price pressures have been spreading from basic manufacturing sectors through to consumer goods, autos, and machinery makers. In April, U.S. consumer prices posted their largest annual gain

since 1992. Specifically, during the 12 months through April, the core personal consumption expenditures price index vaulted 3.1 percent, the most since July 1992.

Manufacturers’ costs have been rising rapidly, increasing at a rate not observed since April 2011. Factories have been reporting higher costs due primarily to rising commodity prices, which have often been exacerbated by input supply shortages, higher shipping costs, and difficulty securing sufficient numbers of adequately trained workers.

Many economists believe that these pressures are transitory. According to their logic, input shortages and rising prices are the result of a global reopening shock associated with surging demand as well as the impact of large-scale stimulus programs. At some point, demand growth will normalize and global supply chains will become more orderly, producing moderation in inflationary pressures.

But there are other forces at work. Over the course of the pandemic, global money supply has ratcheted higher and accumulated government debts have become larger. The size of the Federal Reserve’s balance sheet has risen from $4.2 trillion as the pandemic commenced to nearly $8 trillion today. In recent decades, production has often headed in one direction – to low-cost countries. Today, a growing volume of investment in new manufacturing capacity is headed toward higher cost nations, including the U.S. All of this suggests that the inflationary pressures that have impacted manufacturers, consumers and others in recent months are not completely transitory.

LOOKING AHEAD

The average manufacturer is likely to experience strong demand for products into 2022 and perhaps beyond. Household balance sheets are collectively in exquisite shape, with many Americans using the crisis and economic lockdowns as an opportunity to bulk up savings. Surging equity and housing prices also helped many households (though not all, of course) accumulate additional wealth. The reopening of the global economy should also fuel export growth, which will be another source of growing demand for manufacturers.

However, there may come a time when America’s economy will be associated with faltering stimulus, higher taxes, inflation, and interest rates, an even more massive national debt, and an ongoing shortage of people willing to engage the labor market. While there is cause for concern, 2021 should be a year of strong progress for manufacturers and distributors alike.

SUMMING UP OUR FINDINGS

Citrin Cooperman’s Manufacturing and Distribution Practice team conducted this research to take the pulse of company leaders following COVID-19 and areas of focus for the future. Here are our three big takeaways from the Spring 2021 survey.

New product and service offerings are the story of 2020 and beyond. More than half of the respondents implemented new products or service offerings due to COVID-19. A majority of these businesses expect to continue the new product or service beyond the pandemic.

Supply chain disruption and constraints forced businesses to pivot. Disruption in the global supply chain has caused more diversification of suppliers, outsourced manufacturing, and reshoring to the U.S.

The shift to e-commerce is no longer a trend, it’s a landslide. We reported in last year’s survey that financial success is highly dependent on the ability to implement and sustain an e-commerce platform. This year, the majority of executives report that online sales make up half to three quarters of their sales and 69% of them utilize Amazon.

We hope you find this survey helpful for what you are managing now, after a year like no other, and as you plan for the future of your business.

Sincerely,

Mark Henry, Partner Manufacturing & Distribution Practice Co-Leader

Mark Fagan, Partner Manufacturing & Distribution Practice Co-Leader

John Giordano, Partner Manufacturing & Distribution Practice Co-Leader

For context, the 200 survey respondents hold positions ranging from VP/SVP of operations to CEO and founder. 80% of their companies have revenues between $100M to more than $1B annually. 78% have a physical presence in multiple states domestically and nearly half operate internationally. More information on the method and demographics can be found at the end of the study.

FINANCIAL PERFORMANCE

REVENUES AND EARNINGS ARE HEALTHY OR STABLE FOR MOST, PAINFUL FOR THE MINORITY.

Asked how COVID-19 impacted 2020 revenue compared to 2019, nearly half of respondents, 46%, saw significant or modest growth. 20% say things were flat year over year, which may be an accomplishment given the circumstances. 28% saw a modest decline. Only 7% say they have seen a significant decline. EBITDA tracked similarly: 47% grew year-over-year; 6% saw a significant decline. Like in A Tale of Two Cities by Charles Dickens, it was the best of times for some and the opposite for others. This stands to reason. In the food sector alone, those that serve booming supermarkets have fared better than those serving unfilled hotels and restaurants. As we learned in our 2019 study, success is highly dependent on the ability and platform for companies to support the e-commerce side of their business. We expect this trend to continue, as do our respondents, even as COVID-19 becomes more controlled.

46% REPORT SIGNIFICANT OR SOME/MODEST REVENUE GROWTH IN 2020

20% REPORT FLAT REVENUE GROWTH IN 2020

34% REPORT SIGNIFICANT OR SOME/MODEST REVENUE DECLINE IN 2020

For the second year in a row, we polled 200 senior leaders of manufacturing and distribution companies across the nation to take a measure of the health of their businesses and stock of future priorities, concerns, and challenges. Here’s what your peers report now about the effects of a year like no other and what it means for the future.

PRODUCT PERFORMANCE WAS POSITIVE, YET NEW PRODUCT AND SERVICE OFFERINGS ARE

THE STORY OF 2020 AND BEYOND.

34% saw a significant number of products perform significantly better than in 2019. Another 44% report a select few products performed significantly better than 2019. Smaller percentages report modest or significant product performance decline. Like overall finances, these varying results are not surprising — performance varies by type of product or sector.

To us, the big news is that 66% of respondents introduced new products or services in 2020 due to COVID-19. This is a sign of business resiliency, agility, and good old-fashioned responsiveness to new demands and market opportunities. Think curbside pickup, online selling, or the dramatic increase in need for masks, sanitizer, and durable goods. Even, bigger? A heavy majority of those who introduced new products or services, 93%, plan on continuing these new products or services post-pandemic. This data suggests that a lot of the changes businesses had to introduce to rise to COVID-19 related challenges are here for good—with more to come.

Did you introduce a new product line or service due to COVID-19? Do you intend for the new product line or service to continue once life returns back to the way it was?

Introduced new products or services:

Expect the new products to continue post-COVID-19:

Resilience appears to pay. Those who have started a new product line or service are more likely to have seen growth in revenue. 49% grew revenue in 2020 as they introduced new products and service versus 38% who saw revenue grow without new products or services.

PRODUCT PROFITABILITY, DEEPER DIVE

THE PULSE OF PROFITABILITY AT THE PRODUCT LEVEL IS MONITORED REGULARLY BY MANY AND TOO LATE FOR ACTION BY SOME.

In our 2019 survey, 53% of respondents said they frequently and actively evaluate profitability by product and eliminate poor performing products/services, 44% did so only occasionally.

In our experience with hundreds of manufacturing and distribution companies, nearly all have the will to evaluate profitability and eliminate poor performers in their product and service portfolio. Many don’t have the way. They lack modern enterprise resource planning (ERP) systems, finely-honed dashboards, or the internal talent to leverage these tools.

For 2020, we dug a bit deeper with questions by asking about monthly monitoring. While 86% say their ERP system gives them profitability information at the product level monthly, only 68% of companies with revenue between $100 and $249M have access to this information each month. We suspect that those percentages drop

further for smaller companies. This amounts to a problem for some and an opportunity for others.

It should come as no surprise that companies with larger revenues have more robust ERP systems, providing more timely reporting information, and allowing for more disaggregated analytics on profitability. There was a time when only these larger entitites could afford these types of platforms. However, the middle market has seen a surge in enhanced ERP environments, often customized to meet the reporting needs of the company. With all the data collection that goes on, being able to analyze and interpret this data can be a key differentiator.

$100M-$249.9M: 68%

$250M-$499.9M: 90%

$500M-$1B: 85%

More than $1B: 93%

your ERP system give you monthly profitability information at the product level?

ALLOCATING OVERHEAD EXPENSES TO PRODUCT LINES IS A COMMON PRACTICE.

We are pleased to see 84% of manufacturing and distribution leaders have methods to allocate overhead expenses to product lines. Of those, 64% use a combination of direct, indirect, and fixed costs to do so. Less pleasing is that the 84% that allocate overhead drops to 71% for companies with revenue from $100 to $249M.

Companies with revenues from $100M to $249M often do not have the technologies in place or expertise available to implement sophisticated cost management models at the product level. As more M&D companies are now involved in the expensive ‘last mile’ of the supply chain, understanding how these costs effect product profitability will be critical, since not all revenues are created equal.

Does your company have methods to allocate overhead expenses to product lines?

FIGURING OUT WHAT YOU MADE AT YEAR END IS NOT GOOD FOR BUSINESS

When asked “Which of the following best describes how frequently you allocate overhead costs to your inventory?” the plurality, 42%, answered monthly. Doing so regularly is good for business. Not as good? The 27% who allocate overhead at the end of the reporting year. 2020 hindsight like this does not always allow course corrections throughout the year.

Which of the following best describes how frequently you allocate overhead costs to your inventory?

E-COMMERCE AND THE AMAZON EFFECT

ONLINE SALES SPIKE AND DOMINATE REVENUES—AS YOU MAY HAVE EXPECTED FROM ALL THOSE BOXES IN YOUR GARAGE.

Last year we reported online selling is a future imperative with present traction. This year, it’s the primary source of most sales. The plurality of manufacturing and distribution executives, 46%, respond that online sales make up between a half to three quarters of their sales. Another 35% say online sales equal a quarter to half of sales. In 2019, the majority said online sales was in the quarter to half of sales category. Moreover, 68% saw e-commerce sales grow exponentially or significantly in 2020.

More and more sales were beginning to shift away from brick-and-mortar pre-COVID-19. Whether it be a fear of providing credit card information on the internet or just simply enjoying going out and seeing and touching the product, there was still a market for “traditional” shopping. However, those still hanging on were somewhat forced to go out of their comfort zone and transact business online. And what we found... as soon as they got out of their comfort zone, they liked it, and continued their online business after the economy began to open back up. The shift to e-commerce is no longer a trend, it’s a landslide.

Current percentage of online sales?

While the relentless march toward a more digitized economy persists, financial performance is at stake. As we reported in last year’s survey, financial success is highly dependent on the ability and platform for companies to support the e-commerce side of their business. In 2019, there was a strong correlation between those who do at least half their business online and significant growth in revenue and earnings.The trend continues in 2020. Example: Those who currently work with Amazon, one measure of e-commerce adoption, are more likely to have seen growth in revenue and earnings.

Has online/ecommerce grown for your company over the past 12 months?

NOT NECESSARILY A NEWS FLASH: AMAZON WINS.

Of those who work with Amazon, 69% say at least a quarter of their sales come through Amazon. 69% of companies surveyed work with Amazon, of which 35% sell directly through a store, while 34% work indirectly through an agent. 24% don’t believe Amazon will benefit them. 7% said they have not explored the channel yet or don’t know how to set it up. It’s time for them to figure out how.

69%

DIGITAL TRANSFORMATION BECKONS TO DELIVER CUSTOMER SATISFACTION ESSENTIALS.

Manufacturing and distribution executives say the most important to customers are product availability (56% have this in their top three), pricing (51%), and customer service (46%). This tells us all that even as e-commerce transforms our businesses, service essentials are a common denominator underlying the past, present, and future. Product availability also topped the list of importance in last year’s survey. Yet it’s level of importance jumped from 33% to 56%—a sure sign that it was often harder to get what we wanted or needed during this demanding year.

SAY MORE THAN A QUARTER OF THEIR SALES COME THROUGH AMAZON MOST IMPORTANT TO CUSTOMERS

PRODUCT AVAILABILITY, 56% PRICE, 51%

CUSTOMER SERVICE, 46%

SUPPLY CHAIN AND LOGISTICS

WHAT COMPANIES ARE DOING WHEN THEY AND THEIR CUSTOMERS CAN’T ALWAYS GET WHAT THEY WANT.

Supply chains were stretched to the breaking point in 2020. The cost of a container coming out of China tripled. The time to get the container doubled. And trade tariffs and geopolitics exacerbated the challenge. This environment was the backdrop for our questions about supply chain and logistics in our 2020 survey.

How has disruption to the global supply chain caused you to significantly change how your product is sourced?

66%

HAVE CHANGED HOW A PRODUCT IS SOURCED DUE TO A DISRUPTION IN THE GLOBAL SUPPLY CHAIN.

To deal with the disruption, companies polled are taking a number of actions vital to success. To deliver products on time and at an acceptable price, 66% of this year’s respondents say they are diversifying suppliers. 59% are looking to outsourced manufacturing. 44% are reshoring to the U.S. to address the changing environment. To manage costs and protect margins, 57% said they were manufacturing more of their own products. And 47% are relocating sourcing closer to customers.

While this seems like a logical decision, moving from a purely financial approach towards sourcing to a risk-based approach will increase complexity. Pivoting from one sourcing location to several will likely involve multiple currencies, exchange rate exposures, increased technology requirements, and added procedures for the employees. In addition, bringing manufacturing in-house may divert resources away from a company’s corecompetencies. Falling down on the supply chain can be unforgiving, so proper analysis and review of alternatives with experts is advised.

EVEN AS THE STRONG MAJORITY LOOK TO RESHORE, THE HURDLES ARE HIGH. If selling more online, adding new products and services, and working to harness the power of data analytics were not enough to do, manufacturers and distributors now look to reshoring and report significant challenges to making it happen. Topping the list of hurdles to reshoring is cost. Three in four, 74%, say capital investment costs are the the highest hurdle, followed by cost of U.S. labor, 46%; lack of meaningful tax incentives, 40%; and lack of access to skilled labor, 37%.

Bringing manufacturing back to the U.S. certainly has challenges, most notably the value of the U.S. dollar and lack of skilled toolmakers, engineers, and apprentice programs. But a focus on robotics-aided manufacturing with an emphasis on of “lights-out” manufacturing can help bridge the gap. This is often when the right private equity partner can take a company to the next level. PE’s access to experienced operators who spread their expertise over multiple portfolio companies adds tremendous value to their deep pockets.

Which of the following do you feel are hurdles to reshoring?

THIRD-PARTY WAREHOUSING AND LOGISTICS PROVIDERS. PART OF THE SOLUTION.

Third-party warehousing and logistics companies are beneficiaries of COVID-19, tariff, and other sources of supply chain disruption. Many of our clients in this sector have had banner years. 58% of companies responding to our survey use third-party warehousing and logistics as an alternative. We can see the reasons why above. Building your own is hard to fund and hard to staff.

Does your company use third-party warehouse or logistics companies?

DATA ANALYTICS

MOST HAVE IMPLEMENTED DATA ANALYTICS IN THEIR COMPANIES, NEARLY ALL ARE WORKING TO MAKE THEIR USE OF ANALYTICS BETTER.

The long-held promise of applying analytics to improve business decision making and business performance remains promising. Our research reveals progress is being made and more is left to realize. Most are already in the game. Larger companies, not surprisingly, are ahead of smaller players. The top three current uses of data analytics among respondents are to better understand buyer behavior, 59%; predicting product demand, 58%; and predicting geographic location of product demand, 51%.

How are you currently using data analytics? Select all that apply.

While data analytics can lead to new KPIs, the KPIs manufacturing and distribution companies are reporting they pay the most attention to are evergreen. The most monitored KPIs by executives responding to our survey? Quality control performance, 71%, followed by material costing, and customer complaints/satisfaction. While big data will continue to inform and enhance company actions and decisions, some of the fundamental KPIs tracked are classics.

COMMON KPIs MONITORED

QUALITY CONTROL 71%

MATERIAL COSTING, 51%

CUSTOMER COMPLAINTS, 43%

MANY HAVE IMPROVEMENTS UNDERWAY TO IMPROVE DATA ANALYTICS USEFULNESS.

The old consulting firm maxim about aligning people, process, and technology to make a difference certainly applies to data analytics. It’s common sense. Analytics are only as valuable as how they fit into our daily workflow and are adopted by the people who use and rely on them to manage.

Asked about data analytics improvement plans, 70% of our respondents are currently implementing tools and processes to improve data analytics in their businesses. Another 27% are planning improvements. Once again, larger companies are leading the way. 80% of the highest revenue companies ($1B+) are currently implementing improvements, while only 56% of smallest revenue ($100M - $250M) companies are doing the same.

A deep understanding of customer behaviors and buying tendencies is critical. Especially when you consider the costs to build and maintain a brand, and the resources dedicated to products. Why do products with the most problems (usually profit problems) get the most management attention? Innovation is top of mind for successful companies, and they constantly evaluate which products deserve company resources. Data analytics are helping.

Rank your top three most important factors for a successful data analytics implementation.

69% ENSURING THE APPROPRIATE TOOLS ARE IN PLACE

59% AN EFFECTIVE COMMUNICATION SYSTEM BEFORE OR AFTER IMPLEMENTATION

Do you have plans to implement tools and processes to improve data analytics?

68% BUIDLING THE DIGITAL SKILLS AND CAPABILITIES OF OUR EMPLOYEES

Whether it’s monitoring profitability at the product level, allocating overhead to products, or leveraging and improving data analytics uses, companies with $250M or less are lagging players.

TODAY’S CHALLENGES

The biggest challenges reported by manufacturing and distribution companies today are changing business models due to COVID-19, managing cash flow, and financing growth. We asked respondents to list their top two challenges; these rose to the top and are evident throughout this report.

TOMORROW’S GROWTH

THE WAY FORWARD DEMANDS AGILITY WITH E-COMMERCE, TECHNOLOGY, AND NEW PRODUCTS. Step one is always awareness. Companies responding to our survey are fully aware of the challenges ahead. More than half, 54%, say e-commerce success is one of their top two biggest keys to growth. Nearly half or 49% also name technology as one of their top two biggest keys. Rounding out the list is new products at 43%. As we learned earlier in our report, those who are better at e-commerce are growing faster and more profitably, as are those who have introduced new products or services. More of this hard work lies ahead for all.

While e-commerce is likely to be a significant growth area going forward, it brings investments that companies have historically been slow to make. In order to run a profitable e-commerce business, companies will need to make investments in web storefront and sales platforms and make significant changes to fulfillment platforms, warehousing or 3PL management systems, and inventory planning tools.

While 49% say new technology is the biggest hurdle to growth, companies will need access to capital to fund these investments. Companies will need to develop strategic, long-term road maps to transform their technology platforms - spreading out the capital demand over time while deliberately working towards a more modern technology ecosystem that can support their future business model. Part of the capital investments will need to involve cybersecurity. How can you ensure data is as safe and secure as it can be?

TECHNOLOGY MAY BE THE WAY FORWARD, BUT IT IS ALSO THE BIGGEST OBSTACLE TO GROWTH.

Our findings in the data analytics section of the 2021 pulse survey are reinforced here as half of respondents say technological advancement is one of the two biggest hurdles to future growth. Access to capital at 37% is also an acute need and challenge to future growth, followed by a lack of organic growth at 30%. For acquisitive types, 40% say finding quality targets is the most difficult part of growth through acquisition.

49% SAY THAT ONE OF THE TWO BIGGEST HURDLES TO FUTURE GROWTH IS TECHNOLOGY REQUIREMENTS

EXIT PLANS

ALMOST HALF (42%) OF RESPONDENTS SURVEYED SAY THEIR COMPANY IS CONSIDERING A POTENTIAL SALE IN THE NEXT THREE YEARS.

To be precise, 15% said they are definitely considering a sale and another 27% said probably. M&A activity during the COVID-19 pandemic is difficult. Private equity markets do not like uncertainty, and the pandemic has put more uncertainty into valuing a business. These anticipatory sale numbers are down considerably from last year, when we reported that 65% of manufacturing and distribution leaders anticipated a sale in the next five years. It is important to note that manufacturers are nearly twice as likely to be considering a sale as distributors.

Is your company considering a potential sale of your business in the next three years?

FIXING UP THE BUSINESS FOR MARKET, HERE’S HOW.

Looking forward, there are several things a company can do to maximize enterprise value before a sale: understand your secret sauce; know your numbers; have sound processes and procedures; run your business with best-in-class technology and analytics; and create a culture of accountability and teamwork. Our survey results suggest that while some leaders are ready to maximize value and exit, others have work to do to attract buyers. Upgrade needs include organizational structure and operations.

Which of the following do you believe you would need to upgrade if your company were to be sold in order to maximize your company’s value?

In order to determine the best use of resources, time, and effort, business owners will have to determine first how they will exit:

• Family Succession - Transfer the business to a family member(s)

• Internal Succession - Sell or transfer the business to one or more key employees or co-workers, or sell to employees using an Employee Stock Ownership Plan (ESOP)

• External Succession - Sell the business to an outside third party, an investment by a private equity firm, initial public offering (IPO), or strategic merger

All of these options come with unique challenges and are viable strategies for a successful exit.

POST-COVID-19 READINESS AND PERMANENT CHANGE

GENERALLY, RESPONDENTS FEEL GOOD ABOUT PLANS AND READINESS FOLLOWING COVID-19.

When asked “How much do you agree or disagree with each of the following statements in relation to your business’s crisis management and preparedness?,” the plurality answered they strongly agree with the statements and the plurality feel equipped to take on what comes next.

COVID-19 has transformed the way business owners and management view their business and, as the numbers indicate below, most feel as though they have solid business plans in place. Companies have had to make extremely challenging decisions over the past year and have found those to be successful as reported in our financial performance section. As we move into another period of uncertainty this summer with the world re-openly quickly, worldwide vaccinations, and consumer preferences changing, these plans will be tested once again. In the short-term, management plans will be focused on the supply chain; managing a very constrained fright, labor, and logistics market. The top performers will be those who can manage their supply chains while also passing these increased costs off to their customers to maintain profitability.

Respondents were asked to rate how much they agree or disagree with each of the following statements in relation to their business’s crisis management and preparedness:

My company has a solid business plan in place following COVID-19.

My company foresees continued growth following COVID-19.

Heading out of COVID-19, my company foresees future changes in production.

Looking back at COVID-19, my company had a good crisis management plan in place.

My company has a solid business plan in place for crisis management.

Somewhat Agree Neither Agree Nor Disagree Somewhat Disagree Strongly Disagree Strongly Agree

NEARLY ALL SEE LASTING CHANGES IN HOW GOODS ARE PURCHASED AND HOW DISTRIBUTION CHANNELS WORK.

We asked how likely is it that some of the ways people buy goods–such as online purchases or grocery deliveries— will become permanent fixtures of a post-COVID-19 environment. 43% said somewhat likely and 50% said very likely. Together, the vast majority of respondents think the changes in buying habits are here to stay.

Pair those numbers with the impact of COVID-19 on distribution channels and we see digital transformation has accelerated this past year and will continue its march. Over 50% of respondents report increased e-commerce sales, increased direct to customer sales and changed demand of product as indicators of how distribution channels have changed, perhaps for good. 53% say the changes are here for at least one to two years. 26% say beyond two years and for the foreseeable future. Plan accordingly.

93% SAY THE WAY PEOPLE BUY GOODS WILL BECOME PERMANENT FIXTURES

From the following list, please indicate how COVID-19 has changed your distribution channels. The impact of COVID-19 has...Select all that apply:

METHOD & DEMOGRAPHICS

This survey was conducted online in conjunction with the research arm of FINN Partners between March 30 and April 14, 2021. Respondents had to be VP/SVP of operations or above and work within companies generating $10M annual review or more. A total of 200 respondents took the survey: manufacturing only businesses totaled 34%; distribution only, 26%; and both manufacturing and distribution, 40%.

Physical Presence in:

Multiple States: Yes: 78%

No: 22%

Internationally: Yes: 46% No: 54%

Industries Served

Consumer Products: 33%

Electronics: 24%

Home Goods: 13%

Beauty: 8%

Grocery: 16%

Apparel: 9%

Sporting Goods: 7%

COO, or C-Level President or Managing Partner Company Owner or Founder SVP or VP of Operations

Annual Company Revenue

$100M-$249.9M: 21%

$250M-$499.9M : 20%

$500M-$1B: 20%

$More than 1B: 20%

Declined to say: 19%

Region

Northeast: 24%

Midwest: 21%

South: 38%

West: 17%

Number of Employees

0-100: 3%

101-500: 17%

501-1,000: 27%

1,001-2,500: 21%

2,501-5,000: 16%

5,001-10,000: 10%

More than 10,000: 6%

Industrial Products: 38%

Building Materials: 11%

Energy & Gas: 4%

Food & Beverage: 10%

Medical & Health Care: 7%

Medical Equipment: 6%

Life Sciences: 3%

Pharma & Nutraceutical: 4%

Other: 5%

Type of Operations

Manufacturing: 34%

Distribution: 26%

Both: 40%

CEO,

ABOUT US

Citrin Cooperman is proud to be home to one of the leading manufacturing and distribution practices in the country. As a manufacturer and distributor, you rely on efficiency and quality control to assemble superior products and get them to market as contracted. Accounting and business management follow the same premise.

We provide a full range of attest, tax and specialty tax, business advisory, economic advisory, and transaction support services to manufacturing and distribution clients including apparel, retail, consumer and industrial products, wholesalers, and import/export businesses. Our services include, but are not limited to:

• Agreed-Upon Procedures

• Accounting Advisory Services

• International Tax

• State and Local Tax (SALT)

• Technology, Risk Advisory, and Cybersecurity (TRAC)

• Transaction Advisory Services

• Business Valuations

• Fraud Investigations and Forensic Accounting

• Insurance Claim Analysis

• Bankruptcy and Restructuring

• Inventory Control Procedures

• Strategic planning

• Internal Control Compliance (Including Sarbanes-Oxley Assistance)

• Transfer Pricing

• Succession Planning

Citrin Cooperman is among the largest, full-service assurance, tax, and business advisory firms in the United States, having steadily built its business serving a diverse and loyal clientele since 1979. Our daily mission is to help our clients “focus on what counts.” Rooted in our core values, we provide a comprehensive, integrated business approach to traditional services, which includes proactive insights throughout the lifecycle of our clients, wherever they do business, across the globe. Citrin Cooperman is an independent firm associated with Moore Global Network Limited.

Practice Leaders

Mark Henry, Partner

781.356.2000

mhenry@citrincooperman.com

Mark Fagan, Partner

914.949.2990

mfagan@citrincooperman.com

John Giordano, Partner

631.930.5000

jgiordano@citrincooperman.com