R&D Investments: How Much Are U.S. Manufacturers Spending?

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Chief Executive Group’s inaugural benchmarking study of U.S. manufacturing companies unearthed a trove of insights into the performance of operations of every size.

In this era of near-constant disruption and change, what’s the real state of American manufacturers? And how do you stack up? Last year Chief Executive Research surveyed 408 manufacturing companies on key benchmarking metrics to find out.

We received detailed data about manufacturing companies’ revenues, EBITDA, inventories, capacity utilization, plant operations, cost of goods sold, as well as marketing and sales. The substantial response provided data points for companies across revenue ranges, headcount, types of manufacturing, distribution models and pricing strategies.

In doing the analysis, one of the areas we found most interesting was R&D expenditures—and their impact on the rest of the organization. Here’s a quick snapshot of our findings:

Our survey found the median investment of manufacturing companies in R&D is only 1.25 percent of net total revenues. In contrast, 10 percent of manufacturers invest 8 percent of their net total revenues in R&D, and another 10 percent don’t invest in R&D at all.

As one would expect, the most profitable companies tend to invest more in R&D than other companies, but, interestingly, we find that many unprofitable companies (presumably early-stage companies) also invest heavily in R&D.

Similarly, companies that derive more of their revenues from new products (defined as products developed internally in the past five years) tend to invest more in R&D.

Two-thirds of surveyed manufacturing companies say they set their R&D budgets with a zero-based strategy based on the potential return of their R&D investment, vs. 16 percent who allocate a percentage of revenues to R&D upfront.

Of course, innovation does vary by type of manufacturer, with Computer and Electronics manufacturers deriving the most revenue from new products, and Food, Paper and Primary Metal manufacturers among those that derive the least.

Chief Executive Group’s Key Benchmarks for Manufacturing Companies is a rich trove of insights for anyone operating a manufacturing business who wants a true sense of how they’re performing against peers.   The report is intended to help you identify opportunity areas for your company to improve price realization, profit margins and asset and inventory utilization, as well as uncover cost-reduction opportunities and get the most from your R&D, marketing, sales and other investments. For more information, go to ChiefExecutive.net/KPIreport

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