2015Indiana
Manufacturing Survey: Back to Uncertainty
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Table of ContentsFOREWORD
EXECUTIVE SUMMARY
I. COMPANY DEMOGRAPHICS
II. OVERALL ECONOMIC AND FINANCIAL PERFORMANCE
III. SNAPSHOT OF MANAGERIAL OPINIONS ON MANUFACTURING
IV. REGULATORY CONCERNS
V. BUSINESS STRATEGY
VI. MANUFACTURING MODERNIZATION
VII. ADVANCED MANUFACTURING STRATEGY
VIII. EXPANDING INDIANA’S MANUFACTURING BASE
IX. ONSHORING AND OFFSHORING MANUFACTURING
X. MANUFACTURING WORKFORCE SHORTAGES AND SKILLS
APPENDIX: BENCHMARKING INDIANA’S MANUFACTURING
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4
7
10
14
17
20
23
25
31
32
35
38
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ForewordOne year ago, we were pleased to report the best results in years for Indiana manufacturing. Today, just 12 months later, there are signs that the health of Hoosier manufacturing is less certain than it has been since the Great Recession. In last year’s survey, a record low 17% of Hoosier manufacturers described their 2012-13 financial performance as “challenged.” In this year’s survey, that number jumped to 27% (2013-14 performance), which is higher than any year since 2009-10. Likewise, performance over the past year is off – or has plateaued – for almost every measure, from revenue and profit growth to labor productivity. In short, the evidence suggests that many companies that thought they had escaped the recession may be backsliding now, as compared to just 12 months ago.
Indeed, the signals are mixed and imply increasing uncertainty as to the outlook. On one hand, market opportunities for Hoosier manufacturers continue to expand, and most manufacturers are still increasing capital expenditures. And, as in previous years, they appear to be focused on the future, pursuing advantages at everything from advanced manufacturing technologies to “lean” philosophies. On the other hand, inventories are turning slower than at any time since 2009-10. Additionally, suppliers are being paid later, and days receivables have increased. So, what is going on, and why has Indiana’s manufacturing sector apparently given back some of its hard-won progress since the Great Recession?
Henry Ford famously said, “Don’t find fault, find a remedy.” While we’re not looking to pin the blame for this loss of momentum on any one thing, that didn’t keep us from digging deeper into these trends. The data suggests that Indiana’s manufacturing is caught in its own version of an imperfect storm, between increasingly burdensome regulations and shortages of skilled labor. As one manager commented, “Where to start? Over the last 7+ years it seems like we have been pounded from every possible regulatory angle.” Likewise, it appears that much of the hoped-for growth and efficiency from investing for the future has eluded many manufacturers because of the ongoing shortages of skilled production workers. Presently, 70% of Hoosier manufacturers report moderate to serious shortages of skilled workers. And expectations of more severe skilled-labor shortages, near the end of this decade, worry almost 90% of the companies participating in this survey.
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As we observed in our 2014 report, one might be tempted to dismiss these concerned responses as managers “crying wolf.” But we think that such an interpretation would be a mistake, because behind these issues are some troubling numbers. For example, while 81% of this year’s respondents believe that Indiana state government is doing a good job of supporting Hoosier manufacturing, 88% believe Washington, D.C., is not. Alarmingly, a record high 13% of this year’s participating companies reported that they are looking into offshoring some of their production. This is the third year in a row that survey respondents are planning to offshore more production than they onshore. In fact, one respondent even commented that their worst business decision in 2015 was “not moving manufacturing to China like 8 out of 12 of our U.S. competitors.”
In conclusion, Indiana’s manufacturers appear to have lost some of the momentum gains from the immediate post-recession years. Evidence suggests that increasing regulatory burdens as well as shortages of skilled workers are undermining recent progress. How will Hoosier manufacturers regain the lost momentum? During these uncertain times for Indiana (and American) manufacturing, failure to act may result in irreparable damage to the sector. In which case all relevant parties, including education and government, must cooperate in these coming years to give our manufacturers more of a fighting chance against their competition. While the warnings in our 2015 report are abundant, there is still time for action. To quote Henry Ford again, “Failure is simply the opportunity to begin again, this time more intelligently.” In other words – it’s time to get REALLY SMART about ensuring manufacturing’s future.
Mark T. Frohlich Associate ProfessorKelley School of BusinessIndiana University - Indianapolis
Jason E. PatchChairManufacturing & Distribution Services GroupKatz, Sapper & Miller
Steven L. JonesAssociate ProfessorKelley School of BusinessIndiana University - Indianapolis
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Executive Summary“Lead me, follow me, or get out of my way.”
–General George PattonGeneral George Patton’s message sounds like what Hoosier manufacturers are telling us in this year’s study. Many of our state’s manufacturers are now less certain about their future than they were just last year. In fact, the majority of Hoosier manufacturers seem to be in about the same overall financial shape they were in coming off the Great Recession back in 2010-11. Notably, Indiana’s manufacturing is not only struggling to compete, but it also seems to have lost some of the momentum built during the recovery. Along those lines, evidence suggests that a host of challenges are, figuratively speaking, in the process of drowning many manufacturers.
It is never easy to remain competitive in manufacturing, and it becomes even harder when issues from government regulation to worker shortages blunt performance. As we noted in our 2014 report, Indiana’s manufacturers combine their capital together with labor, material, energy and related services, which in turn produces a bounty of wealth and jobs for our state. Despite their determination to remain competitive, our report finds that in many instances Indiana’s manufacturers are struggling to stay out in front, or even compete. Below are some sensible action items on the part of industry and government to begin turning around the lost momentum.
Call to Action: Indiana Manufacturers
Although many Hoosier manufacturers may be somewhat discouraged at this midway point in the decade, improving operations is perhaps more critical now than ever. Important elements include:
• Continuing to make smart, strategic investments. Each new generation of technology offers significant capabilities over previous methods – manufacturers need to keep investing in those.
• Adopting advanced methods. As we’ve seen in prior studies, some of the best
investments any manufacturer can make are in process improvement programs like Lean and Six Sigma.
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• Reminding others what is at stake. Critical manufacturing inputs range from low-priced energy to skilled workers. Make sure that everyone you interact with outside of manufacturing knows that.
• Facilitating internship programs. The best way to educate students about the abundant career opportunities in manufacturing is to let them directly participate in your business.
Call to Action: Indiana Government Policy Makers
This year’s study reinforces how relatively precarious is manufacturing’s competitive position. Wherever possible, government needs to keep fostering and promoting our state’s manufacturing base, including:
• Supporting Indiana’s manufacturers. Every policy and regulation needs to be scrutinized based upon whether it makes the concept of “Made-in-America” stronger.
• Keeping taxes competitive. Eighty-six percent of our respondents believe that the Midwest leads the U.S. in manufacturing. Naturally, other states (and countries) would love to “steal” those skill sets and jobs.
• Lowering taxes is only a start. As one manager lamented, “Indiana focuses too much on increasing jobs and not enough on incentivizing investment.” What else can be done to incentivize investment?
• Eliminating the workforce shortage and skills gap. Our survey has tracked this
problem since 2012 and, if anything, it seems to be getting progressively worse. Government, industry and education need to work together to move this issue to the “front burner.”
Reflecting on the Future
In last year’s report, we speculated that Hoosier manufacturers might end up surrendering many of their hard-won gains by 2020. Unfortunately, this year’s survey results suggest that the momentum is turning as such that this may come true sooner than any of us expected. Will our manufacturers remain competitive through the end of this decade and into the next? Rephrased another way, if they are forced to go it alone without continued cooperative support from government policy makers and educators, then won’t the competitive advantages they have today simply fade even more with time? “Lead me, follow me, or get out of my way” – if Hoosier manufacturers remain competitive, we will all be better off in Indiana.
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I. Company DemographicsAs in previous years, the majority of respondents to the 2015 Indiana Manufacturing Survey are at the company level (80%), while small percentages are divisons of larger organizations (7%), individual plants (9%), or identify themselves as some other organizational form (4%). Eighty-four percent of respondents are privately-owned companies, and the other 16% are publicly-traded companies. The average number of direct or full-time employees per respondent was 670, with the largest employing 42,000. Additionally, the organizations in this study employed, on average, three contract workers and eight temporary workers. Types of Organizational Units
Number of Employees
OWNERSHIP TYPE %
16%
84%
100%
PUBLIC OWNERSHIP
PRIVATE OWNERSHIP
TOTAL
670
3,469
42,000
3
20
250
8
24
200
MEAN
STD. DEVIATION
MAXIMUM
DIRECT / FULL-TIME WORKERS
CONTRACT WORKERS
TEMPORARY WORKERS
4%
7%
80%
9%
OTHER
DIVISION
COMPANY
PLANT
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Regarding local versus international ownership, 95% of the responding manufacturers were companies headquartered in the United States. The other 5% represented international organizations.
Is Your Manufacturing Facility Part of an Overseas Company?
In terms of production processes, the 2015 survey respondents represent all four major types of manufacturing. Just under half (41%) of respondents identified themselves as relying on job shop-type production, while another 33% use batch manufacturing. Once again, as in previous years, fewer respondents operate assembly lines (19%) or continuous flow processes (7%), both of which are capital intensive and used to produce relatively standardized, high-volume items.
Main Types of Production Used
5%
95%
YES
NO
I.E., PROCESS MANUFACTURING, SUCH AS A REFINERY
BATCH PRODUCTION 33%
ASSEMBLY LINE PRODUCTION 19%
JOB SHOP PRODUCTION 41%
CONTINUOUS PRODUCTION 7%
I.E., ONE-OF-A-KIND OR SMALL MANUFACTURING RUNS
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The three largest industry groups represented among the 2015 survey respondents are industrial equipment (15%), automotive (14%) and aerospace and defense (17%). Another 21% of respondents are distributed between high-tech (7%), healthcare (5%), furniture/home goods (3%) and food/beverage (6%). Companies in the “other” category include packaging, fasteners, bearings, energy, construction, and publishing, in addition to other industries such as off-road and recreational vehicles (RVs).
Industry Types
Once again, these results suggest that our sample reflects a balanced blend of industries from a host of Indiana’s important manufacturing marketplaces. Similarly, as we noted in 2014, these findings parallel the 2015 Manufacturing and Logistics Indiana Report (published annually by Conexus Indiana and the Center for Business and Economic Research at Ball State University), which over the last seven years, has consistently graded Indiana’s manufacturing industry health an “A.”
CLOTHING/FASHION 1%
OTHER 23%
COMMUNICATIONS 3%
HEALTHCARE 5%
FURNITURE/HOME GOODS 3%
CHEMICALS/PETROLEUM 4%
HIGH-TECH/TECHNOLOGY 7%
FOOD/BEVERAGE 6%
AEROSPACE & DEFENSE 17%
AUTOMOTIVE 14%
INDUSTRIAL EQUIPMENT 15%
SPORTS/LEISURE 2%
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In the last five surveys, we have asked respondents to rate their overall financial performance as either “healthy,” “stable” or “challenged.” The results for 2009-10 showed that almost half of the respondents (47%) used the term “challenged” to describe their performance, with 30% “stable,” while only 23% viewed their financial performance as “healthy.” Those figures were almost exactly flipped for 2012-13, with 47% describing their performance as “healthy,” 35% as “stable” and only 17% as “challenged.” The 2013-14 results now suggest some backsliding on recent gains. Although 35% again reported that their business was “stable,” the percent reporting “healthy” shrank to 38%. Even more troublingly, the percentage of Hoosier manufacturers noting that their business was “challenged” in 2013-14 grew to 27%, the highest level since the 2009-10 survey results.
Financial Performance (2009 - 2014)
CHALLENGED
STABLE
HEALTHY
2009-10 2010-11 2011-12 2012-13 2013-14
5
0
10
15
20
25
30
35
40
50
45
II. Overall Economic and Financial Performance
11
-35
-40
-83
-41
-37
100
100
100
100
100
16
10
9
12
13
61
72
78
82
75
-100
-64
-97
-100
-50
100
100
100
100
100
10
10
9
14
15
65
67
74
81
67
-100
-100
-79
-100
-81
100
100
100
100
100
16
12
15
14
14
63
64
72
73
80
% CHANGE MIN % VALUE MAX % VALUE AVERAGE % VALUE % POSITIVE
REVENUE FOR 2012 OVER 2011
REVENUE FOR 2013 OVER 2012
REVENUE FOR 2014 OVER 2013
REVENUE FOR 2011 OVER 2010
REVENUE FOR 2010 OVER 2009
NET PROFIT MARGIN FOR 2012 OVER 2011
NET PROFIT MARGIN FOR 2013 OVER 2012
NET PROFIT MARGIN FOR 2014 OVER 2013
NET PROFIT MARGIN FOR 2011 OVER 2010
NET PROFIT MARGIN FOR 2010 OVER 2009
CAPITAL EXPENDITURES FOR 2012 OVER 2011
CAPITAL EXPENDITURES FOR 2012 OVER 2012
CAPITAL EXPENDITURES FOR 2014 OVER 2013
CAPITAL EXPENDITURES FOR 2011 OVER 2010
CAPITAL EXPENDITURES FOR 2010 OVER 2009
2013
SU
RV
EY20
14 S
UR
VEY
2015
SU
RV
EY20
12 S
UR
VEY
2011
SU
RV
EYRegarding the key financial metrics, 2015’s survey results show continued positive improvements, on average, but by most metrics, the rate of improvement has slowed.
Financial Metrics
While the rate of growth in revenues and net profit margins in the 2015 survey slowed ever so slightly from the 2014 survey, the rate of growth in capital expenditures increased to 15%, on average. Equally encouraging, the percentages of manufacturers reporting positive performance in terms of revenues (78%), profit margins (74%) and capital expenditures (72%) have all risen from the 2014-13 period over 2013-12.
While the general decline in the rates of revenue growth and net profit margins may raise concerns, a plateauing of these growth rates is to be expected several years into a recovery. And the continued strong growth in capital expenditures, at the same time, bodes well for the future.
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Despite these generally encouraging financial metrics, the tone of many of the written responses to the survey were not so positive in regard to financial decisions. When asked, “What was your best manufacturing decision in the past year,” several respondents provided feedback consistent with evidence that revenues and profits are ongoing concerns in the current economy:
In regard to working capital, the mean days of inventory were up in raw materials, work-in-process and finished goods in 2014-15 over 2013-14. Average finished-goods inventory levels, in particular, have increased by almost a third over the last several years, from 23 days in 2013-14 to 39 days in 2014-15. Similarly, days of sales outstanding and days payable increased, respectively, by almost half of one week, to 44 and 38 days in 2014-15 from 40 and 35 days in 2013-14. As a result of these increases, the mean cash conversion cycle (i.e., average days inventory plus days receivable minus days payable) jumped by roughly two weeks, from 35 days (2013-14) to 48 days (2014-15). These findings suggest that many Hoosier manufacturers are beginning to experience a cash crunch, although it is difficult to say whether this is due more to the strain of continued growth, or if it’s the first sign of an impending downturn.
“ Drop parts that had a lower margin and concentrate on what we do the best and have the highest margin.”
“Expand in related fields.”
“Pursue foreign customers.”
“Acquisition into a different product.”
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Working Capital and Cash Flow Metrics (Mean)
0
10
20
30
40
50
RAW MATERIALS INVENTORY (DAYS)
WORK-IN-PROCESS INVENTORY (DAYS)
FINISHED GOODS INVENTORY (DAYS)
DAYS SALES OUTSTANDING (DSO)
DAYS PAYABLE OUTSTANDING (DPO)
4441494250
3531392538
4132292339
4945464044
4637423538
2010-112011-12
2012-132013-142014-15
In terms of product markets, 26% of the 2015 respondents expect their markets to grow rapidly in 2015-16, and that percent increases to 28% in the out-years, 2017-19. These growth expectations mirror those expressed in the 2014 survey. Echoing this optimistic note, only 14% of the 2015 respondents saw their markets shrink over 2013-14 (not shown in the charts below).
Expecting Rapid Market Growth
23%
26%28%
35
30
25
20
15
10
5
02013-14 2015-16 2017-19
2015
SU
RV
EY
15%
18%
23%
35
30
25
20
15
10
5
02012-13 2014-15 2016-18
2014
SU
RV
EY
14
When asked in the 2015 survey, “Do you think United States manufacturing will lead the world again in terms of manufacturing capabilities,” 63% of the respondents said no.
Will the United States Lead the World Again in Manufacturing?
For those saying “yes,” we asked a follow-up question: “If so, when do you think that United States manufacturing will lead the world again in terms of manufacturing capabilities?” The responses were evenly split between those that thought it might occur by the end of this decade in 2020 (47%), and the other (47%) that believe it will happen sometime after 2020 in the following decade.
III. Snapshot of Managerial Opinions on Manufacturing
37%
63%
YES
NO
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SOMETIME AFTER 2020 IN THE FOLLOWING DECADE
BY THE END OF THIS DECADE IN 2020
SOMETIME IN THE NEXT FEW YEARS
0 10 20 30 40 50
47%
47%
6%
When Will the United States Lead the World Again in Manufacturing?
In the 2015 survey, we also asked identical questions regarding the support for Hoosier and American manufacturing provided by Indiana’s state government as well as the United States federal government. The responses were polar opposites, with 81% believing that Indiana’s state government is doing a good job of supporting Hoosier manufacturing, while 88% thought that Washington, D.C., is not supportive in terms of America’s manufacturing.
88% of respondents believe that the federal government is not supportive of U.S. manufacturing as a whole.
100
90
80
70
60
50
40
30
20
10
0
YES NO
DO YOU THINK INDIANA’S STATE GOVERNMENT IS DOING A GOOD JOB OF SUPPORTING HOOSIER MANUFACTURING?
DO YOU THINK THAT WASHINGTON D.C. IS DOING A GOOD JOB OF SUPPORTING AMERICAN MANUFACTURING?
81%
19%12%
88%
How Well Is Manufacturing Supported by Government?
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We further explored responses to the questions regarding support for Hoosier and American manufacturing using the 2X2 matrix below. The largest group of respondents (69%) believes that Indiana’s state government is doing a good job of supporting Hoosier and/or American manufacturing, but Washington, D.C., is not. The second largest group (19%) believes that neither Indiana’s state government nor Washington, D.C., is doing a good job, while 12% believe that both are supportive of manufacturing.
How Well Is Manufacturing Supported by Government?
When asked, “In your opinion, which part of the United States leads our nation in terms of manufacturing capability,” the vast majority responded with the Midwest (85%), followed by the Southeast in a distant second at 6%.
Which Part of the United States Leads Our Nation in Manufacturing?
YES
YES
NO
NO
DO YOU THINK INDIANA’S STATE GOVERNMENT IS DOING A GOOD JOB OF
SUPPORTING HOOSIER MANUFACTURING?
DO YOU THINK THAT WASHINGTON D.C. IS DOING A GOOD JOB OF
SUPPORTING AMERICAN MANUFACTURING?
12%
0%
69%
19%
WEST 4%
MIDWEST 85%
SOUTHWEST 4%
NORTHEAST 1%
SOUTHEAST 6%
INDIA
NA’S BUSIN
ESS L
ABOR
LAW
S AND REG
ULATIO
NS
INDIA
NA’S BUSIN
ESS T
ORT
LAW
S AND REG
ULATIO
NS
INDIA
NA’S BUSIN
ESS L
ABOR
LAW
S AND REG
ULATIO
NS
17
When asked about what was most critical in terms of the cost and viability of manufacturing in Indiana, corporate tax policy led the way, with 75% of respondents indicating that it is “extremely important,” followed by business labor laws and regulations (67%), infrastructure and logistics (65%) and property taxes (64%). At the other end of the spectrum, less-vital areas of concern include Indiana’s level of government spending, finances and credit rating, as well as tort laws and regulations.
Somewhat surprisingly, concern over Indiana’s environmental requirements declined, with only 43% rating it extremely important in 2015, compared to 61% rating it as such in the 2014 survey. (Note: we have some reservations about the responses to this question regarding environmental requirements since it appears that some companies responded to the question based specifically on concerns posed by state regulatory requirements, as opposed to federal requirements.)
Importance to Indiana Manufacturing
43%
29%
37%37%
1%7% 4%
8%
1%4%
11%
18%
3%4%
32% 32%
56%
45%49%
35%41%
52% 53%
21%
67%
51%
64%
55%
75%65%
80
70
60
50
40
30
20
10
0
INDIA
NA’S BUSIN
ESS L
ABOR
LAW
S AND REG
ULATIO
NS
INDIA
NA’S BUSIN
ESS T
ORT
LAW
S AND REG
ULATIO
NS
INDIA
NA’S BUSIN
ESS H
EALT
HCARE
LAW
S AND REG
ULATIO
NS
INDIA
NA’S EN
VIRONMENTA
L REQ
UIREMEN
TS
INDIA
NA’S LE
VEL O
F GOVER
NMENT S
PENDIN
G
INDIA
NA’S FIN
ANCES A
ND CREDIT
RATINGS
INDIA
NA’S IN
FRAST
RUCTURE A
ND LOGIST
ICS
INDIA
NA’S CORPO
RATE TA
X POLIC
Y
INDIA
NA’S PR
OPERTY
TAX P
OLICY
INDIA
NA’S PE
RSONAL I
NCOME TAX PO
LICY
NOT IMPORTANT SOMEWHAT IMPORTANT EXTREMELY IMPORTANT
2015
SU
RV
EY
IV. Regulatory Concerns20
14 S
UR
VEY
32%32%35%
2%8%
0%3% 3%
6%
13%
3%7%
37%
57%
33% 36%32%
62%
55%
31%27%
61% 61%67% 65%66%66%70
60
50
40
30
20
10
0
INDIA
NA’S BUSIN
ESS L
ABOR
LAW
S AND REG
ULATIO
NS
INDIA
NA’S BUSIN
ESS T
ORT
LAW
S AND REG
ULATIO
NS
INDIA
NA’S BUSIN
ESS H
EALT
HCARE
LAW
S AND REG
ULATIO
NS
INDIA
NA’S EN
VIRONMENTA
L REQ
UIREMEN
TS
INDIA
NA’S LE
VEL O
F GOVER
NMENT S
PENDIN
G
INDIA
NA’S FIN
ANCES A
ND CREDIT
RATINGS
INDIA
NA’S IN
FRAST
RUCTURE A
ND LOGIST
ICS
INDIA
NA’S CORPO
RATE TA
X POLIC
Y
INDIA
NA’S PR
OPERTY
TAX P
OLICY
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Digging deeper into this topic, when asked about how important a subset of these regulatory concerns are to their companies, changes to the healthcare laws were again considered most important (67%), followed by changes to corporate tax rates (57%).
Importance of Regulatory Concerns to Indiana Manufacturing
NOT IMPORTANT SOMEWHAT IMPORTANT EXTREMELY IMPORTANT
80
70
60
50
40
30
20
10
0CHANGES TO CORPORATE
TAX RATESCHANGES TO THE HEALTHCARE LAW
CHANGES TO ENERGY EFFICIENCY STANDARDS
CHANGES TO ENVIRONMENTAL LAWS/STANDARDS
NEW REGULATIONS TO CONTROL GREENHOUSE
EMISSIONS
15%
57%
28%
8%
67%
25%
14%22%
64%
10%
38%
52%
19%
42%39%
80
70
60
50
40
30
20
10
0CHANGES TO CORPORATE
TAX RATESCHANGES TO THE HEALTHCARE LAW
CHANGES TO ENERGY EFFICIENCY STANDARDS
CHANGES TO ENVIRONMENTAL LAWS/STANDARDS
NEW REGULATIONS TO CONTROL GREENHOUSE
EMISSIONS
11%
51%
38%
2%
73%
25%
16%
29%
55%
17%
43%39%
14%
53%
31%
2015
SU
RV
EY20
14 S
UR
VEY
Along the same lines, we asked respondents, “What regulatory issue
is having the biggest negative impact on your business?”
Typical comments included:
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“Lack of import tax on goods coming in from overseas. They set their dollar’s worth, and then we don’t put an import tax on their goods, so American manufacturers cannot compete.”
“Tax policies that drive opportunities to surrounding states.”
“Corporate taxes and skyrocketing healthcare costs.”
“The ever-increasing paper shuffle that the government labels ‘compliance.’”
“Two key issues: regulatory control over utilities and second, healthcare.”
“Environmental overreach due to Congress’s failure to write proper law.”
“Property tax policy not allowing abatement unless you move in from out-of-town or leave a building empty for a year. Very wrong-headed...”
“Stupid Legislation (example: Indiana Senate Bill 101, titled the Religious Freedom Restoration Act).”
“Where to start? Over the last 7+ years it seems like we have been pounded from every possible regulatory angle.”
“EPA rules by appointed individuals who are not elected and can’t be removed from office.”
“Inspectors who don’t have uniformed guidelines for inspections. Each inspector has a different understanding of the law.”
“Medical device tax and increased healthcare cost is killing our company. The effective 2013 tax rate with 2.3% device tax on sales was 82.3%. We are required to file a return 24 times per year (twice per month) at an 8-14 man hour cost each time.”
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Perhaps one of the most important strategic business decisions a manufacturer can make is how to win orders from major customers based upon the traditional competitive priorities of delivery, price, service, design and quality. The relative importance of these business strategies have remained generally consistent from 2011-15. Overall, superior quality, fast, and reliable delivery, and superior customer service rank most important. Similarly, lower selling prices and superior product design have remained relatively less-important capabilities over the past four years.
How to Win Orders: Competitive Priorities (Mean)
2013 SURVEY2014 SURVEY2015 SURVEY 2012 SURVEY 2011 SURVEY
4.39
3.56
4.27
3.71
4.37
4.11
3.41
4.16
3.45
4.39
4.17
3.49
4.00
3.57
4.33
FAST & RELIABLE DELIVERY
LOWER SELLING PRICES
SUPERIOR CUSTOMER SERVICE
SUPERIOR PRODUCT DESIGN
SUPERIOR QUALITY
4.15
3.45
4.06
3.25
4.06
4.10
3.57
4.14
3.52
4.10
V. Business Strategy
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What has changed in the past five years is the absolute emphasis on these competitive capabilities. Notice that in 2015 and 2014, every priority except superior quality is lower in terms of what respondents considered “extremely important.” Superior quality, on the other hand, has taken a big jump, from being ranked as “extremely important” by just 39% of Hoosier manufacturers in 2011 and 2012 to being prioritized by half in 2014 (51%) and 2015 (50%).
How to Win Orders: Competitive Priorities Considered “Extremely Important”
60%
50%
40%
30%
20%
10%
0%FAST & RELIABLE
DELIVERYLOWER SELLING
PRICESSUPERIOR
CUSTOMER SERVICESUPERIOR
PRODUCT DESIGNSUPERIORQUALITY
2015
2014
2013
2012
2011
44%40%53%44%43%
21%15%22%20%23%
35%40%49%34%46%
26%15%34%15%26%
50%51%56%39%39%
In order to understand the underlying business strategies in play, we again used cluster and discriminant analysis in the 2015 survey to group the respondents based on the five most common methods for winning customer orders. In 2011, three distinct business strategies emerged among Indiana manufacturers; the two most important underlying dimensions were superior product design and fast and reliable delivery. For 2015, the dominant drivers of manufacturing strategy remained superior product design and fast and reliable delivery. The largest group of manufacturers (43%) concentrated on fast delivery design, while 39% focused on product design. The smallest cluster (18%) was not focused on design, delivery or customer service.
Competitive Priorities and Manufacturing Strategies
FAST
DEL
IVER
Y
FAST
DEL
IVER
Y
SUPERIOR PRODUCT DESIGN SUPERIOR PRODUCT DESIGN
2015 SURVEY: PRODUCTS AND DELIVERY 2014 SURVEY: PRODUCTS AND DELIVERY
STRATEGIES CONSISTENT IN
2015
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Regarding customers, the bulk are, not surprisingly, located outside of Indiana. Although modest in number, between 2011 and 2014 the percentage of customers located outside the U.S. has hovered between 1% (2011) and 5% (2015).
Customer Locations
80
70
60
50
40
30
20
10
0
32%
22%
33%
23% 25%
67%
76%
63%
75%70%
1% 2% 4% 2% 5%
2011 2012 2013 2014 2015
IN INDIANA
OTHER 49 STATES
OUTSIDE THE U.S.
Predictably, the vast majority of the manufacturers surveyed (79% in 2015, 85% in 2014, 80% in 2011, 77% in 2012 and 81% in 2013) have most of their facilities located in Indiana, with anywhere between 10% and 18% located in the other 49 states and 4%-5% abroad. In the same way, the base for suppliers to Hoosier manufacturers is similar from 2011-15, with 18%-33% located in Indiana, 60%-75% located in the other 49 states, and between 5%-7% sourced from abroad.
Facility Locations Supplier Locations
90
80
70
60
50
40
30
20
10
0
5%10%
85%
2014
4%
17%
79%
2015
80%
15%
5%
2011
18%
5%
77%
2012
4%
15%
81%
2013
7% 7%5%
7%
80
70
60
50
40
30
20
10
0
60%
75%
18%
31%
18%24%
62%
75%71%
1%2012 2013 2014 2015
7%
33%
2011
IN INDIANA OTHER 49 STATES OUTSIDE THE U.S.
23
For the past five years, we have also tracked the major areas of concern for manufacturing modernization. From 2011 to 2013, investment in facilities, machinery and information technologies ranked most important (45% in 2013, 47% in 2012 and 44% in 2011), followed closely by human resource development (i.e., trained workforce) and then organizational measures (i.e., organizational structures and processes). Alternatively, relatively few companies ranked human resource development as least important. In 2014, human resource development exploded as a growing concern among Hoosier manufacturers. Likewise, in 2015, human resource development (44%) just edged out investment in facilities, machinery and information technologies (43%) as the top priority regarding manufacturing modernization.
Manufacturing Modernization Priorities
ORGANIZATIONAL MEASURES (I.E., ORGANIZATIONAL STRUCTURES AND PROCESSES)
HUMAN RESOURCE DEVELOPMENT (I.E., TRAINED WORKFORCE)
INVESTMENT IN FACILITIES, MACHINERY AND INFORMATION TECHNOLOGIES
60
50
40
30
20
10
02011
MOST IMPORTANT2012
MOST IMPORTANT2013
MOST IMPORTANT2014
MOST IMPORTANT2015
MOST IMPORTANT
30%
44%
26%
18%
47%
35%
12%
45%43%
18%13%
27%
43%
55%
44%
VI. Manufacturing Modernization
24
In order to understand more fully the entire story here, we also asked Indiana manufacturers what they believed to be their best manufacturing decisions in the past year. A variety of comments related to modernizing manufacturing operations referenced not only technologies, but human resource issues as well.
In a related line of inquiry, we asked which group causes the greatest difficulty in terms of manufacturers making planned improvements. The majority (43%) responded that it is their own employees, followed by customers (36%) and then suppliers (21%).
Which of the Following Causes the Greatest Difficulty in Terms of Improvements?
“Added part-time workforce from local technical schools.”
“Added specialized equipment that was first of its kind in the U.S. market.”
“Investment in modern machines that have more automation.”
“Worker cross-training programs.”
“New investment in equipment and CAD design.”
“Hired more qualified personnel.”
“Updated all equipment to the state-of-art.”
GETTING OUR EMPLOYEES ONBOARD WITH PLANNED IMPROVEMENTS
GETTING OUR SUPPLIERS ONBOARD WITH PLANNED IMPROVEMENTS
GETTING OUR CUSTOMERS ONBOARD WITH PLANNED IMPROVEMENTS
43%
21%
36%
25
1 2 3 4 5
NOUSE
VERY HIGH USE
87%
81%
90%
40%
20%
67%
51%
86%
86%
55%
64%
64%
57%
71%
78%
27%
13%
40%
35%
29%
17%
20%
11%
28%
29%
20%
24%
12%
21%
9%
15%
3%
20%
12%
16%
2.35
3.18
2.33
2.65
5%
9%
5%
4%
9%
14%
10%
5%
6%
13%
6%
10%
15%
5%
2%
5%
6%
3%
8%
13%
11%
16%
5%
5%
17%
10%
18%
11%
9%
10%
2%
0%
1%
16%
22%
6%
11%
3%
2%
13%
11%
3%
13%
7%
5%
2%
3%
1%
33%
36%
2%
12%
2%
1%
2%
9%
5%
4%
7%
5%
1.26
1.34
1.17
2.96
3.46
1.64
2.23
1.29
1.25
1.93
1.93
1.77
1.91
1.73
1.57
ADVANCED MANUFACTURING TECHNOLOGIES
ADVANCED MANUFACTURING PROGRAMS
AUTOMATED GUIDED VEHICLES (AGVs)
AUTOMATIC STORAGE/RETRIEVAL SYSTEMS (AS/RS)
BIO OR GENE-TECHNOLOGY (E.G., CATALYSTS OR BIO REACTORS)
CNC MACHINES
COMPUTER-AIDED DESIGN/ENGINEERING (CAD-CAE)
COMPUTERIZED/VIDEO ASSEMBLY INSTRUCTIONS
COORDINATE-MEASURING MACHINE (CMM) INSPECTION
DRY ICE BLASTING (I.E., CO2 OR CRYOGENIC CLEANING)
DRY PROCESSING/MINIMUM QUANTITY LUBRICATION SYSTEM
FLEXIBLE MANUFACTURING SYSTEMS (FMS)
LASER AS A TOOL (E.G., CUTTING, WELDING, FORMING)
NOVEL MATERIALS (E.G., COMPOSITE OR RENEWABLE RAW)
RAPID PROTOTYPING OR TOOLING (E.G., STEREO LITHOGRAPHY)
RFID PRODUCT/PART TRACKING
RFID TOOL CONTROL
APPRENTICESHIP PROGRAMS FOR TRAINING NEW WORKERS
LEAN MANUFACTURING
SIX SIGMA
WORK CELLS/CELLULAR MANUFACTURING
1 2 3 4 5 MEAN
2015 SURVEY
This year’s survey included questions on a wide variety of advanced manufacturing technologies and programs. Respondents reported on their use of each technology or program on a scale of 1-5, with 1 being “No Use” and 5 being “Very High Use.”
VII. Advanced Manufacturing Strategy
26
2013 SURVEY
1 2 3 4 5
NOUSE
VERY HIGH USE
92%
88%
97%
30%
25%
67%
54%
92%
89%
57%
61%
63%
63%
68%
80%
33%
21%
47%
40%
29%
18%
16%
10%
22%
26%
23%
15%
13%
20%
10%
22%
3%
15%
4%
13%
2.24
2.90
2.07
2.56
2%
2%
2%
7%
6%
11%
8%
7%
9%
9%
11%
17%
10%
15%
10%
4%
5%
0%
14%
14%
10%
11%
0%
1%
16%
8%
13%
20%
7%
4%
2%
5%
0%
15%
24%
6%
11%
1%
1%
11%
7%
7%
5%
8%
4%
0%
0%
1%
34%
31%
6%
16%
0%
0%
7%
13%
0%
2%
2%
2%
1.16
1.25
1.07
3.17
3.30
1.72
2.28
1.10
1.15
2.03
1.99
1.63
1.72
1.62
1.37
ADVANCED MANUFACTURING TECHNOLOGIES
ADVANCED MANUFACTURING PROGRAMS
AUTOMATED GUIDED VEHICLES (AGVs)
AUTOMATIC STORAGE/RETRIEVAL SYSTEMS (AS/RS)
BIO OR GENE-TECHNOLOGY (E.G., CATALYSTS OR BIO REACTORS)
CNC MACHINES
COMPUTER-AIDED DESIGN/ENGINEERING (CAD-CAE)
COMPUTERIZED/VIDEO ASSEMBLY INSTRUCTIONS
COORDINATE-MEASURING MACHINE (CMM) INSPECTION
DRY ICE BLASTING (I.E., CO2 OR CRYOGENIC CLEANING)
DRY PROCESSING/MINIMUM QUANTITY LUBRICATION SYSTEM
FLEXIBLE MANUFACTURING SYSTEMS (FMS)
LASER AS A TOOL (E.G., CUTTING, WELDING, FORMING)
NOVEL MATERIALS (E.G., COMPOSITE OR RENEWABLE RAW)
RAPID PROTOTYPING OR TOOLING (E.G., STEREO LITHOGRAPHY)
RFID PRODUCT/PART TRACKING
RFID TOOL CONTROL
APPRENTICESHIP PROGRAMS FOR TRAINING NEW WORKERS
LEAN MANUFACTURING
SIX SIGMA
WORK CELLS/CELLULAR MANUFACTURING
1 2 3 4 5 MEAN
1 2 3 4 5
NOUSE
VERY HIGH USE
91%
88%
98%
43%
23%
66%
53%
92%
83%
58%
63%
64%
68%
78%
83%
38%
19%
42%
32%
27%
22%
14%
14%
25%
22%
25%
20%
5%
24%
14%
17%
6%
14%
6%
17%
2.14
2.91
2.27
2.74
3%
2%
0%
7%
7%
17%
5%
5%
9%
14%
13%
18%
10%
8%
6%
2%
8%
1%
7%
23%
6%
9%
1%
7%
17%
13%
9%
13%
6%
5%
2%
1%
1%
22%
26%
9%
23%
2%
1%
10%
8%
5%
6%
3%
7%
1%
1%
0%
22%
22%
2%
10%
0%
0%
1%
5%
5%
3%
5%
0%
1.19
1.26
1.06
2.72
3.17
1.65
2.32
1.14
1.26
1.83
1.80
1.68
1.66
1.48
1.35
ADVANCED MANUFACTURING TECHNOLOGIES
ADVANCED MANUFACTURING PROGRAMS
AUTOMATED GUIDED VEHICLES (AGVs)
AUTOMATIC STORAGE/RETRIEVAL SYSTEMS (AS/RS)
BIO OR GENE-TECHNOLOGY (E.G., CATALYSTS OR BIO REACTORS)
CNC MACHINES
COMPUTER-AIDED DESIGN/ENGINEERING (CAD-CAE)
COMPUTERIZED/VIDEO ASSEMBLY INSTRUCTIONS
COORDINATE-MEASURING MACHINE (CMM) INSPECTION
DRY ICE BLASTING (I.E., CO2 OR CRYOGENIC CLEANING)
DRY PROCESSING/MINIMUM QUANTITY LUBRICATION SYSTEM
FLEXIBLE MANUFACTURING SYSTEMS (FMS)
LASER AS A TOOL (E.G., CUTTING, WELDING, FORMING)
NOVEL MATERIALS (E.G., COMPOSITE OR RENEWABLE RAW)
RAPID PROTOTYPING OR TOOLING (E.G., STEREO LITHOGRAPHY)
RFID PRODUCT/PART TRACKING
RFID TOOL CONTROL
APPRENTICESHIP PROGRAMS FOR TRAINING NEW WORKERS
LEAN MANUFACTURING
SIX SIGMA
WORK CELLS/CELLULAR MANUFACTURING
1 2 3 4 5 MEAN
2014 SURVEY
27
ADVANCED MANUFACTURING TECHNOLOGIES
ADVANCED MANUFACTURING PROGRAMS
AUTOMATED GUIDED VEHICLES (AGVs)
COORDINATE-MEASURING MACHINE (CMM) INSPECTION
NOUSE
VERY HIGH USE
AUTOMATIC STORAGE/RETRIEVAL SYSTEMS (AS/RS)
DRY ICE BLASTING (I.E., CO2 OR CRYOGENIC CLEANING)
RAPID PROTOTYPING OR TOOLING (E.G., STEREO LITHOGRAPHY)
BIO OR GENE-TECHNOLOGY (E.G., CATALYSTS OR BIO REACTORS)
DRY PROCESSING/MINIMUM QUANTITY LUBRICATION SYSTEM
RFID PRODUCT/PART TRACKING
CNC MACHINES
FLEXIBLE MANUFACTURING SYSTEMS (FMS)
RFID TOOL CONTROL
APPRENTICESHIP PROGRAMS FOR TRAINING NEW WORKERS
LEAN MANUFACTURING
SIX SIGMA
WORK CELLS/CELLULAR MANUFACTURING
COMPUTER-AIDED DESIGN/ENGINEERING (CAD-CAE)
LASER AS A TOOL (E.G., CUTTING, WELDING, FORMING)
COMPUTERIZED/VIDEO ASSEMBLY INSTRUCTIONS
NOVEL MATERIALS (E.G., COMPOSITE OR RENEWABLE RAW)
94%
90%
92%
45%
27%
72%
61%
90%
87%
65%
61%
69%
68%
73%
83%
33%
20%
58%
36%
2%
5%
2%
8%
13%
14%
6%
4%
7%
11%
11%
16%
13%
12%
9%
35%
19%
21%
19%
2%
2%
2%
10%
17%
8%
13%
3%
3%
7%
13%
8%
11%
7%
5%
18%
28%
11%
19%
0%
0%
2%
17%
25%
3%
8%
2%
2%
8%
9%
5%
5%
5%
1%
9%
20%
5%
14%
2% 1.14
3% 1.21
2% 1.20
20% 2.59
18% 2.94
3% 1.52
12% 2.05
1% 1.20
1% 1.23
9% 1.86
6% 1.89
2% 1.56
3% 1.63
3% 1.54
2% 1.30
5% 2.17
13% 2.87
5% 1.79
12% 2.46
2011 SURVEY
1 2 3 4 5 MEAN
ADVANCED MANUFACTURING TECHNOLOGIES
ADVANCED MANUFACTURING PROGRAMS
AUTOMATED GUIDED VEHICLES (AGVs)
COORDINATE-MEASURING MACHINE (CMM) INSPECTION
NOUSE
VERY HIGH USE
AUTOMATIC STORAGE/RETRIEVAL SYSTEMS (AS/RS)
DRY ICE BLASTING (I.E., CO2 OR CRYOGENIC CLEANING)
RAPID PROTOTYPING OR TOOLING (E.G., STEREO LITHOGRAPHY)
BIO OR GENE-TECHNOLOGY (E.G., CATALYSTS OR BIO REACTORS)
DRY PROCESSING/MINIMUM QUANTITY LUBRICATION SYSTEM
RFID PRODUCT/PART TRACKING
CNC MACHINES
FLEXIBLE MANUFACTURING SYSTEMS (FMS)
RFID TOOL CONTROL
APPRENTICESHIP PROGRAMS FOR TRAINING NEW WORKERS
LEAN MANUFACTURING
SIX SIGMA
WORK CELLS/CELLULAR MANUFACTURING
COMPUTER-AIDED DESIGN/ENGINEERING (CAD-CAE)
LASER AS A TOOL (E.G., CUTTING, WELDING, FORMING)
COMPUTERIZED/VIDEO ASSEMBLY INSTRUCTIONS
NOVEL MATERIALS (E.G., COMPOSITE OR RENEWABLE RAW)
95%
90%
99%
38%
32%
73%
55%
89%
88%
56%
67%
70%
72%
75%
80%
40%
22%
48%
38%
3%
6%
1%
5%
5%
9%
8%
5%
4%
16%
7%
16%
12%
10%
9%
27%
15%
17%
7%
1%
3%
0%
15%
21%
10%
10%
3%
4%
14%
5%
10%
12%
6%
9%
19%
28%
20%
24%
1%
0%
0%
14%
18%
6%
16%
2%
3%
8%
10%
3%
2%
6%
2%
12%
21%
10%
22%
1.080%
1.161%
1.010%
2.8728%
2.9824%
1.532%
2.1711%
1.201%
1.241%
1.896%
1.8811%
1.481%
1.492%
1.503%
1.320%
2.092%
2.8914%
2.075%
2.579%
2012 SURVEY
1 2 3 4 5 MEAN
28
Comparing the results across all five surveys shows that automation such as CNC machines and computer-aided design (CAD) are among the most popular technologies, with annual reported usages by Hoosier manufacturers hovering around 70% to 80%. Similarly, approximately 40% to 50% of Indiana’s manufacturers report using coordinate-measuring machine (CMM) inspection and flexible manufacturing systems. Percentage of Indiana Manufacturers Using Advanced Manufacturing Technologies
In a similar way, between 75%-85% of all Indiana companies have relied to varying degrees on the philosophy known as “Lean manufacturing” over the past five years. Likewise, Six Sigma has steadily gained popularity from 2011 to 2015, and currently just over 60% of Hoosier manufacturers use it in their businesses. Percentage of Indiana Manufacturers Using Advanced Manufacturing Philosophies
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
AUTOMATIC
STORAGE/
RETRIEV
AL SYST
EM (A
S/RS)
AUTOMATE
D GUID
ED VEH
ICLES (
AGVs)
BIO O
R GEN
ETEC
HNOLOGY (E
.G., CATA
LYST
S)
COMPUTE
R-AID
ED D
ESIG
N (CAD)
COORDINATE
-MEA
SURIN
G MACHIN
E (CMM)
DRY PROCES
SING/M
INIM
UM QUANTIT
Y LUBRICATIO
N
RFID TO
OL CONTR
OL
RFID PR
ODUCT/PART T
RACKING
DRY ICE B
LAST
ING (I.
E., CO2 C
LEANIN
G)
COMPUTE
RIZED/V
IDEO
ASS
EMBLY
INST
RUCTIONS
CNC MACHIN
ES
FLEX
IBLE M
ANUFACTU
RING SY
STEM
S (FM
S)
LASE
R AS A
TOOL (
E.G., C
UTTIN
G, WEL
DING, F
ORMING)
NOVEL M
ATERIA
LS (E
.G., COMPO
SITE)
RAPID PR
OTOTY
PING (E
.G., STE
REO LI
THOGRAPH
Y)
2015
2014
2013
2012
2011
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2015
2014
2013
2012
2011
APPRENTICESHIP PROGRAMS FOR TRAINING
NEW WORKERS
LEAN MANUFACTURING SIX SIGMA WORK CELLS / CELLULAR MANUFACTURING
29
Beginning with the 2011 survey, we have used an analytic technique called “factor analysis”1 to distill or pare down those 19 items to a subset of measurements representing the “essence” or “core” of advanced manufacturing and programs, including CNC machines, CAD-CAE, CMM inspection and the use of lasers. Similarly, of the four advanced-manufacturing programs, both Lean manufacturing and Six Sigma emerged as having the most effect.
In the 2011 survey results, three groupings of advanced manufacturing strategies emerged from this analysis based upon two underlying dimensions. The four advanced-manufacturing technologies formed one dimension that represents, in essence, what is increasingly known as “smart manufacturing.” Smart manufacturing largely relies on information technologies and data sharing throughout businesses and factories to connect and synchronize all the stages of production, from product design and fabrication to final assembly and testing. Similarly, a second dimension strongly formed around Lean manufacturing and Six Sigma, which we labeled “process-improvement programs.”
The same remains true in 2015, and, clearly, over the past several years smart-manufacturing technologies and process-improvement programs have become the key differentiators in terms of manufacturing strategies among Indiana companies. The 2015 results show one cluster (27%) focused on both smart-manufacturing technologies and process-improvement programs. The other two groups emphasized either process-improvement programs (40%) or smart-manufacturing technologies (33%). In short, Hoosier manufacturers are moving forward with either smart-manufacturing technologies or process-improvement programs, or, alternatively, incorporating both into their operations.
Priorities in Manufacturing Strategy: Process Improvement Versus Smart Manufacturing
1 Factor analysis identifies underlying variables, or factors, explaining the pattern of correlations within a set of observed variables, and it is commonly used in data reduction to identify a small number of factors explaining most of the variance observed in a much larger number of variables.
2015
SU
RV
EY
2014
SU
RV
EY
SMART-MANUFACTURING TECHNOLOGIES
PRO
CES
S-IM
PRO
VEM
ENT
PRO
GR
AM
S
PRO
CES
S-IM
PRO
VEM
ENT
PRO
GR
AM
S
SMART-MANUFACTURING TECHNOLOGIES
2015’S STRATEGIES REMAIN
CONSISTENT WITH 2014’S
FOCUSED ON SMART-
MANUFACTURING TECHNOLOGIES AND
PROCESS IMPROVEMENT
LESS FOCUSED ON PROCESS
IMPROVEMENT
MORE FOCUSED ON PROCESS
IMPROVEMENT
30
When asked “What was your best manufacturing decision made in the past year,” some responses were very revealing regarding smart-manufacturing technologies and lean programs.
“To stay-the-course with lean manufacturing systems.”
“Automated with axis CNC lathes that can run lights out.”
“Upgraded equipment that is more energy efficient.”
“Added automation and expanded higher technology/equipment.”
“Updated all equipment to the state-of-art.”
“Completely rearranged our machinery on the shop floor for more efficiency.”
“Infrastructure investment to improve production efficiency.”
“Added specialized equipment that was first of its kind in the U.S. market.”
“Adopting cellular organization to our equipment has had a very
positive impact on efficiency and employee satisfaction.”
31
2015
-16
2015
-16
2014
-15
2014
-15
While Indiana’s existing manufacturing base is critical to the economic health of our state, it is also important to consider the future. When asked about plans in the next few years to open a new manufacturing facility in Indiana, only 11% responded “yes,” down considerably from 20% in the 2014 survey.
When asked if these new manufacturing plants would make existing or new products, 91% of respondents reported “both.” Surprisingly, unlike our findings from 2011-2014, no respondent indicated that they planned in the near future to open a factory in Indiana dedicated to producing only a new product. This finding stands in stark contrast to last year’s findings, where 21% of the respondents planned to produce a new product in a new production facility.
PLAN TO OPEN NEW MANUFACTURING FACILITY IN INDIANA %
80%
89%
20%
11%
100%
100%
NO
YES
NO
YES
TOTAL
TOTAL
PLANNED PRODUCTION IN NEW FACILITIES %
9%
22%
0%
21%
91%
57%
100%
100%
EXISTING PRODUCTS
NEW PRODUCTS
BOTH EXISTING AND NEW PRODUCTS
EXISTING PRODUCTS
NEW PRODUCTS
BOTH EXISTING AND NEW PRODUCTS
TOTAL
TOTAL
VIII. Expanding Indiana’s Manufacturing Base
32
When asked if any of their products are sold to other U.S. manufacturers as raw materials, parts, sub-components, etc., and then eventually exported overseas in those companies’ finished goods, more than half (58%) of the surveyed manufacturers responded “yes.” Encouragingly, the percentage replying “yes” in 2015 was up from 2014’s 52%, which suggests that in the past year Hoosier manufacturers have been successful in overseas markets.
2015 SURVEY
2014 SURVEY
DO ANY OF YOUR PRODUCTS EVENTUALLY GET EXPORTED OVERSEAS?
DO ANY OF YOUR PRODUCTS EVENTUALLY GET EXPORTED OVERSEAS?
%
%
31%
44%
58%
52%
11%
4%
100%
100%
NO
YES
NOT SURE
NO
YES
NOT SURE
TOTAL
TOTAL
IX. Onshoring and Offshoring Manufacturing
33
In recent surveys, we have asked respondents if they expect to relocate or onshore any manufacturing back to the U.S., or, alternatively, if they plan on relocating or offshoring any production outside the country. When asked that question in 2012, 9% replied “yes” to onshoring versus 8% for offshoring. These general results held up in the 2013 survey, with 7% replying “yes” to offshoring versus 6% for onshoring. Surprisingly, the percentage replying “yes” in 2014 jumped to 10%. In 2015, that percentage again increased to 13% of surveyed companies.
0% 20% 40% 60%
13%
6%
7%
94%
93%
87%
80% 100%
DO YOU PLAN ON RELOCATING OR “OFFSHORING” ANY MANUFACTURING OUTSIDE THE U.S. DURING
THIS YEAR OR THE NEXT (2015-16)?
DO YOU PLAN ON RELOCATING OR “ONSHORING” ANY MANUFACTURING BACK TO THE U.S. DURING
THIS YEAR OR THE NEXT (2015-16)?
DO YOU PLAN ON “NEARSHORING” ANY MANUFACTURING BACK TO EITHER CANADA OR
MEXICO DURING THIS YEAR OR THE NEXT (2015-16)?
2015
0% 20% 40% 60%
10%
6%94%
90%
80% 100%
DO YOU PLAN ON RELOCATING OR “OFFSHORING” ANY MANUFACTURING OUTSIDE THE U.S. DURING
THIS YEAR OR THE NEXT (2014-15)?
DO YOU PLAN ON RELOCATING OR “ONSHORING” ANY MANUFACTURING BACK TO THE U.S. DURING
THIS YEAR OR THE NEXT (2014-15)?
2014
YES
NO
When asked, “What were your best and worst manufacturing decisions made in the past year,” the responses from several managers were very revealing regarding offshoring.
Best Decisions Worst Decisions
“To relocate production out of Indiana.”
“We shifted capex investment out of Indiana because we were able to obtain significantly better incentives elsewhere. Indiana focuses too much on increasing jobs and not enough on incentivizing investment.”
“Not moving manufacturing to China like eight out of 12 of our U.S. competitors.”
“Trying to compete with China.”
34
BETTER ACCESS TO NEW TECHNOLOGIES
BETTER CONTROL OVER PRODUCTION
CLOSER TO CUSTOMERS AND MAIN MARKETS
CLOSER TO KEY SUPPLIERS
GREATER ACCOUNTING AND AUDIT OVERSIGHT
PROTECTING INTELLECTUAL PROPERTY RIGHTS/PATENTS
RISING OVERSEAS LABOR COSTS
REDUCED TOTAL “LANDED” COSTS
REDUCED SUPPLY CHAIN SECURITY RISKS/THREATS
SKILLED U.S. LABOR
34%
17%
17%
33%
50%
33%
33%
17%
33%
33%
33%
50%
66%
50%
33%
50%
67%
50%
50%
50%
33%
33%
17%
17%
17%
17%
0%
33%
17%
17%
1.50
2.75
2.75
2.00
1.50
2.25
2.25
2.75
2.00
2.50
NOTIMPORTANT IMPORTANT
VERYIMPORTANT MEAN
REASONS FOR ONSHORING
(I.E., CUSTOMS/DUTIES, TRANSPORTATION, WAREHOUSING, ETC.)
When asked how important the following factors are in terms of relocating or onshoring manufacturing back to the United States, better control over production, proximity to customers and main markets, and reduced “landed” costs were the three most important factors in that decision.
When asked how important the following factors are in terms of relocating or offshoring manufacturing out of the U.S., the biggest driver was lower offshore labor costs. Offshoring manufacturers were also focused on skilled overseas labor and less control over offshore production.
BETTER ACCESS TO NEW TECHNOLOGIES
CLOSER TO CUSTOMERS IN NEW MARKETS
CLOSER TO KEY SUPPLIERS
FEWER OFFSHORE GOVERNMENT REGULATIONS
INCREASED SUPPLY CHAIN SECURITY RISKS/THREATS
LESS ACCOUNTING AND AUDIT OVERSIGHT
LESS CONTROL OVER OFFSHORE PRODUCTION
LOWER OFFSHORE LABOR COSTS
PROTECTING INTELLECTUAL PROPERTY RIGHTS/PATENTS
SKILLED OVERSEAS LABOR
62%
46%
69%
69%
46%
54%
39%
39%
54%
46%
23%
46%
23%
16%
46%
23%
38%
15%
23%
23%
15%
8%
8%
15%
8%
23%
23%
46%
23%
31%
1.54
1.62
1.38
1.46
1.62
1.69
1.85
2.08
1.69
1.85
NOTIMPORTANT IMPORTANT
VERYIMPORTANT MEAN
REASONS FOR OFFSHORING
35
For the 2015 survey, we continued to analyze the ongoing shortage of manufacturing workers in Indiana. When asked about the availability of qualified workers in 2015, the biggest shortages were in skilled production workers, production support and scientist and design engineers. It is also worth noting that all three of these were regarded as growing “serious” shortages when comparing 2015 results to 2014.
Current Availability of Qualified Workers
3%3%
34%
12%
10%
1%
0%
SCIENTISTS & DESIGN
ENGINEERS
SCIENTISTS & DESIGN
ENGINEERS
16%
13%
29% 29%
23%
32%
41%
46%
54%
65%
24%
18%
36%
34%
45%
30%
37%
35%
6%3%
7%
3%
31%
18%
14%
23%
13%
31%
31%
39%
54%
18%
24%
70
60
50
40
30
20
10
0
70
60
50
40
30
20
10
0
CUSTOMERSERVICE
CUSTOMERSERVICE
MANAGEMENT &ADMINISTRATION
MANAGEMENT &ADMINISTRATION
PRODUCTIONSUPPORT
PRODUCTIONSUPPORT
SALES &MARKETING
SALES &MARKETING
SKILLED PRODUCTION
SKILLED PRODUCTION
UNSKILLEDPRODUCTION
UNSKILLEDPRODUCTION
38%
39%
36%
44%
19%
28%
33%
32%
12%
11%
27%
15%
17%
18%
NO SHORTAGE
LOW SHORTAGE
MODERATE SHORTAGE
SERIOUS SHORTAGE
18%
2015
SU
RV
EY20
14 S
UR
VEY
X. Manufacturing Workforce Shortages and Skills
36
In a similar way, when asked about anticipated shortages of manufacturing workers in Indiana over the next three to five years the biggest shortages are expected to be in skilled production workers (44%), production support (23%) and scientist and design engineers (15%).
Anticipated Availability of Qualified Workers (Next 3-5 Years)
In terms of the impact of workforce shortages on Indiana’s manufacturers, for the past few years, it has been damaging mainly to the implementation of new technologies as well as maintaining production levels consistent with customer demand. Indeed, when comparing the 2015 survey results to 2014, these problems appear to be growing annually in terms of severity. In short, these workforce shortages not only hinder the implementation of smart manufacturing automation but also impede daily production.
Areas Most Impacted by Workforce Shortages
10%
4%
36%
3%
13%
34% 34% 33%
49%
25%16%
42%
25%
4%
15%
44%
36%
23% 25%29%
60
50
40
30
20
10
0CUSTOMER
SERVICEMANAGEMENT &ADMINISTRATION
PRODUCTIONSUPPORT
SALES &MARKETING
SCIENTISTS & DESIGN
ENGINEERS
SKILLED PRODUCTION
UNSKILLEDPRODUCTION
34%33%
35%
19%
11%
30%
20%18%
NO SHORTAGE
LOW SHORTAGE
MODERATE SHORTAGE
SERIOUS SHORTAGE
ACHIEVING & MAINTAINING DESIRED LEVELS OF CUSTOMER SATISFACTION
ACHIEVING & MAINTAINING DESIRED LEVELS OF CUSTOMER SATISFACTION
ACHIEVING PRODUCTIVITY
TARGETS
ACHIEVING PRODUCTIVITY
TARGETS
NEW P
RODUCT DEVELOPMENT
& INNOVATIO
N
NEW P
RODUCT DEVELOPMENT
& INNOVATIO
N
MA
INTA
ININ
G P
RO
DU
CTI
ON
LE
VE
LS C
ON
SIST
EN
T W
ITH
C
UST
OM
ER
DE
MA
ND
MA
INTA
ININ
G P
RO
DU
CTI
ON
LE
VE
LS C
ON
SIST
EN
T W
ITH
C
UST
OM
ER
DE
MA
ND
INTERNATIONAL EXPANSION: ABILITY TO IMPORT, EXPORT OR
EXPAND GLOBALLY
INTERNATIONAL EXPANSION: ABILITY TO IMPORT, EXPORT OR
EXPAND GLOBALLY
IMPLEMENTING QUALITY IMPROVEMENT PROCESSES
(E.G., SUSTAINABILITY PROCESSES)
IMPLEMENTING QUALITY IMPROVEMENT PROCESSES
(E.G., SUSTAINABILITY PROCESSES)
IMP
LEM
EN
TING
NE
W
TEC
HN
OLO
GIE
S
IMP
LEM
EN
TING
NE
W
TEC
HN
OLO
GIE
S
35%
30%
25%
20%
15%
10%
5%
0%
2015 2014
35%
30%
25%
20%
15%
10%
5%
0%
37
Regarding skill deficiencies in current employees and rejected applicants, two of the most critical were inadequate basic employability skills (e.g., attendance, timeliness, and work ethic) and problem-solving skills, followed by reading/writing/communication skills and basic technical training. In comparing 2015 to 2014, unfortunately, little has changed from past years, in terms of expectations about skills deficiencies.
Skill Deficiencies Among Current Employees and Rejected Applicants
Finally, we inquired how Indiana manufacturers were overcoming existing skills gaps. The two most common solutions are the same as those reported in our 2014 study: internal employee training and development programs (79%) and the use of overtime (75%).
Methods Used to Compensate for Existing Skills Gaps80
70
60
50
40
30
20
10
0
55%
EXTERNAL TRAINING & CERTIFICATION
PROGRAMS
34%
FOCUSED RECRUITING ON
NEW WORKFORCE SEGMENTS
(I.E., GENDER AND/0R DIVERSITY INITIATIVES)
79%
INTERNAL EMPLOYEE TRAINING &
DEVELOPMENT PROGRAMS
49%
OUTSOURCING OF CERTAIN FUNCTIONS
44%
USE OF CONTINGENT LABOR
(E.G., TEMPORARY WORKER OR STAFFING
AGENCIES)
75%
USE OF OVERTIME
0
0
10
10
20
20
30
30
41%
44%
55%
58%
43%
42%
67%
70%
40
40
50
50
60
60
70
70
80
80
LACK OF BASIC TECHNICAL TRAINING(E.G., DEGREE, INDUSTRY, CERTIFICATION OR VOCATIONAL TRAINING)
LACK OF BASIC TECHNICAL TRAINING(E.G., DEGREE, INDUSTRY, CERTIFICATION OR VOCATIONAL TRAINING)
38%
38%
48%
41%
INADEQUATE TECHNOLOGY/COMPUTER SKILLS
INADEQUATE TECHNOLOGY/COMPUTER SKILLS
32%
39%
56%
63%
INADEQUATE READING/WRITING/COMMUNICATION SKILLS
INADEQUATE READING/WRITING/COMMUNICATION SKILLS
51%
44%
59%
55%
INADEQUATE PROBLEM-SOLVING SKILLS
INADEQUATE PROBLEM-SOLVING SKILLS
30%
11%
53%
48%
INADEQUATE MATH SKILLS
INADEQUATE MATH SKILLS
INADEQUATE BASIC EMPLOYABILITY SKILLS(E.G.,ATTENDANCE, TIMELINESS, WORK ETHIC, ETC.)
INADEQUATE BASIC EMPLOYABILITY SKILLS(E.G.,ATTENDANCE, TIMELINESS, WORK ETHIC, ETC.)
SKILLS DEFICIENCIES: CURRENT EMPLOYEES SKILLS DEFICIENCIES: REJECTED APPLICANTS
2015
SU
RV
EY20
14 S
UR
VEY
38
The following data are averages for an array of performance metrics over the last four manufacturing surveys.
What Was Your Business Unit’s Approximate Performance Level for the Following?
For the Following Metrics, How Did Your Business Unit’s Approximate Performance Level Compare Between 2013 and 2014?
74%67% 64%
5%4% 4%4% 4%7%
3%6%
3%7%10%
73%
5%2%
7%
70%68%
9%
61%
3%
80
70
60
50
40
30
20
10
0CAPACITY
UTILIZATIONCUSTOMER
COMPLAINTS (AS A % OF ORDERS
DELIVERED)
FORECAST ACCURACY
(E.G. 10% OVER OR UNDER FORECAST =
90% ACCURACY)
INCORRECT DELIVERIES TO CUSTOMERS
(E.G., WRONG LOCATIONS OR
QUANTITIES)
LATE DELIVERIES TO CUSTOMERS (AS A % OF
ORDERS DELIVERED)
SCRAP & REWORK COSTS
(AS A % OF SALES)
59%
2012
2013
2014
2015
38%
0 10 20 30 40 50 60 70 80
31%
7%
48%
33%54%
35%
5%
6%23%
43%
56%
10%
10%
9% 37%
41%
5%
4%
13%
37%
3%
3%
14%
52%
42%
PRODUCT QUALITY
EMPLOYEE SATISFACTION
ENVIRONMENTAL PERFORMANCE
CUSTOMER SATISFACTION
SCRAP AND REWORK COSTS (AS A PERCENTAGE OF SALES)
LATE DELIVERIES TO CUSTOMERS(AS A PERCENTAGE OF ORDERS DELIVERED)
INCORRECT DELIVERIES TO CUSTOMERS(E.G., WRONG LOCATIONS)
FORECAST ACCURACY
CUSTOMER COMPLAINTS (AS A PERCENTAGE OF
ORDERS DELIVERED)
64%25%
43%40%
51%
39%
2014 WAS WORSE THAN 2013
2014 AND 2013 WERE ABOUT THE SAME
2014 WAS BETTER THAN 2013
Appendix: Benchmarking Indiana’s Manufacturing
39
2012
2013
2014
2015
By What Percentage Has Your Business Unit’s Operational Performance Improved, Stayed the Same, or Declined in the Past Three Years for the Following?
How Many Days (On Average) Were the Following?
12%13% 13%
15%16% 16%
3%
5%
2%2%2%
4% 4%4%3%
11%
19%
6% 6% 6%
14%
16%15%
20
18
16
14
12
10
8
6
4
2
0CAPACITY
UTILIZATIONDELIVERY SPEED AND
RELIABILITYLABOR
PRODUCTIVITYMATERIAL
COSTSOVERHEAD
COSTSUNIT
MANUFACTURING COST
14% 2012 2013 2014 2015
0 10 20 30 40 50 60
DAYS PAYABLE OUTSTANDING (DPO)
DAYS SALES OUTSTANDING (DOS)
FINISHED GOODS INVENTORY (DAYS)
WORK-IN-PROCESS (WIP) INVENTORY (DAYS)
31
35
38
29
25
RAW MATERIALS INVENTORY (DAYS)
2011-12
2010-11
2012-13
2013-14
2014-15
41
44
49
42
50
32
29
23
41
39
46
45
40
49
44
37
42
35
46
38
40
Indiana’s Manufacturing Scorecard
As with our previous reports, this year’s report includes a composite scorecard compiled using 16 different critical measures covering the business climate, cash-conversion cycle and manufacturer’s performance in order to track the overall health of Indiana’s manufacturing industry. Using the 2011 study as a reference point, we set that year’s score at an even “par” index baseline of .500. From there, annual scores greater than .500 indicate Indiana’s manufacturing sector is getting stronger, while scores lower than .500 suggest Hoosier manufacturers are weakening.
This year’s score of .497 is the first time in the past five years that the index has slumped below .500, suggesting that the health of Hoosier manufacturers had decreased year-over-year, from 2014 to 2015.
Indiana’s Manufacturing Health Scorecard: Critical Areas and Weights
Indiana’s Five-Year Manufacturing Health
Business Climate
Manufacturer’s PerformanceCash Conversion Cycle
(Weighted 20%)
Financial Performance (Weighted 20%)Operational Performance (Weighted 30%)Investing for the Future (Weighted 10%)
(Weighted 20%)
Indiana’s 2011 Manufacturing Scorecard Health = .500
Indiana’s 2012 Manufacturing Scorecard Health = .521
Indiana’s 2013 ManufacturingScorecard Health = .516
Indiana’s 2014 Manufacturing Scorecard Health = .536
Indiana’s 2015 Manufacturing Scorecard Health = .497
0.54
0.53
0.52
0.51
0.5
0.49
0.48
0.500
0.5210.516
0.536
0.497
2011 2012 2014 20152013
ABOUT THE RESEARCHERS
The research study was conducted in conjunction with faculty from Indiana University’s Kelley School of Business.
Associate Professor Mark FrohlichD.B.A. Boston University 1998
Dr. Frohlich’s research interests are in manufacturing strategy, process improvement, and supply chain integration, and he has been published in a wide variety of scholarly journals including the Journal of Operations Management, Decision Sciences, and Production and Operations Management. His research has won numerous awards including best papers of the year in 2001 and 2005, and best operations management case study in 2010. He was recently identified as one of the most cited authors in the field by the Journal of Operations Management. His teaching spans the range from supply chain management and Six-Sigma process improvement to the basics of operations. Through executive education, he has had the opportunity to teach on four continents in over a dozen countries.
Associate Professor Steve JonesPh.D. Purdue University 1989
Dr. Jones’ research interests are in financial management and strategy, including how financial decision making interacts with capital market conditions. He has been published in the top scholarly journals in finance, including the Journal of Financial Economics, the Journal of Finance, the Journal of Business, Financial Management, and the Journal of Corporate Finance. He also serves as director of the school’s Finance Education Enterprise, and currently, he is faculty chair of Kelley’s Evening MBA Program. He teaches courses in financial management, financial markets and investment analysis, and he is a four-time winner of a Kelley School teaching excellence award.
For more information regarding the Kelley School of Business, please visit kelley.iupui.edu.
Kelley School of Business801 West Michigan StreetBS 4042Indianapolis, IN 46202-5151
ABOUT KATZ, SAPPER & MILLER
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