indiana manufacturing survey · 2015-09-30 · 2015 indiana manufacturing survey: back to...

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

2

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





NET PROFIT MARGIN FOR 2012 OVER 2011





CAPITAL EXPENDITURES FOR 2012 OVER 2011





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

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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

15

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

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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

22

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






CNC MACHINES











RFID TOOL CONTROL


LEAN MANUFACTURING

SIX SIGMA


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






CNC MACHINES











RFID TOOL CONTROL


LEAN MANUFACTURING

SIX SIGMA


1 2 3 4 5 MEAN

2014 SURVEY

27





NOUSE

VERY HIGH USE







CNC MACHINES


RFID TOOL CONTROL


LEAN MANUFACTURING

SIX SIGMA






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





NOUSE

VERY HIGH USE







CNC MACHINES


RFID TOOL CONTROL


LEAN MANUFACTURING

SIX SIGMA






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


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


DO YOU PLAN ON RELOCATING OR “ONSHORING” ANY MANUFACTURING BACK TO THE U.S. DURING


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 2013 ManufacturingScorecard Health = .516



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

Founded in 1942, Katz, Sapper & Miller (KSM) is the largest Indianapolis-based CPA firm. Today, an employee-owned company with 34 partners and more than 300 staff, KSM is widely recognized as one of the country’s preeminent accounting firms. Our mission is simple: to help our clients be more successful.

KSM is a member of the Manufacturing CPAs, a nationwide network of independent accounting firms specializing in providing superior financial, tax and consulting services to manufacturers and distributors.

The professionals of KSM’s Manufacturing and Distribution Services Group are dedicated to providing practical solutions for the unique needs of manufacturers and distributors. The group is comprised of a cross-functional team of specialists having extensive industry experience and who regularly work with the diverse issues confronting manufacturers and distributors.

Services provided are wide ranging and include profit enhancement and cost reduction services; accounting, audit and tax services; mergers and acquisitions; strategic planning; process and operational improvement services; technology and human resources consulting.

For more information, please visit ksmcpa.com/manufacturing-distribution.

Katz, Sapper & Miller800 East 96th StreetSuite 500Indianapolis, Indiana 46240

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