Optimism is more widespread among Indiana’s manufacturers even as the percentage of them projecting growth this year has declined and many are still in need of skilled labor.
Those were among the more important findings of the 2016 Indiana Manufacturing Survey: Roadblocks to Prosperity, authored by Indiana University economists; commissioned by Katz, Sapper & Miller, and promoted by Conexus Indiana and the Indiana Manufacturers Association.
The share projecting capital spending growth this year tumbled the most, to 7 percent from 15 percent in the survey taken last year. The share projecting higher profit fell to 6 percent from 9 percent as the share projecting higher revenue declined to 7 percent from 9 percent.
Looking beyond 2016, the share projecting growth during the next few years increased the most for capital spending, which jumped to 83 percent from 72 percent; followed by profit margin, which rose to 76 percent from 74 percent; then revenue, which increased to 79 percent from 78 percent.
Responses to the survey came from a broad variety of industries and from manufacturers of all sizes. Individuals filling out the survey tended to be senior manufacturing managers in the case of large companies and owners in the case of small- to medium-size manufacturers, said Mark Frohlich, a co-author of the study.
With the state’s September unemployment rate of 4.5 percent at a level many economists consider full employment, Indiana manufacturers of all sizes and industries need more highly skilled workers.
At a recent Fort Wayne summit on the survey, a manager for a medical wire company “stood up and said, ‘I would gladly pay for the two-year education for anyone coming out of high school who wanted to come work for me,’” Frohlich said. “It was kind of eye-opening. About 20 other people in the room all shook their heads and said, ‘That’s the same with us; we’re that desperate to get people in the industry.’”
Several medical device manufacturers from northeast Indiana participated in the survey and the consensus among them was their production employees needed at least a two-year technical degree, as well as some time in an advanced manufacturing apprenticeship.
A 2014 Indiana Career Council report showed just a little more than 5,700 job candidates were entering the Indiana labor market with the credentials necessary for advanced manufacturing work, to meet an industrial need that year for close to 21,600 hires with those credentials.
The lower capital spending, sluggishness of the economic recovery, regulatory and tax burdens, and less competitive advantage from process improvements also were seen by respondents as constraints to growth this year.
For a company with a good business plan in a good economy, Frohlich compares ramping up production through capital spending with accelerating the speed of a vehicle.
“The more you step on the gas, the more you’re going to grow and, when you let off, you’re still going to have growth but it’s not going to be at the same rate,” he said.
Some well-know process improvement programs such as Six Sigma have been around for so long and become so widely adopted that they tend to not have as much impact as they did earlier in their history, Frohlich said.
“If your operations hadn’t been looked at in a while, you could get incredible improvements by eliminating waste,” he said.
But, now that so many manufacturers have adopted so many of the easiest lean production practices, he said, “more effort is required to take out less waste.”
Greatest growth impediment
Respondents considered the state’s labor shortage by far the greatest constraint to growth, Frohlich said.
Many medical device manufacturers, for example, must continually hire new workers to keep pace with growing global demand for the kind of products they make, and many of them believe they could capture a greater share of their markets more quickly if they were able to accelerate their workforce expansion, he said.
The state’s skilled labor shortage has contributed to some of the capital spending reduction in cases where companies with the money and desire to expand facilities in Indiana delayed those projects because they believed they would have difficulty recruiting additional staff needed to handle the extra work, Frohlich said.
To the extent that optimism is growing among the state’s manufacturers, progress in dealing with the skilled labor shortage may be a factor, he said. Of the survey’s respondents, two-thirds now offer some training, often through a vocational school or institution such as Ivy Tech Community College-Northeast.
Collaboration between industry, government and educational institutions “is really beginning to fire on all cylinders and address the worker shortage situation,” Frohlich said.
“For the foreseeable future there will continue to be worker shortage issues, but it really does look like it probably plateaued around 2013 and 2014,” he said.
Increasing adoption of leading-edge technologies such as additive manufacturing, the internet of things, big data and data analytics also may have contributed to more widespread optimism among survey respondents, he said.