Katz, Sapper & Miller's annual Manufacturing Survey is authored by IU Kelley School of Business experts, in partnership with Conexus Indiana, Indiana Manufacturers Association
Katz, Sapper & Miller released its annual Indiana Manufacturing Survey today in collaboration with the Indiana University Kelley School of Business. This year's survey, again authored and analyzed by Steve Jones and Mark Frohlich of the Kelley School's Indianapolis campus, reveals growing discontent among the industrial employers who supply hundreds of thousands of Hoosier jobs.
Katz, Sapper & Miller and the Kelley School of Business partner with the Indiana Manufacturers Association and Conexus Indiana to reach hundreds of employers for the statewide survey. Respondents range from small machine shops to global conglomerates representing automotive, aerospace, industrial equipment and other sectors, including high-tech and medical products.
The questionnaire again asks participants to rate their overall financial performance from "healthy" to "challenged." From 2009 to 2014, as Indiana recovered from the national recession, "healthy" responses more than doubled from 23% to 47% while "challenged" dropped nearly two-thirds. Asked to assess their current situation, however, "healthy" responses dropped to 38% and "challenged" rose 10%, to 27%.
"The post-recession bounce is over for many manufacturers, and they feel suddenly besieged by burdens – government regulation, rising energy costs, skill shortages and global competition," said Steve Jones, an associate professor of finance and chair of Kelley's Evening MBA Program, who co-authored the survey.
"Most of these aren't new or short-term challenges," Jones noted. "But they gain urgency when economic momentum slows. As margins shrink, pessimism grows – 63% of Indiana manufacturers don't believe that U.S. manufacturing will ever again lead the world."
This stark outlook from the most manufacturing-intensive state in the nation is unsurprising in context with other key findings from the 2015 survey:
The Public Sector – Manufacturing Hurdles?
The downbeat attitude on global competitiveness comes even as a higher percentage of respondents participating in exporting than 2014. A strong majority believe that Indiana policies are mostly supportive of manufacturing (81% agreeing), but government overall is viewed with skepticism and singled out for criticism:
- While the state of Indiana receives generally high marks, 88% think that the federal government is not doing a good job of supporting the sector.
- Roughly one in four find both Indiana and national policymakers unsupportive of manufacturing; only one in 10 see state and federal governments both doing a "good job" with industry.
- Companies are concerned about the corporate tax structure (85% rate it as extremely or somewhat important, slightly higher than 2014) and are still grappling with healthcare costs and regulations (92%).
- Manufacturers are also troubled by environmental mandates; three related issues – energy efficiency standards, environmental regulation, and specific efforts to curb carbon emissions – were rated extremely/somewhat important by more than 80%.
"Manufacturers actually see better prospects for market growth than they did last year," noted Mark Frohlich, an associate professor of operations management at Kelley Indianapolis and survey co-author. "But they're less confident in their ability to turn opportunities into sales, and tend to view government as an impediment rather than a partner."
Perhaps the biggest failing employers find with the broader public sector – including educators and workforce agencies – is its inability to provide a job-ready labor force.
Workforce – a 'Talent Tax' on Indiana Manufacturing
The shortage of skilled workers has been consistently recognized as a top challenge facing Indiana's manufacturing sector – and the situation seems even more critical in 2015:
- The biggest reported shortages were in skilled production workers, production support, scientists and design engineers; 70% of respondents identified a moderate or severe shortage of skilled production workers.
- All of these were ranked more serious than 2014 – despite widespread consensus on the issue's importance and promising partnerships among state government, post-secondary and vocational education and industry groups, the workforce pipeline isn't yet meeting the demands of manufacturers today.
- To compensate for workforce shortages, most employers are resorting to overtime for existing workers (75% of respondents) and relying on internal training programs to prepare new employees (79%).
"Paying overtime and investing in their own training programs is a costly burden for companies that already fear shrinking margins," noted Jones. "It amounts to a 'talent tax' on Indiana's most critical industry, imposed by the state's failure to prepare more Hoosiers to take on today's high-skill, high-tech manufacturing jobs."
Finding a Winning Strategy
Indiana's 'skill gap' is especially troubling given the industry's emphasis on superior product design, quality and on-demand logistics as the way to build a stronger business. Asked about factors that were "extremely important" to winning new business, 50% listed "product quality" (with another 26% adding "product design") and 44% named "fast/reliable delivery" as a top priority. Only 21% identified "lower selling prices."
"It's positive for Indiana's economy that our manufacturers are focused on quality and service instead of competing on cost," said Jason Patch, chair of Katz, Sapper & Miller's Manufacturing & Distribution Services Group. "But that strategy takes access to talent and infrastructure as part of a pro-growth business climate."
Patch added that the number of survey participants planning to open a new Indiana facility in the next year dropped nearly in half from 2014 – from 20% to just 11%. "Just like the manufacturers in our survey, Indiana can't just be the lowest-cost state – we have to deliver higher value in terms of workers, supply chain capabilities and more. If we don't, others will be quick to fill the gap."