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Posts Tagged ‘manufacturing’

As software providers, we focus largely on manufacturing (and distribution) clients, and so as a service to all we like to periodically report on trends and developments in the manufacturing sector, such as today’s post about a jobs program that helps Americans get back into manufacturing in a practical, no-nonsense kind of way.

A good start can be found at a workforce initiative in Louisville, Kentucky, called KentuckianaWorks, funded by several entities including local and federal agencies, along with JPMorgan Chase.  Recognizing that “manufacturing jobs are here and growing in numbers” but that unskilled assembly-line work has been replaced by advanced manufacturing jobs, KentuckianaWorks made a large commitment to support training for manufacturing (and other) jobs by designing a five-week “Certified Production Technician” training program, along with a two-week variation, for displaced workers aged 18-60.  Only a bit over half stick around to completion, but those who do find jobs quickly.  The program has already placed nearly a thousand graduates at an average of about $13 per hour.

The skills programs focus on computing and technical skills, as well as basic math and problem-solving – in other words, just want manufacturing managers say they are looking for today.  Meanwhile, over 80% of U.S. executives said in a recent survey that the skills gap will affect their ability to meet customer demand, and nearly as many claimed it would “make it more difficult for them to use new technologies and increase productivity,” according to a recent article in Bloomberg Businessweek.

Over the next decade, well over 3 million manufacturing jobs are expected to become available as boomers retire and economic growth spurs work opportunities.  Those figures come from the Manufacturing Institute in Washington D.C. Yet a “skills gap” means that about 2 million of those jobs could go unfilled.

The KentuckyianaWorks program works with local manufacturers to help design their two courses.  Companies who have worked with KW graduates say that their basic training “sets them apart from other entry-level candidates,” so that once hired, employers can help employees expand their knowledge and increase the likelihood of continued employment and promotions.  Recruiters say that while not every hire works out, the success rate with these trainees is higher than with other hires.

In an era of increasing and often unrealistic clamor and hype about bringing back jobs, it’s programs like these that are helping to make manufacturing hiring a reality, and closing the gap between needed hires and the skills gaps too often found in potential hires.

 

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multiplierBeing that we are providers of business software and consulting solutions predominantly to manufacturers and distributors throughout the Midwest, we have a presumed (and accurately so) bias towards manufacturing.

For that reason we are pleased to reprise a few comments made recently by Forbes Magazine “Editor at Large / Global Futurist” Rich Karlgaard, in his column “Innovation Rules.”  In an article criticizing the high cost of regulation to business, he cites current administration proposed reforms that he believes will greatly – disproportionately, even, and “quite intentionally” – help the manufacturing sector, which as noted in our article title he says has “the best wealth- and job- multiplier effect.

In the article, Karlgaard quotes economists Mark and Nicole Crain that “The costs of federal regulations fall disproportionately on manufacturers…[who] pay $19,564 per employee on average to comply with federal regulations, or nearly double the $9,991 per employee costs borne by all firms as a whole.”

Since the era of globalization, notes Karlgaard, “manufacturing as a percentage of the labor force has steadily fallen from a peak of 22% in 1977 to about 8% today.”

And lest one think that’s due solely to automation, he points out that Germany and Japan, both world leaders in robotics and among the most technologically advanced economies in the world still retain healthy percentages of their respective populations in the manufacturing sector – 20% of Germany’s workforce and about 17% of Japan’s work in manufacturing.

And that’s not just T-shirts and plastic toys – we’re talking about high tech manufacturing from autos and chemicals to robots and aerospace, 3-D printing, shipbuilding and the like.

The bottom line: manufacturing still matters.  A lot.  And it could matter even more, as resources are focused, training programs expand and regulations are judiciously refined.

And a final postscript to our manufacturing comments…

Just today, as we write, the Institute for Supply Management published results showing that “U.S. factory activity grew at the fastest pace in 2-1/2 years in February as new orders and production advanced.”  Their supplier indicator showed that manufacturing was in a state of “expansion.”  Their report goes on to state that “17 out of 18 manufacturing sectors reported growth” in the month just ended.  It notes that the economy overall grew for the 93rd consecutive month.

 

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pssi_mfgIt’s always worthwhile hearing what the customers have to say about their technology goals and ambitions, so we’re happy to share results of a recent Crowe-Horwath survey of manufacturers (specifically, metals producers, though the results seem representative of manufacturers in general from what we’ve seen).  The 2016 survey was conducted in collaboration with the American Metal Market to examine the role of information technology and enterprise resource planning (ERP) systems in the global metals industry, and covered over 200 companies in the $50M to $1B markets, including producers, processors and some Tier 1 and 2 automotive suppliers.  As such, we feel the results are probably fairly representative of discrete manufacturers overall.

We think the questions and answers gleaned from their analysis will be informative and interesting to anyone involved in the manufacturing sector.  Among their key findings:

  • Plans for international expansion in the next five years are down about 10%, while plans for new downstream capabilities are up by the same percent, year over year. Almost 30% planned on domestic expansion and over 40% were considering M&A activities.
  • 75% of respondents said that technology was important or very important to their business strategy in the next 3-5 years. And yet, about half did not have a roadmap “that linked technology investments to business results.”
  • The top business factors driving today’s IT budgets were:
    • Customer service (51%)
    • Outdated technology (44%)
    • Outgrown their technology (33%)
    • New production capabilities or requirements (30%)
  • Data privacy and cybersecurity were cited as the number one IT business risk, followed by (among others) “obsolescence” and “losing business because systems can’t keep up.”
  • When asked where companies look for new profitability, 46% start with process improvement, 35% with Notably, and thankfully, only 19% cited technology first – a good indication that companies are learning the importance of analyzing their processes before seeking ways to improve them via technology.
  • Asked to rank the components of their IT budgets from greatest cost to lowest, they were:
    • Software (36%)
    • Hardware (25%)
    • Internal resources (22%)

In our concluding post we’ll look at the types of projects manufacturers are planning to engage in (or already have), along with their thoughts on ERP satisfaction and working with their vendor-partners.  Stay tuned…

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what_nextIn our prior post we looked at some of the data revealed in a recent report by The Economist which highlights the changing complexity of manufacturing, including fewer jobs overall, muddled in part by the ways those jobs are accounted for – or often not accounted for – as we move up the manufacturing supply chain.  We noted that those higher-paying manufacturing jobs in the “rich world” still account for a sizable share of nations’ GDP, and how much of the intellectual property retained by countries like the U.S., Germany and the U.K. continues to account for much of manufacturing’s overall value-add.

Still, keeping those jobs, and the future of manufacturing, are topics ripe for debate.  Today we’ll finish up our two-part post with what a few of the experts think.

For one thing, we can turn manufacturing from a product into a service, as Rolls Royce pioneered in the 1980s by providing its engines, service and maintenance at a fixed price, bundled package, or “power by the hour.”  The result was more stable revenues and more locked-in customers.

More recently, machines are being equipped with internet-connected sensors (the Internet of Things, or IoT, of which we’ve written before), which can gather data on how machines perform in the real world.  The accumulated data provides a trove of knowledge from which manufacturers can sell additional services to clients, and entice new customers as well.

Yet another bright spot will be 3-D manufacturing.  Here, we’re not speaking about creating playful little plastic widgets or toys, but rather complex manufacturing tasks in which design and manufacturing can be tightly coupled to produce things from motorbikes to high fashion.

But the real key, experts agree, lies in education.  Companies who offshore assembly and production work often suffer from reduced product innovation. Opportunities to learn how to do things better on the home front are often lost.  This is the natural synergy of production, where design meets reality, and the shop floor can provide feedback to designers; break that bond, and innovation suffers.  But those high-value design and innovation jobs require skill, adaptability and education.  These jobs will change over the lifetimes of workers, and they will not provide the mass employment of the past.

So it’s important to start with modest expectations, as is noted by James Manyika of the McKinsey Global Institute.  Improved education to ensure engineers are in good supply would be a good start.  A recent Bloomberg BusinessWeek article noted that nearly 75% of U.S. graduate-level advanced degrees in engineering and computer science are now going to non-American graduates.

Vocational training, where Germany proves a world-class model, and retraining programs that create new skills or refurbish current ones among displaced workers, have never been more important.

One way not to benefit manufacturing as a whole, many argue, is to disrupt global supply chains, nor will threatening companies that seek to move jobs overseas or the companies that host them.  We are reminded that it’s not so much foreign nations that have replaced so many of our low-skill manufacturing jobs, but rather, the inexorable march of industrial innovation, just as it’s done for the past 200 years.  Thus, policies favoring line workers over investments in automation will only make our industries less competitive.

Better to focus on the advanced manufacturing opportunities that lie ahead (i.e., 3D, IoT and manufacturing related services, to name three).  Educating our young talent – and providing ongoing education and retraining for new skills – is where our best hopes lie.

The sooner our leaders figure out what our manufacturers already know, the more robust will be our manufacturing prospects in the next generation.

 

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old_mfg_plant“Manufacturing exerts a powerful grip on politicians and policymakers in the rich world.”  So note the editors of the The Economist in a January, 2017 article on the changing face of manufacturing.  Their point is that manufacturing is central to what most national and political leaders across the world believe is what they want, and what their nations need.

Unfortunately, the sentiment gets a bit cloudy when they talk about “bringing back” the jobs of yore.  As Bruce Springsteen once noted, “those jobs are going boys, and they ain’t comin’ back.”

The truth is, as always, a bit more nuanced.

For starters, manufacturing has not really gone away.  But it also hasn’t stood idle.  Indeed, there has been plenty of change in manufacturing – it’s just gotten a lot more sophisticated.  It’s the less skilled jobs that are not going to return.

Manufacturing has long offered among the most desirable wages, and its products often tend to be exports, which make it especially desirable in political circles.  In the early part of the prior century, manufacturing brought lots of good-paying, semi- (or low-) skilled jobs.  That’s all changed, of course.  And as the Economist article points out, those changes included the advance of I.T. and the underlying ability to allow firms to unbundle the different tasks from design to assembly to sales so that “it became possible to coordinate longer and more complicated supply chains, and thus for various activities to be moved to other countries, companies or both.”

In the 1940s, one in three non-farm American jobs were in manufacturing.  Today it’s one in eleven.  Even in manufacturing-intensive Germany, it’s one in five.  Over time, as manufacturing became more productive and prices dropped, its share of GDP fell too.  Over time, more jobs moved overseas – but these were mostly low-skilled jobs, it’s worth noting.  The complicated work stayed home, while the “routine work was easily moved to poor countries,” and cheap labor.

So in a very real sense, the promise to bring jobs back rings hollow.  Low and semi-skilled jobs are not going to return to America, or the most developed nations, because they were not simply shipped abroad.  Rather, they were “destroyed by new ways of boosting productivity and reducing costs” which only served to heighten the distinction between routine labor and the rest of manufacturing.

But here’s the thing: today it is said that one-sixth of all manufacturing jobs are found in “the rich world.”  But those workers produce two-thirds of the final value of today’s manufactured goods.  Most of the low-value work shipped overseas involves final assembly that “adds little to the finish product’s value.”  For example, assembly of Apple iPads in China accounted for just 1.6% of the retail selling price.

In the U.S. the 11.5 million higher-value jobs that officially count as manufacturing jobs were, according to Brookings Institute, outnumbered by two to one by jobs in manufacturing-related services down the supply chain, after accounting for the outsourcing of accounting, logistics, HR and IT services that were once counted as “manufacturing” jobs in an earlier era.  In short: that’s a lot of manufacturing related jobs – the good ones – which we still retain.  That’s about 33 million U.S. “manufacturing” jobs, all told.

So the next time you hear someone bemoan the loss of manufacturing jobs, or herald a new era of returning jobs to America, keep in mind: the best manufacturing jobs continue to remain in the U.S. and other developed countries —  even more so when you count the related supply chain jobs.

But keeping these well paid jobs is the real and continuing task at hand.  And to see what that will take, we’ll add a few opinions, and some Economist commentary, in our next post, as we conclude this look at manufacturing today.  Stay tuned…

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avalara_picAs manufacturing continues to mature through lean initiatives, ERP and other strategies aimed at improving their focus and delivery, new channels and strategies for finding and delivering value are arising.  Three such areas have their own taxing implications, worth noting by manufacturers intent on growing the business profitably.

The first of these of course is ecommerce.  Today, the share of U.S. consumers purchasing product direct from the manufacturer has risen to 70%.  Customers are enamored of the ease in ordering parts, goods and services online.  Manufacturers like the improved margins of forgoing middlemen.  But while manufacturing has typically been a tax-exempt endeavor, selling to end-user customers changes that.

There are 45 state and 12,000 taxing jurisdictions in the U.S.  Depending on their location and your business nexus, you may have a taxable sale situation when you sell to end customers.  In fact, over two dozen states now have “click-through nexus” aimed at capturing sales tax from internet sales and online marketing activities.  It’s a bureaucratic thicket requiring careful management.

Going global creates the second taxation challenge.  It’s easier than ever to deliver parts and materials to distant, overseas locations.  As sales tax experts Avalara note in a recent white paper: “In the US, sales tax is charged at the final point of sale on the full retail value of the product. Under the value-added-tax (VAT) system (used across Europe and other overseas territories), tax is charged at each stage of distribution on the value added between each transaction. So while the end user pays US sales tax, multiple parties involved in the supply, manufacturing, distribution, resales and retail sale of goods are responsible for paying a portion of VAT along the supply chain.”

Add together the VAT, the GST (Goods & Services Tax) and any special tariffs, the total cost is called “landed cost” and the taxing requirements can once again be daunting.  Errors can lead to costly shipping delays, not to mention penalties and added scrutiny.  Here again, diligent management is crucial.

Finally, selling more services – an increasing slice of the American economy to be sure – are becoming more essential as customers view the sale of a product often as just the beginning of a relationship.  Eighteen states now tax services.  The sourcing rules can be tricky and each taxes services differently.  Nexus becomes an issue in crossing state lines, and sometimes third-party service people can create nexus.  Again, it’s a lot to keep track of.

That’s why Avalara offers its cloud based tax and compliance software to companies across the U.S.  If you find the rules affecting you, and daunting as most do, they’re worth talking to.  (Full disclosure: we are an Avalara referring partner and would be happy to put you in touch with them.

 

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mfg_jobsContrary to what you may have heard, manufacturing is flourishing in America.  The problem is that factories don’t need as many people as they used to because machines now do so much of the work.

This fact was most recently pointed out in an article by Paul Wiseman, who writes about the economy for the Associated Press.  We bring his comments on manufacturing to your attention today — as we often comment on the topic – given that the majority of our ERP clients are in manufacturing, and deeply invested in the subject.

A few facts: Manufacturing employment peaked around 1979 in this country.  Since that time, we’ve lost about 7 million jobs, even though actual factory production more than doubled since then, reaching almost two trillion dollars last year (just below the record year set in 2007).  That makes the U.S. number two in manufacturing in the world, second only to China.

It’s popular today to say that many of those jobs have been lost to ‘global trade’ and other countries’ theft of those jobs.  And indeed, many of those jobs have been lost to trade, especially to China, since China joined the World Trade Organization in 2001.  Foreign, low-wage competitors have gutted some industries, like textiles for example.

But as Wiseman points out, research shows that that “automation of U.S. factories is a much bigger factor than foreign trade in the loss of factory jobs.”  A study from Indiana’s Ball State University last year found that trade accounted for just 13% of lost U.S. factory jobs.  The majority, 88%, were taken by robots and other “homegrown factors that reduce factories’ need for human labor.”

Simply put: we’re making more with fewer people, as Howard Shatz, a senior economist at Rand Corp. has noted.  For example, GM now employs only one-third of the 600,000 workers it had in the1970s, yet produces more cars and trucks than ever.  In steel, the U.S. has lost 265,000 jobs since 1997 – a 42% plunge – while production has actually surged by 38%, thanks to super-efficient mini-mills that make steel mostly from scrap.

And the robot revolution is only the beginning.  Boston Consulting Group predicts 10% growth in industrial robots per year in the 25 largest export nations for the next ten years – a big increase over today.  One silver lining in the employment implications has been that increased use of robots coupled with higher labor costs in China and developing nations means reduced incentive for companies to chase low-wage labor around the world.

Even better, companies are rethinking where they manufacture (especially after earthquakes and tsunamis in Japan disrupted auto parts shipments, and a large Korean shipping firm went under).  So companies have been returning to the U.S. for production, “capitalizing on savings provided by robots, cheap energy and the chance to be close to customers,” notes Wiseman.

In conclusion, it appears the global scramble for cheap labor is fading.  It’s being replaced by more intelligent use of current resources, including robots, closer to home.  And thus, the real manufacturing jobs of the future will go to those best able to program, manage, repair and otherwise thoughtfully deploy the equipment and the supply chains that will be at the heart of the new manufacturing.

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