Articles
9 February 2012

Manufacturing on the Line

Lean Times Mean Lean Solutions Needed

by Linda Kennedy

09 February 2012—

 The poor economy is affecting manufacturing businesses in Utah, some severely, according to results from two online surveys conducted in January and September 2009 by the Manufacturing Extension Partnership (MEP), Utah Manufacturing Association (UMA) and the Small Business Development Center (SBDC). Consequently, the overall impact on the state is significant, says Dave Sorenson, executive director of the MEP. 

That’s because for every manufacturing job created in Utah, about three secondary jobs related to manufacturing, such as suppliers, transportation and other support companies, are created. For the manufacturing jobs lost in Utah over the last 10 years, payroll losses amount to $2.6 billion a year and more than $6 billion a year in related jobs, nearly half in Salt Lake County alone. 

Respondents from 20 Utah counties were tallied in the survey results, most of them in Salt Lake and Utah counties. Participating businesses ranged from manufacturers in more than a dozen sectors including medical, military, electronics, architecture, food, automotive, textiles, aerospace and mill work, for example, and services and foundries and machine shops related to manufacturing. The number of respondents varied throughout the survey questions. In the second survey taken in September, only a handful of manufacturers participated again, but said their companies were worse off than when they first participated in the January survey. In both surveys, nearly half of all respondents had reduced their workforce. Others reduced payroll expenses by hiring only temps, cutting overtime, reducing salaries and implementing hiring freezes. “Our workforce has gone from a peak of 320 in 2006 to around 100 today.  Much of this has been attrition, but we have had forced reductions of around 100 people in the past 18 months,” says one respondent. “[We] have retained the same level of workforce, but reduced hours. Our employees pay is 60 to 70 percent of normal,” says another manufacturer. 

Workforce reduction follows decrease in sales and cash flow, the largest issues 287 respondents say they are facing in the current economy. 

“Getting paid has not been a problem in the past, but there has been a definite increase in our overdue accounts,” says one business owner. Another says, “Collections are more difficult.”

For other manufacturers, the problems are sales. “We are experiencing a 50 percent reduction in sales or more,” and “We have seen a significant decrease in sales do to the national credit problems and the high price of fuel last summer.” 

 

A Vicious Circle

It doesn’t seem to matter which place businesses have in the manufacturing circle; as a manufacturer, customer of manufactured products and services, or a supplier and vendor of them, the manufacturing crisis appears to be a vicious circle. Sales and cash flow are the components necessary for manufacturers to increase workforce and production, the components creating the sales and cash flow issues. 

Implementing new manufacturing practices are crucial to be competitive, says Sorenson, particularly with global manufacturing powerhouses such as China. Some respondents say overseas competition and specifically, China, is their top challenge, since they produce items that China has the labor force and technology advantages to produce faster than they do. 

“China is certainly a competitor because we are in a global market, but India is a growing competitor for manufacturing, and so are a lot [of other countries] in the world that are becoming competitors,” says Thomas E. Bingham, president of the Utah Manufacturers Association. “That’s why when we had our roundtables last spring—we tried to find out what [local manufacturers] are doing to try to be more competitive. Are they using the lean manufacturing processes that would allow them to more competitive? I think more of them are beginning to do that.”

Bingham says in difficult times, businesses need efficiencies that lean manufacturing provides. At a micro-business level, that means beginning with value stream mapping—finding out what the value of a process is, if it adds value and if it doesn’t, eliminating it. He says a number of experts are available can consult businesses on lean processes. 

Yet, some manufacturers can’t find the skilled labor their processes need. “It has taken us more than 8 months to find 12 to 15 skilled people,” says one respondent, a problem where the solution begins in the education system, says Bingham. “I would love to have a legitimate project to demonstrate lean manufacturing principals in the public education system. I think there are huge advantages to be gained. If we’re doing things and spending time on things that don’t add value, [in this case] an educated and informed student, then we are spending time on things that can be better spent somewhere else,” says Bingham, stating results of lean processes being implemented in health care and other industries. 

Big Issues, Small Companies

Although the economy exasperates the problem, these difficulties exist for local manufacturers regardless of the economy, says Sorenson, since most Utah manufacturers are small businesses lacking the resources to manage the issues. This results in 450 manufacturers closing their doors every year, on average, regardless of the new start ups that emerge every year. 

“We have more than 3,900 manufacturers in Utah,” explains Sorenson. “Manufacturing has gone from 12.4 percent employment in the state, 10 years ago, down to, this summer, 8.9 percent. So manufacturing is becoming a smaller and smaller sector of industry. The problem is the economy has grown substantially over that 10-year period [regardless of the current recession]. So had we sustained manufacturing [had it remained at 12.4 percent of the economy], we would have 52,000 additional manufacturing jobs and about 150,000 secondary jobs in the state of Utah than we had a decade ago.”

According to Sorenson, manufacturing provides the largest payroll of the 20 business sectors in Utah, accounting for $5.7 billion in wages—three times the average of the other industry sectors. He says most of Utah’s economic clusters, defined by the Governor’s Office of Economic Development (GOED), are a sub-sector of manufacturing. As one of the fourth largest business sectors in the state along with health care, education and retail, manufacturing employees more than 100,000 with wages 42 percent higher than the average wages in the other sectors and 25 percent higher than the state average for all other jobs.  


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