Manufacturers are Poised to Invest

Manufacturers are Poised to Invest

There’s an interesting trend burgeoning in Hoosier manufacturing – namely, a major investment projection for the coming months. Given that much of the industry is soon to be facing major workforce challenges – with some experts reporting a loss of nearly 25 percent of the workforce to retirement over the next few years – a greater level of attention is being drawn toward automation than ever before. What makes this interesting rather than panic-inducing is the accompanying fact that these investments in more advanced automation technologies will require workers with even more technical skill than ever before.

Just a few weeks ago, the 2017 Indiana Manufacturing Survey was published by the Indiana University Kelley School of Business via commission from Katz, Sapper & Miller, an Indianapolis-based certified public accounting firm. Its findings were promoted by the Indiana Manufacturers Association and Conexus Indiana, both advocates for the industry. (Full results of the survey are available here.)

“The trends in financial metrics remain favorable, and investment in capital and labor, including automation, appear to be on the upswing.”

Researchers documented several key reasons for optimism that were supported by the survey’s findings. Specifically, “The trends in financial metrics remain favorable, and investment in capital and labor, including automation, appear to be on the upswing. And while some of this investment in automation may reflect the substitution of capital for labor given the continued shortage of skilled workers, a majority of respondents believe that more automation will make their firms more competitive, with a net effect of eventually increasing the number of jobs in manufacturing.”


Reasons for Optimism

  • Over 80% of Hoosier manufacturers rate their performance as “healthy” or “stable”
  • 72% report they expect profits to increase.
  • 12% of Indiana manufacturers plan to open a new facility in Indiana in the next two years.

Source: IU Kelley School of Business


Additionally, 41 percent of manufacturers described their most recent performance levels as “healthy,” and an additional 41 percent said it was “stable.” Seventy-two percent report they expect profits to increase.

As for the biggest challenges concerning most manufacturers, respondents said that healthcare costs and government regulations are factors impeding growth, but labor force shortages stand out as probably the most prominent issue facing the industry today. The effort to address this need immediately is a primary reason so many companies are considering automation.

“Their (manufacturers’) financial metrics look good, but they’re still challenged to operate at full potential because of the shortage of available workers. With automation more affordable and reliable than ever, it offers an increasingly attractive solution,” said Jason Patch, partner-in-charge of Katz, Sapper & Miller’s Manufacturing and Distribution Services Group.

“Manufacturers are seeing opportunities for growth, and they can’t wait for workers to show up to make things happen,” said Steve Jones, professor of finance at the IU Kelley School of Business and co-author of the survey. “By investing in automation, they can reduce their reliance on the available labor pool and maintain Indiana’s place in the competitive global marketplace.”

Increased automation within the industry is not expected to solve all of the workforce problems that manufacturing is experiencing, but it will help some companies fulfill their immediate concerns. A unique set of side effects is likely to arise from more automation, given that a greater degree of technical proficiency will be required to operate the new technology effectively. Exactly how this will impact the needs placed upon the labor pool remains uncertain. Survey respondents were asked to provide their opinions about the effect automation will have on the number of skilled of workers in manufacturing, to which the data reflected:

  • The majority (35 percent) thought that automation will increase the number of skilled positions in manufacturing but reduce the number of unskilled positions.
  • Alternatively, almost one-quarter (24 percent) believe automation will increase the number of skilled positions in manufacturing, and it will help preserve unskilled positions by keeping American firms competitive.

Most of Indiana’s manufacturers are reporting the number of jobs in the industry is expected to increase in general over the coming year. For example, 54 percent of the survey’s respondents indicated the number of manufacturing jobs at their organization is increasing, 35 percent said the numbers are staying constant, and only 11 percent replied their number is decreasing.

As such, companies are also making more investments into training programs than ever before, in part because the overall number of careers in manufacturing is expanding and generally becoming more technical. Currently, 91 percent of Hoosier manufacturers are presently using apprenticeship training programs in their businesses.

The industry is still going to need a steadily-flowing talent pipeline though to meet its forecasted demands for workers. Eighty-seven percent of the respondents report they have problems recruiting young people into the field. The general consensus among the respondents was it’s going to take many hands to build a path to a solution: greater awareness of manufacturing opportunities among high school-level officials, media campaigns to promote and shift perspectives of the industry, and greater collaboration between companies and educational programs. The state’s going to need a pro-production push.

In the end, though, it’s refreshing that there are plenty of reasons to be optimistic in 2018. News that many of the state’s manufacturing leaders are planning to make investments over the coming months is indicative that customer demand strong enough to warrant new equipment to keep pace. The new competitive edge is sure to help maintain Indiana’s position as one of the strongest manufacturing states in the nation.




Note: This article was made possible because of data from the IU Kelley School of Business.