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Shortage of Qualified Workers is Indiana Manufacturing's Big Obstacle

Posted 12:00 PM by

Preliminary results from the 2012 edition of the Indiana Manufacturing Survey reveal that Indiana's manufacturing sector continues to recover and provide numerous reasons for optimism. Yet, this is tempered by an all-too-familiar refrain: the lack of availability of trained workers is preventing a more robust recovery and holding the state back from what could be an even brighter future in manufacturing.

In a financial sense, Indiana manufacturers have shaken off much of the effects of the recent “Great Recession." A plurality of Hoosier manufacturers in the survey now regard their company's financial performance as “healthy" (43 percent), while 42 percent consider their performance "stable," and only 15 percent describe their situation as "challenged." These findings represent a marked improvement over last year, when 46 percent of respondents described their financial condition as "challenged," 30 percent viewed it as “stable," and just 23 percent considered their financials to be “healthy." 

The improved financial outlook is accompanied by a renewed focus on long-term goals and strategies. Notably, survey participants are boosting capital investment by an average rate of almost 18 percent, up four percent over last year's healthy 14-percent increase. This capital investment reflects more aggressive business strategies, with 66 percent of respondents pursuing increased investment in areas essential to revenue growth and 15 percent increasing investment across the entire company, while only 19 percent of respondents remain focused on cost cutting. These figures contrast markedly with last year, when cost cutting was the dominant strategy, and barely 5 percent of respondents were aggressively investing on a company-wide basis. 

As the improved financial performance and the renewed emphasis on capital investment suggest, the recovery of Indiana manufacturers is rooted in higher capacity utilization, which increased to 74 percent, up from 64 percent in 2011. At the same time, Hoosier manufacturers are reporting fewer customer complaints and late deliveries, along with improving customer satisfaction and product quality. 

The most popular approach to process improvement remains "lean" methods, with more than 70 percent of Hoosier factories featuring it as part of their overall production strategy, while automation continues to dominate everything from fabrication to inspection on the shop floors. In fact, 83 percent of respondents believe their production efficiency, in terms of material and energy consumption, was either the same or better than their industry peers.

There is also good news for Indiana in terms of retaining and attracting manufacturing. Only four percent of Hoosier manufacturers plan on relocating or "offshoring" any manufacturing outside the United States between now and 2013. Conversely, 13 percent anticipate relocating or "onshoring" manufacturing back to the United States by the end of 2013. Another 13 percent plan to open a new manufacturing facility in Indiana within the next two years, and each of these new factories is expected to employ between 30 and 80 workers. Indiana's strongest attraction in regards to manufacturing remains its central location, modest cost of living, and outstanding transportation network.

At least one major issue, however, still looms on the horizon. For the first time in the history of this survey, human resource development (i.e., workforce training) overshadowed capital investment, information technologies, and improving organizational structures and processes as the top concern of Indiana manufacturers. In fact, 85 percent of the survey respondents believe the biggest obstacle to sustained growth in Indiana manufacturing is the shortage of qualified workers. As one manufacturer lamented, "We can't seem to take enough time to train new employees." Some manufacturers report making extensive use of overtime as a near-term solution, while others view increasing automation as the only way to move forward given the shortage of qualified workers. Much is at risk in this regard; future editions of this study will no doubt reveal if Indiana's businesses, educators and government can keep working together to solve this critical workforce issue.

This annual survey is a joint collaboration between Katz, Sapper, & Miller, LLP, Conexus Indiana, the Indiana Manufacturers Association, and Indiana University's Kelley School of Business. The survey remains open until September 15, and any Indiana manufacturers and distributors interested in participating are welcome to do so by visiting the 2012 Indiana Manufacturing Survey site. An executive summary of the survey findings will be released later in 2012.