2012 Georgia Manufacturing Survey


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2012 Georgia Manufacturing Survey

  1. 1. 2012 Georgia Manufacturing Survey Enabling Manufacturers to Compete in the Global Economy
  2. 2. Enabling Manufacturers to Compete in the Global Economy The 2012 Georgia Manufacturing Survey Investing in the future The theme of the 2012 Georgia Manufacturing Survey is how manufacturers are investing in the future. Innovation, advanced technology, and sustainability play crucial roles in helping manufacturers achieve competitiveness and maintain it for the future. Increasingly, manufacturers must operate using efficient and productive technologies with finite resources and a greater awareness of environmental impact. The current survey looks at how manufacturers have and plan to use information, quality management, and production technologies. It also highlights the benefits of competing on innovation rather than on low price and indicates the extent of engagement of manufacturers in innovation. Emissions measurement for sustainable manufacturing is examined. And, as with previous studies, the 2012 Georgia Manufacturing Survey also presents the top concerns of Georgia manufacturers. Summary of Findings Strategies The Georgia Manufacturing Survey, begun in 1994 and conducted every two to three years, benchmarks the use of modern manufacturing technology, practices and techniques by industry statewide. Information gleaned from the survey is used to improve manufacturing assistance programs and regional innovation initiatives that, in turn, help Georgia companies compete, improve their profitability and create jobs for Georgians. Profitability Profits of Georgia manufacturers generally declined between 2010 and 2012, but the profitability difference between companies competing mainly through innovation and low price was maintained. Outsourcing In 2012, 14% of manufacturers were affected by outsourcing, that is, work transferred from a Georgia facility, and 16% gained from in-sourcing, or work transferred to a Georgia facility. Exporting Half of Georgia manufacturers had export sales, with 23% of manufacturers increasing their export sales in 2011 over 2009 levels. Research and Development Marketing and Sales Sustainability Training Investing in the Future 1 17% of Georgia manufacturers choose low price to compete in the marketplace compared to less than ten percent that compete through innovation or new technology. When Georgia manufacturers conduct R&D, they compare well with manufacturers across the country. However, only one-third of Georgia manufacturers conducted R&D in-house. Only four percent used public loans or grants to pay for R&D and fewer than 20% used R&D tax 36% of the respondents identified marketing and sales as their top concern. This figure is slightly below previous years, but still the most common concern. Only eight percent of Georgia manufacturers have produced an emissions inventory or carbon footprint of their facility, including nearly half of large manufacturers. Respondents (24%) noted technical skills as another top concern, but 27% reported not spending any funds on employee training, whether it involved routine tasks or new capabilities. More than half of manufacturers reported using enterprise resource planning, computer aided design, and preventive/predictive maintenance. Plans for investing in new technologies are most common for bar code readers (21%) and radio frequency identification (RFID) (18%).
  3. 3. STRATEGIES About the Survey 528 Georgia manufacturers with 10 or more employees participated in the survey Manufacturers Prioritize Strategies As part of the Georgia Manufacturing Survey, manufacturers were asked to rank six strategies based on their importance in competing for sales. The strategies were low price, high quality, innovation/new technology, quick delivery, adapting to customer needs and sustainable manufacturing strategies. Strategy Preferences of Georgia Manufacturers : Quality of service Industry groups were as follows: more than 50% Low price 17% Adapting to customer needs 16% Quick delivery Food/Textiles ranges from food, animal feed and beverages to leather and apparel 9% Sustainable manufacturing 3% Innovation/New technology The survey was undertaken between February and May 2012 Results were weighted by industry and employment size to represent the population of manufacturers Material encompasses industries in wood, pulp and paper, plastics and non-metallic minerals less than 10% Across all six strategies, results revealed that innovation strategies were associated with the highest mean return on sales—over ten percent. Low-price and quick delivery strategies were linked to the lowest mean return on sales of five percent. High quality strategies brought margins in the nine percent range while adapting to customer needs was associated with seven percent margins. Profits Increase for Firms Competing on Innovation Machinery also includes fabricated metals Electronics/Transportation covers electrical appliances Science comprises industries from petroleum to chemicals to medical supplies Average Return on Sales for Manufacturers Competing Primarily through Price vs. Innovation 15% Profitability – 3-Year Average Annual Return on Sales (%) – by Primary Business Strategy 2010-2012 12% More than half of the survey respondents introduced a new or significantly improved product or service during the 2009-to-2011 period. 9% 6% 3% 0% 2010 Low Price 2012 Innovation Source: Georgia Manufacturing Survey 2012, weighted responses of 528 surveys; Georgia Manufacturing Survey 2010, weighted responses of 494 surveys. 2
  4. 4. Manufacturers that compete primarily using innovation strategies have relatively high returns on sales and higher employee wages. Most Georgia manufacturers, however, use strategies associated with low wages. Average wages for manufacturers that prioritize innovation/technology strategies are $10,000 or more higher than those for manufacturers that prioritize other strategies. Higher Returns to the Community Linked to Innovation Manufacturing Wages by Percentages of Respondents Ranking Strategies Highest in 2010 Innovation, new technology High quality Adapting product to customer needs Quick delivery Low price $0 $10,000 $20,000 $30,000 $40,000 $50,000 Source: Georgia Manufacturing Survey 2012, weighted responses of 528 manufacturers. Science-based industries had a higher percentage of manufacturers primarily competing on innovation. All industries favored high quality as a primary sales strategy, especially those in the food and textiles group. Electronics and transportation manufacturers were least likely to compete using low price as their primary strategy. Most Manufacturers Focus on Quality and Price Most Important Manufacturing Strategies by Industry Group (Percentage of firms indicating strategy is of highest importance) Strategy Food-Text Materials Mach Elec-Trans Science High quality 64.9% 55.9% 54.7% 46.7% 52.9% Adapting product to customer needs 14.8% 19.0% 12.4% 33.3% 7.8% Low price 13.8% 14.6% 23.7% 8.9% 19.6% Quick delivery 12.9% 14.2% 12.8% 8.9% 9.8% Innovation/ New technology 5.0% 8.5% 9.2% 8.9% 13.7% Source: Georgia Manufacturing Survey 2012 weighted responses of 528 manufacturers. 3
  5. 5. Innovation Creation and Dissemination of New Knowledge When manufacturers were asked to indicate the extent to which their facilities undertook any of 13 innovation-related activities during the 2007 to 2009 period, the most common innovations were: (1) working with customers to create or design a product, process or other innovation; (2) signing a confidentiality agreement; (3) working with suppliers to create or design a product, process or other innovation; and (4) purchasing machinery, equipment, computers or software to implement innovations. The least common innovation activities undertaken were: (1) purchasing external research and development; (2) purchasing or licensing patents, inventions, know-how or other types of knowledge; (3) publishing papers or technical articles; (4) registering a trademark or (5) applying for a patent. Firms Find Diverse Ways to Innovate Adoption of Specialized Innovation Activities (Percentage of establishments that engaged in the activity) Work with customers for innovation Sign a confidentiality agreement Purchase equipment Work with suppliers for innovation In-house R&D Training Planning and development Market research 82% of Georgia manufacturers experienced positive profitability (average annual return on sales) from 2009 to 2011. The median manufacturer’s profitability was six percent, while the top ten percent of manufacturers had profitability levels of 25% and the bottom ten percent had negative three percent. These returns were similar to the 2010 survey, except that there were more manufacturers with three to 15% profitability and fewer with negative profitability. Register a trademark Apply for a patent Purchase patent Publish papers Purchase external R&D 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: Georgia Manufacturing Survey 2012, weighted responses of 528 manufacturers. Four Types of Innovation Product Innovation Technologically new products or significantly improved existing products. Organizational Innovation New or significant changes in manufacturer’s structure, management methods or information exchange systems. Process Innovation Technologically new or significantly improved practices, technologies or delivery. Marketing Innovation New or significant changes to packaging, design, sales methods or distribution channels. 4
  6. 6. R&D Intensity: Georgia versus U.S. How do Georgia manufacturers’ R&D expenditures compare with that of manufacturers throughout the United States? Comparing R&D intensity – which is calculated by dividing R&D expenditures by sales and shown as a percentage – from respondents to the Georgia Manufacturing Survey and from the National Science Foundation’s Business R&D and Innovation Survey, we see that Georgia manufacturers, as a whole, are slightly below, but relatively close to, the U.S. benchmark. Georgia’s food/beverage/textiles/apparel/leather and materials groups have higher R&D intensity levels than the U.S. benchmark, the machinery group is about on par, while the electronics/electrical/transportation and science-based industries have R&D intensity levels far below the U.S. benchmark. (R&D intensity measured by R&D expenditures as a percentage of sales) R&D Intensity 2011 Georgia Total R&D Intensity 2009 US (domestic*) 1.25% 4.54% Food-text 1.65% 0.86% Material 2.43% 1.46% Mach 0.86% 4.03% Elec-Trans 1.98% 7.77% Science 2.24% 6.56% *Domestic means R&D is conducted at any US location in the enterprise group. Sources: Georgia Manufacturing Survey 2012, weighted responses of 296 manufacturers; U.S. National Science Foundation/Division of Science Resources Statistics, Business R&D and Innovation Survey: 2009. The average respondent that introduced new-to-the market goods or services reported that these goods and services accounted for nearly 16% of the facility’s sales. More than 60% of respondents with new-to-the market goods or services received at least five percent of their sales from these new goods or services. The percentage of sales from new-to-the-market goods and services in 2012 is above the value for 2010. Some Specifics Nearly half of survey respondents introduced a new or significantly improved product during the 2009 to 2011 period 14% introduced a new or significantly improved service Larger manufacturers were more likely to introduce new goods 28% percent of respondents introduced a new-to-the-market product or service in the 2009 to 2011 period Only 18% of manufacturers said they use R&D tax credits even though more than 30% conduct R&D in-house. 5 Sales Reflect Modest Gains Percentage of Sales from New-to-Market Goods/Services, 2010 vs. 2012 50% 40% 2012 30% 2010 20% 10% 0% 0-5% 5.1-10% 10.1-15% 15.1-20% % Sales from New Products > 20% Source: Georgia Manufacturing Survey 2012, weighted responses of 215 manufacturers; Georgia Manufacturing Survey 2010, weighted responses of 199 manufacturers. Financial concerns are a major limitation on innovation. However, only four percent of Georgia manufacturers use public loans or grants, only three percent received private equity support such as venture capital, and only one percent of the respondents used the Small Business Innovation Research (SBIR) program. These low usage rates exist despite more than half of manufacturers having introduced a new product and one-third of manufacturers conducting in-house R&D, and therefore could have made use of these resources. Less than 30% of respondents financed innovations with private conventional loans. Large manufacturers with 250 or more employees were somewhat more likely than small manufacturers to have received public support. The use of private loans was more prevalent among smaller facilities.
  7. 7. Outsourcing Outsourcing and In-sourcing Between 2009 and 2011, about 14% of Georgia manufacturers were affected by outsourcing, somewhat less than was reported in the 2010 survey. For those affected, the most common outsourcing locations were elsewhere in the United States, followed by Asia and Mexico and Central and South America. In-sourcing also occurred. The rate of transfer of work to Georgia manufacturers was 16%, higher than the percentage of firms affected by outsourcing. There was a marked increase in work transferred from Asia to Georgia manufacturers (from 2.6% in 2010 to 4.3% in 2012). In-sourcing and outsourcing are not mutually exclusive; nearly all of the manufacturers affected by in-sourcing and outsourcing were involved in both. In-sourcing Exceeds Outsourcing Rates 20% (Percentage of Establishments Reporting Work Transferred from Facility (Outsourcing) or to Facility (In-sourcing)) 15% Some Specifics Outsourcing Eight percent of manufacturers had work moved from Georgia to another establishment within the United States In-sourcing 10% 2005 2008 2010 2012 Source: Georgia Manufacturing Survey 504 weighted responses (2012); Georgia Manufacturing Survey 494 weighted responses (2010); 676 weighted responses (2008); 617 weighted responses (2005) Five percent had work moved from Georgia to Asia (including China and India) In contrast to prior surveys, manufacturers competing on innovation were as likely as manufacturers competing on low price to be affected by outsourcing. However, manufacturers that prioritize innovation as one of their top two strategies for competing were more likely to benefit from in-sourcing than manufacturers competing based on low price. 25% Innovation Means More In-sourcing 20% Percentage of Establishments Reporting Their Facility was Affected by Outsourcing/In-sourcing Innovative Strategies 15% 10% Low Price Strategies 5% Large Firms Outsource More Percentage of Establishments Reporting Their Facility Was Impacted by Outsourcing/In-sourcing 10-49 The rate of outsourcing was somewhat higher for large companies than for smaller companies. But the rate of in-sourcing was significantly higher for large companies. 50-249 250+ Food-text Material Mach Elec-Trans Outsourcing Science In-sourcing Northwest Northeast Atlanta Region Half of Georgia manufacturers had export sales, with 23% of manufacturers increasing their export sales in 2011 over 2009 levels. Manufacturers in science-based industries were more likely to have export sales, followed by those in the electronics/electrical/transportation industry group. Manufacturers in the materials group were least likely to have export sales. Total % Impacted by In-sourcing Employment % Impacted by Outsourcing Less than one percent had work moved from Georgia to Europe or elsewhere in the world Source: Georgia Manufacturing Survey 2012, weighted responses of 528 manufacturers. Industry Group 0% Four percent had work moved from Georgia to Mexico or other Central or South American country West Central Augusta South Coastal 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Source: Georgia Manufacturing Survey 2012, weighted responses of 528 manufacturers. 6
  8. 8. Concerns Some Specifics Marketing and Sales Concerns Weaken in 2012 24% of respondents reported problems finding technically skilled workers and 16% reported problems finding workers with basic skills; this percentages are much greater than in 2010 Manufacturers with 250 or more employees were more likely to have greater concern about finding employees with technical skills, while medium-sized manufacturers with 50-249 employees were slightly more likely to have greater concerns about finding employees with basic skills Small manufacturers were more concerned about marketing and sales and business strategy and financial analysis Compared with 2010, marketing and sales have become slightly less important to Georgia manufacturers in 2012. At the same time, marketing and sales are still the most common problem or need among Georgia manufacturers in 2012. Lean manufacturing priorities are the second most common need or problem. Technical skills are also important, having become more so since 2010. Energy management, which declined in importance in the 2010 survey (compared to previous survey results), rose again in the 2012 survey. Quality assurance rebounded in importance in the 2012 survey after having declined in the 2010 survey relative to previous survey responses. Fewer manufacturers expressed needs for product development in the 2012 survey than in the 2010 survey. In addition, needs for business and finance and management and leadership were less prevalent in 2012 than in the 2010 survey. Manufacturing Problems and Needs, 2010 – 2012 Among manufacturers that spent money on training in 2011, the median respondent reported that ten percent of training dollars were spent on non-routine training. 25% of respondents spent more than 50% of their training dollars on new activities and tasks. Small manufacturers not only spent less, but most of their spending (90%) was for routine training. Problems/Needs Marketing and sales Manufacturing process/lean Technical skills Energy costs management Basic skills Expansion planning, facility layout Quality Assurance Environmental, safety compliance, health, workplace Management and leadership Information systems & hardware Product development, design Business, Finance COMPARISON DIFFERENCE 2012 - 2010 2012 2010 36.0% 31.6% 23.5% 21.4% 16.4% 13.8% 13.6% 39.1% 31.6% 18.8% 18.9% 13.9% 13.5% 11.5% -3.1% 0.0% 4.7% 2.5% 2.5% 0.3% 2.1% 13.5% 12.3% 1.2% 12.2% 12.2% 11.4% 11.4% 12.8% 11.1% 15.4% 13.5% -0.6% 1.1% -4.0% -2.1% Source: Georgia Manufacturing Survey 2012, weighted responses of 528 manufacturers; Georgia Manufacturing Survey 2010, weighted responses of 494 manufacturers. Training Workforce Skills Remain an Issue Median training $ per employee Median percent training for new tasks 350 300 25% 20% 250 150 10% 100 5% 50 0% l 0 10 -4 9 20 -2 4 9 25 0+ Foo d-t e Ma xt ter ial Ma Ele ch c-T ran S ci s en ce No rth w No est rth ea Atl st an ta We st Cen t Au ral gu sta So uth Co ast al 7 15% 200 Tot a Median Expenditures Per Employee on All Training Activities in 2011 and Median Percentages of Training Dollars Related to New Activities and Tasks Source: Georgia Manufacturing Survey 2012, weighted responses of 330 manufacturers.
  9. 9. Sustainability Some Specifics Respondents in the Northwest region spent the most on training on a per-employee basis, and those in west, Augusta and coastal regions spent the least Sustainable manufacturing involves minimizing use of natural resources, toxic materials, waste emissions and production materials over the life cycle of the product or part to achieve cost savings, environmental, and social benefits. Georgia manufacturers are widely engaged in sustainability practices, with more than 75% having set goals to improve the sustainability of their processes. Sustainability goals to eliminate waste sent to landfills are most prevalent. Less common are goals to reduce energy use and emissions in shipping in employee commuting or business travel. The most common planned goal is to reduce energy use in shipping. Manufacturing Goals for Sustainability 100 Do not plan Plan to Practice Practice now 80 Percentage of Respondents That Have Conducted a Carbon Footprint Estimate or Emissions Inventory by Annual Emission Level 60 Source: Georgia Manufacturing Survey 2012 weighted responses of 528 manufacturers. 40 20 0 The median manufacturing establishment had only 12% of employees with two or more years of technical or vocational college. Seven percent had bachelor’s degrees in at least half of their workforce. Nearly 30% of manufacturers have at least one employee with a master’s or doctorate in science, engineering, or information technology; this is an indicator of innovation capability Eliminate waste materials Reduce air, Recovery Reduce Reduce Use water and reuse energy use energy use, renewable energy pollutants in shipping employee travel 16% Metric Tons < 10,000 18% 66% 10,000-24,999 25,000 or more Source: Georgia Manufacturing Survey 2012, weighted responses of 30 manufacturers Large manufacturers are more likely to have set sustainable manufacturing goals, especially for the operation of facilities with renewable energy sources. Materials manufacturers were most likely to have eliminated waste and reused products and materials. Science-based manufacturers had the highest share of manufacturers practicing pollution reduction. Reduced shipping was highest for the food/textiles/apparel/leather, materials, and electronics/electrical/transportation groups. Reduced employee travel is highest among manufacturers in the electronics/electrical/transportation group. The food/textiles/apparel/leather and materials groups had the highest rates of operation with renewables. Eight percent of Georgia manufacturers have conducted emissions inventories of their carbon footprint, down from 11% in the 2010 survey. However, nearly half of large manufacturers have conducted these inventories. In comparison, more than ten percent of medium-sized manufacturing respondents and fewer than five percent of small manufacturing respondents had produced a carbon footprint or emissions inventory. Science-based industries were most likely to have produced a carbon footprint or emissions inventory. Metals and machinery industries were least likely to have produced a carbon footprint or emissions inventory. 8
  10. 10. If basic and advanced technologies are distinguished, 92% of respondents used at least one basic technology (such as machine maintenance, computer aided design, or ISO 9000), while 84% used at least one advanced technology (such as RFID, additive manufacturing, or new materials). HOW MANUFACTURERS ARE INVESTING IN THE FUTURE Manufacturers are investing in the future through using a range of information technologies, quality management and continuous improvement techniques, and manufacturing production technologies. Software for scheduling, inventory control of purchasing such as enterprise resource planning (ERP) is the most commonly used (71%), followed by computer aided design (65%), preventive and predictive maintenance (60%), and lean manufacturing (50%). Plans for acquiring new technologies are most common for bar code readers (21%) and radio frequency identification (RFID) for inventory and warehouse tracking (18%). Technologies and Techniques Manufacturers Use and Plan to Use Software for Scheduling, Inventory Control, or Purchasing Computer Aided Design Preventative/ Predictive Machine Maintenance Program Lean Manufacturing Bar Code Readers for Data Collection Supply Chain Management Systems Quality Systems (e.g. Six Sigma) ISO 9000, TS16949 Certification Computer-integrated Manufacturing (CIM) Life Cycle Analysis RFID for Inventory and Warehouse Tracking Robots Rapid Prototyping Mass Customization Systems ISO 14000 Environmental Management Systems Advanced Materials Additive Manufacturing, Printed Manufacturing ISO 500001, Energy Management System 0% Practice Now Plan To Source: Georgia Manufacturing Survey 2012, weighted responses of 471 manufacturers. 20% 40% 60% 80% 100% Use of technologies and techniques increases with facility employment size. This is particularly true for use of supply chain management, quality systems, lean manufacturing, robots, and bar code readers. Rapid prototyping and advanced materials use are not related to employment size, however. By industry, the electronics/electrical/transportation and science-based groups tend to have the highest use of these technologies and techniques. However, RFID is most prevalent in the food/textile/apparel/leather group (used by 25% of these respondents) and CAD in the machinery group (used by 80% of these respondents).
  11. 11. About the Staff Dr. Jan Youtie is the director of the 2012 Georgia Manufacturing Survey. Youtie is a director of policy research services in Georgia Tech’s Enterprise Innovation Institute and an adjunct associate professor in Tech’s School of Public Policy. She specializes in applied research in economic development and industrial modernization. Professor Philip Shapira is the co-director of the 2012 Georgia Manufacturing Survey. Shapira is a professor at Georgia Tech’s School of Public Policy and also a professor of innovation management and policy with the Manchester Institute for Innovation Research at the United Kingdom’s Manchester Business School. Dimitri Dodonova at Kennesaw State University (KSU) led survey research and analysis at KSU. Dodonova is assistant director of the Econometrics Center at KSU. Professor Donald Sabbarese, Director of the Econometrics Center, is a co-leader at KSU, conducting analyses for the Georgia Manufacturing Survey. Adam Beckerman is the partner in charge of Habif, Arogeti & Wynne, LLP’s manufacturing and distribution group, which is one of the largest practices in the Firm. Beckerman has been enabling the success of manufacturers that are starting-up, growing or getting ready for an equity event for more than 18 years. He is also recognized as a thought leader on manufacturing trends and business issues. About HA&W Additional Research assistance was provided by Luciano Kay at Georgia Tech and Carmen Morales at Kennesaw State University. Habif, Arogeti & Wynne, LLP is one of the top 50 U.S. accounting and consulting firms and an underwriter of this year’s survey. In addition to delivering traditional audit and tax services, the Firm‘s manufacturing and distribution group is committed to helping clients gain greater control over production and operations, reduce waste and lower inventories, and develop a synchronized supply chain, which all improve profitability and competitive edge. For more information contact Adam Beckerman at adam.beckerman@hawcpa.com “Manufacturers have been investing in the future, and this investment has paid off in many ways. Georgia manufacturers are attracting work from outside the state to a greater extent than the rate of outsourcing.” - Jan Youtie “Innovation remains as important as ever. Those Georgia companies that innovate receive rewards for doing so. But a significant number of companies still have not adopted innovation as a leading strategy.” - Philip Shapira A special thanks to this year's sponsors: Georgia Tech Enterprise Innovation Institute; School of Public Policy, Ivan Allen College, Georgia Tech; Georgia Department of Labor; Kennesaw State University; and Habif, Arogeti & Wynne, LLP. For more survey information, contact Jan Youtie at 404.894.6111 or jan.youtie@innovate.gatech.edu. Visit www.cherry.gatech.edu/survey to download a PDF of the full report. 10