2016 Indiana Manufacturing Survey:

Roadblocks to Prosperity

Table of Contents

Foreword 2
Executive Summary 4
I. Company Demographics 6
II. Overall Economic and Financial Performance 9
III. Regulatory Concerns 14
IV. Business Strategy 18
V. Manufacturing Modernization 20
VI. Advanced Manufacturing Strategy 23
VII. Leading-Edge Manufacturing Technologies 27
VIII. Expanding Indianas Manufacturing Base 29
IX. Manufacturing Workforce Shortages and Skills 31
Appendix: Benchmarking Indianas Manufacturing 37

Foreword

The good news: More than 80% of respondents from this years Indiana Manufacturing Survey view
their recent financial performance as stable or better. The bad news: The expected growth rates for
revenues, profits and capital investment are all diminishing from the impressive rates reported in
previous years surveys dating back to 2011-12.
These diminishing returns reflect a recovery that has matured, although it has not necessarily run
its course. In the immediate aftermath of the Great Recession, Indiana manufacturers endeavored to
catch up by aggressively investing in new technologies and facilities, and by further embracing process
improvement philosophies such as Lean and Six Sigma. Together these initiatives boosted everything
from productivity to delivery and quality. But now, additional opportunities for continued productivity
improvements have become increasingly scarce, and growth in product demand has tapered off.
Despite the current low interest rate environment, the rate of growth in capital investment by Indiana
manufacturers has slowed from what we reported in previous post-recession surveys. And responses
in this current survey indicate that the slowdown in capital investment is largely due to markedly
lower expectations for future product market growth. A shortage of skilled production workers also
continues to impede the growth potential of Hoosier manufacturers. However, for the first time in
recent years, respondents now identify a material shortage of unskilled production workers due to
Indianas improving unemployment rate, which is now under 5% and below what economists would
describe as full employment. Furthermore, as in our past surveys, respondents continue to view
regulatory and reporting burdens as a major drag on growth, with healthcare regulation and high
corporate tax rates now leading the list of concerns.
In short, the challenge facing most Hoosier manufacturers is how to continue to grow and prosper in
the mature stages of a recovery, where expectations for product market growth have slowed, gains
from process improvement are harder to come by, and the labor shortage has now spread to unskilled
workers, all while the regulatory and reporting requirements are growing more burdensome than ever.
While some might dismiss these concerns as part of the normal course of the business cycle, we
believe that would be shortsighted. Of course, this is what always happens near the top of any peak,
when the climb gets steeper and the best path forward harder to see, but the impediments to growth
posed by workforce and regulatory concerns can be addressed independent of the business cycle.
The decisions made by managers in industry, leaders in government, and educators will play a large
role in determining whether Hoosier manufacturers can overcome the challenge posed by global
competition and move forward into what could (and should) be a very promising future, not only for
themselves but also for the rest of Indiana.

Jason E. Patch

Mark T. Frohlich

Steven L. Jones

Partner

Associate Professor

Professor

Manufacturing & Distribution Services Group

Katz, Sapper & Miller

Kelley School of Business

Indiana University - Indianapolis

Kelley School of Business

Indiana University - Indianapolis

Executive Summary

While most Hoosier manufacturers remain confident about the future, for the second year in a row their
financial-performance gains have diminished. And while much of this can be attributed to a maturing of
the recovery, part is due to a growing shortage of production workers both skilled and unskilled as well
as an increasingly burdensome regulatory and reporting environment. Granted, it is never easy to remain
competitive in manufacturing, but it is even harder in a global economy when local, regional and national
concerns, from regulations to worker shortages, work against us. Below are some common sense steps
that industry, government, and education could take to help Hoosier manufacturers be more competitive.

Inside the Factory

Diminishing returns to the time, effort and costs involved in improving operations make pressing forward
with manufacturing improvements vital. Important elements include:
Strategically implementing advanced manufacturing technologies. Some of the best strategic investments
any manufacturer can make revolve around shop floor automation and related manufacturing execution
systems.
Relentlessly improving processes. In terms of bang-for the buck, few things beat process improvement
programs like those embodied in the philosophies of Lean and Six Sigma.
Aggressively recruiting and training new workers. While many industry groups and educators across
the state are trying to sell more young workers on careers in manufacturing, there is no substitute
for Hoosier manufacturers getting directly involved in recruiting and training tomorrows workers.

Across the State

Similarly, government leaders and applicable educators need to keep fostering and promoting our states
manufacturing base, including:
Staunchly supporting Indianas manufacturers. Every policy, regulation and initiative needs to be
scrutinized based upon whether it makes Indianas manufacturing sector more (or less) competitive.
Unwaveringly keeping taxes competitive. While our 2016 study suggests that Indiana remains
manufacturing-friendly there is still room for improvement, especially in regards to taxes.
Steadily reducing the workforce shortage and skills-gap. We have monitored this ever-growing problem
over five years and, relatively speaking, little has changed. Fewer companies are going to move to
Indiana if they cannot reliably hire the skilled workers that they need. Conversely, other manufacturers
may reluctantly leave our state if they cannot keep hiring the employees that they seek.

Still an Optimistic Future

While persistent problems such as worker shortages and burdensome regulations continue to hamper
Hoosier manufacturers, most express optimism about the future. Notably, in this years study, there is a
sharp uptick in the number of potentially profitable new technologies such as additive manufacturing (3D
printing) and data analytics. Similarly, while the improvements in most measures of financial and operational
performance have recently tapered off, the growth rate in every measure remains solidly positive. In last
years report, we speculated that Indiana manufacturers might end up surrendering many of their hard-won
gains by 2020. Today, that seems less likely. Having said that, much work remains to be done if Hoosier
manufacturers are to remain globally competitive through the rest of this decade and forward into the next.

I. Company Demographics

Consistent with our findings from previous years, the majority of participants in the 2016 Indiana
Manufacturing Survey are responding for a company at the headquarters level (86%), with the
rest responding for divisions (8%) or individual plants (5%) of larger organizations, and only a few
identifying some other organizational form (1%). Ninety-three percent of responding organizations
are privately owned, while the other 7% are publicly traded. In terms of local versus international
ownership, 89% of the responding manufacturers are companies headquartered in the United States.
The average number of direct or full-time employees per respondent is 424, with the largest
employing 8,650. Additionally, the organizations in this study employ, on average, three contract
workers and 21 temporary workers.

TYPES OF ORGANIZATIONAL UNITS

5% Plant
1% Other
8% Division
86% Company

OWNERSHIP TYPE

Public Ownership

7%

Private Ownership
0

93%

20% 40% 60% 80% 100%

NUMBER OF EMPLOYEES

Direct / Full-Time Workers

Contract Workers

Temporary Workers

Mean

424

3 21

Standard Deviation

1,299

Maximum

8,650

67 850

106

Mirroring our earlier studies, this 2016 sample reflects a balanced blend of industries from a host of
Indianas most important manufacturing industries. The three largest industry groups represented
among the 2016 survey respondents are industrial equipment (19%), automotive (21%), and
aerospace and defense (9%). Another 22% of respondents are distributed between high-tech (6%),
healthcare (5%), furniture/home goods (5%) and food/beverage (6%). Companies in the other
category include the packaging, fasteners, bearings, energy, construction, and publishing industries,
in addition to others such as off-road and recreational vehicles (RVs).

INDUSTRY TYPES

21% Automotive
9% Aerospace and Defense
1% Clothing and Fashion
3% Chemicals and Petroleum
2% Communications
6% Food and Beverage
2% Sports and Leisure
5% Furniture and Home Goods
5% Healthcare
6% High-Tech and Technology
19% Industrial Equipment
21% Other

II. Overall Economic and

Financial Performance

In each of our past four surveys, respondents were asked to rate their operations financial performance
over the last two years as either healthy, stable or challenged. The results for 2014-15 indicate
only a slight improvement over 2013-14, with a shift of about 8% from challenged (now down to
19%) to stable (up to 44%), along with a very small decline in the percent describing their financial
performance as healthy (now 37%). Interestingly, these latest results are nearly identical to those for
2011-12, supporting the view that the economic recovery remains tepid for manufacturers, and that
there has been an erosion of the optimism expressed in 2012-13 when 47% of respondents described
their financial performance as healthy.

FINANCIAL PERFORMANCE (2011-2015)

Challenged
Stable
Healthy

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0

2011-2012

2012-2013

2013-2014

2014-2015

Regarding key financial metrics, in prior years we surveyed participants about recent changes in
revenues, profit margins and capital expenditures (capex) that were in the books (i.e., historical).
In this 2016 survey, we have asked participants about their expectations for the current year (2016)
versus the previous year (2015). The means for expected growth in revenues, profit margins and
capex are lower than those realized in recent years, but the percentages expecting positive change
are actually higher now, suggesting that although the recovery is slowing, it has been broad-based.
Most notably, the mean expected increase in capex dropped to 7% from double digits in recent years,
but the percentage expecting an increase in capex jumped to 83%, from 72% or less in recent years.
EXPECTED FINANCIAL GROWTH (2013-2016)

Change in Capital Expenditure

Change in Revenue
Change in Profit Margin

10

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0

16%
15%
12%
10%
10%
9%

2013

2014

2015

7%
6%

2016

In addition, the percentage of manufacturers expecting positive increases in revenues (79%) and
profit margins (76%) rose to higher levels than reported in our past three surveys, going back to 2012.

FINANCIAL METRICS

% Change

Min % Value

Max % Value

Avg % Value

% Positive

Expected 2016 Revenue over 2015

-40

61

79

Expected 2016 Profit Margin over 2015

-83

60

76

Expected 2016 Capex over 2015

-72

100

83

2016 Survey

2015 Survey
Revenue for 2014 over 2013

-83

100

78

Profit Margin for 2014 over 2013

-97

100

74

Capex for 2014 over 2013

-79

100

15

72

2014 Survey
Revenue for 2013 over 2012

-40

100

10

72

Profit Margin for 2013 over 2012

-64

100

10

67

Capex for 2013 over 2012

-100

100

12

64

2013 Survey
Revenue for 2012 over 2011

-35

100

16

61

Profit Margin for 2012 over 2011

-100

100

10

65

Capex for 2012 over 2011

-100

100

16

63

11

Despite these heartening metrics, many of the written responses to the survey were not so
positive in regard to financial pressures. When asked, What was your best manufacturing
decision in the past year, various respondents suggested that revenues and profits continue
to be Hoosier manufacturing concerns:

Anticipating slowness developing in 2016.

Pulling the right levers to ride out the sales slump.
Watching inventory turns and cash flow.
Delivering product on time to customers.
Consolidating facilities and reducing rents.
Improving productivity with less labor.
Expanding our processes to include light assembly
and packaging.

12

In regard to working capital, the mean days of inventory for raw materials (48), work-in-process (36),
and finished goods (34) in 2015-16 are all slightly lower than last years (2014-15) levels. And these
levels for the two most recent periods, as well as those for 2012-13, are quite a bit higher than the 201314 levels when optimism was high, as we saw reflected in the earlier question about general financial
performance, and inventories had apparently been drawn down as a result of increased sales. The mean
cash conversion cycle (i.e., average days of inventory plus days receivable minus days payable) was 47
days in 2015-16, down only one day from 48 in 2014-2015, suggesting no material change in cash flow.

WORKING CAPITAL AND CASH FLOW METRICS (MEAN)

60%
50%
40%
30%
20%
10%
0
Raw Materials
Inventory (Days)

Work-In-Process
Inventory (Days)

Finished Goods
Inventory (Days)

Days Sales
Outstanding (DSO)

Days Payable
Outstanding (DPO)

2012-13
49 39 29 46 42
2013-14

42

25

23

40

35

2014-15

50

38

39

44

38

2015-16

48

36

34

46

38

In terms of product markets, estimates for recent (2014-15), current (2016-17), and future (2018-20)
growth in sales of 7%, 6% and 8%, respectively, reflect a collapse of expectations relative to what we
saw in last years survey, in which 26% of the respondents expected their markets to grow rapidly in
2015-16, and 28% anticipated rapid growth three to five years out in 2017-19. Again, these findings
support the view that past expectations of continuing momentum in terms of economic recovery
have been supplanted by much more modest expectations, suggesting the recovery has plateaued.

EXPECTING RAPID MARKET GROWTH (2016 SURVEY)

EXPECTING RAPID MARKET GROWTH (2015 SURVEY)

30%

30%

25%

25%

20%

20%

15%

15%

10%

10%

5%

7%

6%

2014-2015

2016-2017

8%

26%

28%

23%

5%
0

2018-2020

2013-2014

2015-2016

2017-2019

13

III. Regulatory Concerns

14

When asked about what was most critical in terms of the cost and viability of manufacturing in Indiana,
corporate tax policy led the way, with 76% of respondents indicating that it is extremely important,
followed by business labor laws and regulations (73%) and property taxes (73%).

IMPORTANCE TO INDIANA MANUFACTURING

0%

Labor Laws & Regulations

27%
73%
5%

Tort Laws & Regulations

52%
43%
0%

Healthcare Laws & Regulations

34%
66%
4%

Environmental Requirements

44%
52%
5%

Government Spending

57%
38%
9%

Indianas Finances

52%
39%
0%

Infrastructure & Logistics

29%
71%
5%

Corporate Tax Policy

19%
76%
0%

Property Tax Policy

27%
73%
3%

Personal Income Tax Policy

43%
54%

0 10% 20% 30% 40% 50% 60% 70% 80% 90%

Not Important

Somewhat Important

Extremely Important

15

Along the same lines, we asked respondents, What regulatory issue is having the biggest
negative impact on your business? Representative comments included:

Indiana State Taxes

Not being able to expand without extreme compliance cost.
Environmental regulations continue to become more
onerous.
HEALTHCARE!!!
Building standards beyond federal guidelines.
Business Personal Property Tax
Clean coals cost as it affects electricity prices.
Can only name one? At present the new wage and hour
overtime law.
Additional federal hiring, EEOC, ADA, etc. Reporting
requirements.

16

Digging deeper into this topic, when asked about how important a subset of these regulatory concerns
are to their companies, changes to the healthcare laws were again considered most important (68%),
followed by changes to corporate tax rates (58%).

IMPORTANCE OF REGULATORY CONCERNS TO INDIANA MANUFACTURING

16%

Corporate Tax Rates

26%
58%
4%

Healthcare Laws

28%
68%
14%

Energy-Efficiency Standards

56%
30%
9%

Environmental Laws / Standards

43%
48%
16%

Greenhouse Emissions

39%
45%

0 10% 20% 30% 40% 50% 60% 70% 80%

Not Important

Somewhat Important

Extremely Important

17

IV. Business Strategy

18

A critical strategic business decision every manufacturer makes is how to win customers orders based
upon the traditional competitive priorities of delivery, price, service, design and quality. The relative
importance of these business strategies have remained highly constant from 2013-16. Overall, superior
quality, fast and reliable delivery, and superior customer service rank most important. Similarly, lower
selling prices and superior product design have been relatively less-important capabilities.

HOW TO WIN ORDERS: COMPETITIVE PRIORITIES (MEAN)

2016 Survey

2015 Survey

2014 Survey

2013 Survey

Fast and Reliable Delivery

4. 17

4. 17

4. 11

4. 39

Lower Selling Prices

3. 53

3. 49

3. 41

3. 56

Superior Customer Service

4. 19

4. 00

4. 16

4. 27

Superior Product Design

3. 73

3. 57

3. 45

3. 71

Superior Quality

4. 33

4. 33

4. 39

4. 37

Once again, superior quality was rated extremely important by 51% of Hoosier manufacturers in
2016. Indeed, over the past four years superior quality has been extremely important with almost
half of all companies in our annual study.

HOW TO WIN ORDERS: COMPETITIVE PRIORITIES CONSIDERED EXTREMELY IMPORTANT

60%
50%
40%
30%
20%
10%
0
Fast and Reliable
Delivery

Lower Selling
Prices

Superior Customer
Service

Superior Product
Design

Superior
Quality

2016

34%

23%

50%

31%

51%

2015

44%

21%

35%

26%

50%

2014

40%

15%

40%

15%

51%

2013

53%

22%

49%

34%

46%

19

V. Manufacturing
Modernization

20

For the last three years, human resource development (i.e., trained workforce) has stood out as the
greatest challenge to manufacturing firms attempting to modernize. The relative importance of this
concern peaked at 55% in 2014 but remained at the top of the list in 2015 at 44%, and now again in
2016 at 45%. This concern edged out investment in facilities, machinery and information technologies
as priorities for modernizing manufacturing.

MANUFACTURING MODERNIZATION PRIORITIES

12%

2013 Most Important

43%
45%
18%

2014 Most Important

55%
27%
13%

2015 Most Important

44%
43%
14%

2016 Most Important

45%
41%

10% 20% 30% 40% 50% 60%

Organizational Measures (i.e., Organizational Structures and Processes)

Human Resource Development (i.e., Trained Workforce)
Investment in Facilities, Machinery and Information Technologies

21

As noted on the previous page, we asked Indiana manufacturers what they believed to
be their best manufacturing decisions in the past year. A variety of comments related to
modernizing manufacturing operations referenced technologies and human resource issues.

Focused on lean and Six Sigma initiatives.

Implemented MES cloud-based system.
Rearranged layout.
Invested in equipment.
Purchased an existing structure for a new warehouse.
Invested in new fiber laser cutting technology.
Hired a Quality Manager who is a Quality Professional.
Installed a timed process system.
Continued Lean manufacturing.

22

VI. Advanced Manufacturing

Strategy

23

Similar to prior studies, this years survey included questions on a variety of advanced manufacturing
technologies and programs on a scale of 1-5, with 1 being No Use and 5 being Very High Use.
2016 SURVEY
Advanced Manufacturing Technologies

No
Limited
Some
High Very High
Use Use Use Use Use Mean

Automated Guided Vehicles (AGVs)

92%

3%

5%

0%

0%

Automatic Storage / Retrieval Systems (AS/RS)

91%

4%

1%

3%

1%

1. 21

Bio or Gene-Technology (e.g., Catalysts or Bio-Reactors)

96%

4%

0%

0%

0%

1. 04

CNC Machines

24%

14%

10%

23%

29%

3. 18
3. 68

Computer-Aided Design / Engineering (CAD-CAE)

1. 14

11%

11%

11%

33%

34%

Computerized / Video Assembly Instructions

60%

19%

12%

6%

3%

1. 71

Coordinate-Measuring Machine (CMM) Inspection

44%

4%

16%

17%

19%

2. 63

Dry Ice Blasting (i.e., CO2 or Cryogenic Cleaning)

84%

7%

5%

1%

3%

1. 33

Dry Processing / Minimum Quantity Lubrication System

86%

7%

4%

3%

0%

1. 23

Flexible Manufacturing Systems (FMS)

53%

14%

15%

15%

3%

2. 00

Laser as a Tool (e.g., Cutting, Welding, Forming)

56%

11%

14%

11%

8%

2. 04

Novel Materials (e.g., Composite or Renewable Raw)

52%

18%

15%

5%

10%

2. 03

Rapid Prototyping or Tooling (e.g., Stereo Lithography)

55%

15%

21%

8%

1%

1. 86

RFID Product / Part Tracking

68%

7%

12%

10%

3%

1. 71

RFID Tool Control

77%

12%

8%

3%

0%

1. 37

Advanced Manufacturing Programs

Apprenticeship Programs for Training New Workers

19%

18%

33%

25%

5%

2. 79

Lean Manufacturing

8%

14%

29%

37%

12%

3. 32

Six Sigma

38%

21%

28%

10%

3%

2. 18

Work Cells / Cellular Manufacturing

33%

12%

26%

21%

8%

2. 59

2015 SURVEY
Advanced Manufacturing Technologies

No
Limited
Some
High Very High
Use Use Use Use Use Mean

Automated Guided Vehicles (AGVs)

86%

5%

5%

2%

2%

1. 26

Automatic Storage/ Retrieval Systems (AS/RS)

82%

9%

6%

0%

3%

1. 34

Bio or Gene-Technology (e.g., Catalysts or Bio Reactors)

90%

5%

3%

1%

1%

1. 17

CNC Machines

39%

4%

8%

16%

33%

2. 96

Computer-Aided Design / Engineering (CAD-CAE)

20%

9%

13%

22%

36%

3. 46

Computerized / Video Assembly Instructions

67%

14%

11%

6%

2%

1. 64

Coordinate-Measuring Machine (CMM) Inspection

51%

10%

16%

11%

12%

2. 23

Dry Ice Blasting (i.e., CO2 or Cryogenic Cleaning)

86%

5%

5%

3%

2%

1. 29

Dry Processing / Minimum Quantity Lubrication System

86%

6%

5%

2%

1%

1. 25

Flexible Manufacturing Systems (FMS)

55%

13%

17%

13%

2%

1. 93

Laser as a Tool (e.g., Cutting, Welding, Forming)

64%

6%

10%

11%

9%

1. 93

Novel Materials (e.g., Composite or Renewable Raw)

64%

10%

18%

3%

5%

1. 77

Rapid Prototyping or Tooling (e.g., Stereo Lithography)

57%

15%

11%

13%

4%

1. 91

RFID Product / Part Tracking

72%

5%

9%

7%

7%

1. 73

RFID Tool Control

78%

2%

10%

5%

5%

1. 57

Advanced Manufacturing Programs

24

Apprenticeship Programs for Training New Workers

28%

29%

28%

12%

3%

2. 35

Lean Manufacturing

13%

17%

29%

21%

20%

3. 18

Six Sigma
Work Cells / Cellular Manufacturing

39%
34%

20%
11%

20%
24%

9%
15%

12%
16%

2. 33
2. 65

In general, the use of almost all advanced manufacturing technologies has steadily increased in recent
years. Having said that, CNC machines, CAD systems, and related technologies such as coordinatemeasuring machines (CMM) have been most emphasized in terms of advanced manufacturing.

PERCENTAGE OF INDIANA MANUFACTURERS USING ADVANCED MANUFACTURING TECHNOLOGIES

2013
2014
2015
2016

100%
90%
80%
70%
60%
50%
40%
30%
20%

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In a similar way, more than 90% of all Indiana manufacturers rely on the philosophy known as Lean
manufacturing in 2016. Likewise, apprenticeship programs for training workers has rapidly expanded
in use from 2013 to 2016, with 81% of Hoosier manufacturers presently using it in their businesses.

PERCENTAGE OF INDIANA MANUFACTURERS USING ADVANCED MANUFACTURING PHILOSOPHIES

2013
2014
2015
2016

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0

81%
67%

79%

81%

87%

92%

73%
62%
53%

Apprenticeship
Programs for
Training Workers

Lean
Manufacturing

58%

60% 62%

Six Sigma

68%
60%

65%

67%

Work Cells /
Cellular
Manufacturing

25

On a different topic, more than 66% of all Hoosiers rated the price of electricity as extremely important
to the cost and viability of manufacturing. To lesser degrees, the costs of natural gas (30%) and diesel
or gasoline (21%) were also considered extremely important.

IMPORTANCE OF VARIOUS ENERGY COSTS TO HOOSIER MANUFACTURING

Electricity
Natural Gas
Diesel or Gasoline

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0

66%
53%

29%
1%

50%

33%

30%
21%

17%

Not Important

Somewhat Important

Extremely Important

In terms of their strategies to offset high energy costs, 91% of respondents reported implementing
energy efficiency measures. Another 35% tried negotiations with utility providers, while 18% contracted
with an energy management provider.

STRATEGIES TO OFFSET HIGH ENERGY COSTS

Negotiations with Utility

Providers

Utilize Self-Generation
Opportunities

35%

9%

Implement Energy Efficiency

Measures

91%

Contract with an Energy

Management Provider

18%

26

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

VII. Leading-Edge
Manufacturing
Technologies

27

For the 2016 study, we have begun tracking new information and process innovations in manufacturing
including additive manufacturing (3D printing), the Internet of Things, data analytics, and big data.
Data analytics is the most widely deployed followed by the Internet of Things. It is also worth noting
that additive manufacturing is beginning to be used more and more in fabricating component parts
and subassemblies as well as shop floor tools including fixtures and jigs.

28

Additive Manufacturing / 3D Printing

No
Some
High
Use Degree Degree

In fabricating component parts and subassemblies

89%

11%

0%

In fabricating standardized finished goods (e.g., regular production)

95%

5%

0%

In fabricating customized finished goods (e.g., mass customization)

95%

4%

1%

In fabricating spare parts (e.g., OEM replacement parts)

93%

6%

1%

In fabricating shop floor tools (e.g., fixture and jig fabrication)

85%

11%

4%

Internet of Things

No
Some
High
Use Degree Degree

In our product design (e.g., incorporating new electronics, software, sensors

and network connectivity into our products)

64%

26%

In our manufacturing operations (e.g., shop floor, shipping/receiving, warehousing, etc.)

33%

56%

11%

In our front-office operations (e.g., accounting, human resources, marketing, etc.)

32%

47%

21%

Data Analytics

No
Some
High
Use Degree Degree

In our product design (e.g., Engineering)

47%

42%

11%

In advertising and selling our products (e.g., Sales and Marketing)

54%

39%

7%

In planning and scheduling our production (e.g., Forecasting, Production Planning

and Control)

35%

44%

21%

In managing our raw materials and finished goods inventory

(e.g., Purchasing, Inventory and Warehouse Management)

33%

39%

28%

In managing our shop floor production (e.g., Line / Manufacturing Management)

32%

50%

18%

In planning and coordinating our inbound and outbound supply chains

(e.g., Transportation Management)

47%

39%

14%

Big Data

No
Some
High
Use Degree Degree

10%

In our product design (e.g., Engineering)

77%

20%

3%

In advertising and selling our products (e.g., Sales and Marketing)

83%

13%

4%

In planning and scheduling our production

(e.g., Forecasting, Production Planning and Control)

75%

24%

1%

In managing our raw materials and finished goods inventory

(e.g., Purchasing, Inventory, and Warehouse Management)

77%

21%

2%

In managing our shop floor production (e.g., Line / Manufacturing Management)

80%

17%

3%

In planning and coordinating our inbound and outbound supply chains

(e.g., Transportation Management)

80%

18%

2%

VIII. Expanding Indianas

Manufacturing Base

29

When asked about plans in the next few years to open a new manufacturing facility in Indiana, only
3% responded yes, down considerably from 11% in the 2015 survey.
PLAN TO OPEN NEW MANUFACTURING FACILITY IN INDIANA IN 2016-17

97%

No
Yes

3%
0

20% 40% 60% 80% 100%

PLAN TO OPEN NEW MANUFACTURING FACILITY IN INDIANA IN 2015-16

No
Yes

89%

11%
0

20% 40% 60% 80% 100%

In recent surveys, we have asked respondents if they expect to onshore any manufacturing back to
the United States, nearshore it to Canada or Mexico, or relocate or offshore any production outside
the country. In 2016, 11% intended to nearshore, 3% onshore, and 10% offshore some manufacturing.

2016 PLANS TO NEAR-, ON-, OR OFFSHORE

Do you plan on nearshoring any manufacturing
back to either Canada or Mexico during this year
or the next (2016-2017)?

89%
11%

Do you plan on relocating or onshoring any

manufacturing back to the U.S. during this year
or the next (2016-2017)?

97%
3%

Do you plan on relocating or offshoring any

manufacturing outside the U.S. during this year
or the next (2016-2017)?

90%
10%

2015 PLANS TO NEAR-, ON-, OR OFFSHORE

Do you plan on nearshoring any manufacturing
back to either Canada or Mexico during this year
or the next (2015-2016)?

7%

Do you plan on relocating or onshoring any

manufacturing back to the U.S. during this year
or the next (2015-2016)?

6%

93%

94%

Do you plan on relocating or offshoring any

manufacturing outside the U.S. during this year
or the next (2015-2016)?

Yes

30

No

87%
13%
0

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

IX. Manufacturing Workforce

Shortages and Skills

31

We continue to analyze the ongoing shortage of manufacturing workers in Indiana, and in 2016, consistent
with recent years, the biggest shortages remain in skilled production workers and in production support.
Notably, for the first time in recent years, the 2016 results indicate a material shortage of unskilled
production workers, with 14% of manufacturers now indicating this shortage is serious.

CURRENT AVAILABILITY OF QUALIFIED WORKERS (2016)

No Shortage
Low Shortage
Moderate Shortage
Serious Shortage

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0

65%

44%
39%

38%

24%

35%

21%

30%
19%

37%
27%

10%

10%

22%

21%

21%

16%

2%

0%

33%

27%

14%

11%

42%
38%

32%

14%
8%

n
n
n
g
rt
ce
ers
tio
tio
tio
tin
po
rvi
ine
uc
uc
tra
up
rke
g
Se
s
d
d
i
a
S
n
r
n
ro
ro
n
nE
mi
dM
me
tio
dP
dP
an
sig
Ad
uc
sto
lle
lle
i
i
e
s
u
d
d
k
k
e
D
l
C
s
n
S
Pro
Sa
ta
nd
Un
en
sa
t
m
s
i
t
ge
ien
na
Sc
Ma

In a similar way, when asked about anticipated shortages of manufacturing workers in Indiana over
the next three to five years, the biggest shortages are anticipated in skilled production workers (44%),
followed by unskilled production workers (19%) and production support (17%).

ANTICIPATED AVAILABILITY OF QUALIFIED WORKERS (NEXT 3-5 YEARS)

No Shortage
Low Shortage
Moderate Shortage
Serious Shortage

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0

59%

43%
40%

44%

40%

40%

33%

30%

33%
29%

25%

24%
14%

11%
0%

3%

25%

21%

27%

17%

17%
11%

38%

27%

8%

16%

6%

n
n
rt
rs
on
ng
ice
tio
tio
ee
po
ati
eti
n
p
r
i
erv
k
uc
uc
t
u
r
g
S
s
d
d
i
a
S
n
r
o
o
n
r
r
i
E
M
n
me
tio
dP
dP
dm
nd
ign
uc
sto
ille
ille
es
sa
d
dA
k
k
e
D
l
o
Cu
s
n
S
a
d
Pr
Sa
Un
nt
an
me
sts
i
e
t
g
ien
na
Sc
Ma

32

19%

In terms of the impact of workforce shortages on Indianas manufacturers, it has been especially
damaging to achieving productivity targets, implementing new technologies and quality improvement
processes and maintaining production levels consistent with customer demand.

AREAS WORKFORCE SHORTAGES HAVE MOST IMPACTED

Achieving and Maintaining Desired Levels of
Customer Satisfaction
Achieving Productivity Targets
Implementing New Technologies
Implementing Quality Improvement Processes
International Expansion: Ability to
Import and Export
Maintaining Production Levels Consistent with
Customer Demand
New Product Development and Innovation

0 10% 20% 30% 40% 50%

Regarding skills deficiencies across current employees and rejected applicants, two of the most
critical were inadequate basic employability skills (e.g., attendance, timeliness and work ethic) and
problem-solving skills. Curiously, technology skills are perceived as a bigger problem regarding
current employees than among rejected applicants.
SKILL DEFICIENCIES AMONG CURRENT EMPLOYEES AND REJECTED APPLICANTS

Skills Deficiencies:
Rejected Applicants
Current Employees

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0

81%
68%
52%

52%

52%

63%

56%
44%

29%

49%

46%

25%

ls
ills
ills
ills
ills
ng
kil
ini
Sk
Sk
Sk
Sk
a
tS
y
r
n
h
g
t
n
g
o
n
lT
lvi
Ma
ati
me
olo
ica
nic
hn
-So
loy
ate
hn
u
c
p
c
u
m
e
q
T
Te
Em
mm
ble
de
te
ic
te
Co
ua
as
Pro
Ina
e
q
ua
B
e
t
e
t
q
f
a
a
d
de
qu
ko
qu
Ina
ac
de
Ina
de
a
L
a
n
I
In

33

Beginning with this 2016 survey, we track the degree to which the inability of employees to pass drug
tests poses a problem. Seventeen percent of responding companies regard this inability as a major
problem, while 62% view this as a limited problem and the remaining 21% report that it is not an issue.

INABILITY TO PASS DRUG TESTS

17% Inability to Pass Drug Tests a

Major Problem
21% Inability to Pass Drug Tests
No Problem
62% Inability to Pass Drug Tests a
Limited Problem

Also in this 2016 study, we analyze in greater detail the education level Hoosier manufacturers require
of their new shop floor workers. The majority (73%) require a high school diploma, while 16% also
expect candidates to have a two-year technical degree.

EDUCATION REQUIRED

7% Some College
16% Two-Year Technical Degree
4% Four-Year College Degree
73% High School Diploma

34

For 2016, 50% of the respondents did not require any previous work experience for their skilled
production workers, while the other half did. For those requiring previous work experience, 37% were
looking for new hires with 24 months or more of experience, while 27% were looking for employees
with at least one year of manufacturing experience. At the other end of the spectrum, only 3% were
interested in new hires with less than six months of previous work experience.

PREVIOUS WORK EXPERIENCE: SKILLED PRODUCTION WORKERS

3% 06 Months
33% 612 Months
27% 1224 Months
37% 24 Months+

We next asked respondents if they provided on-the-job training for their skilled production workers.
The majority (62%) responded yes and the rest (38%) no.
MANUFACTURERS PROVIDING ON-THE-JOB TRAINING

38% No
62% Yes

35

Finally, we inquired how Indiana manufacturers were overcoming existing skills gaps. The two most
common solutions are the internal employee training and development programs (90%) and the use
of overtime (78%).

METHODS USED TO COMPENSATE FOR EXISTING SKILL GAPS

External Training and

Certification Programs

48%

Focused on New Workforce

Segments (i.e., Gender and / or
Diversity Initiatives)

30%

Internal Employee Training and

Development Programs

90%

Outsourcing of Certain
Functions

52%

Use of Contingent Labor

(i.e.,Temporary Worker or
Staffing Agencies)

60%

Use of Overtime

78%

36

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Appendix:
Benchmarking Indianas
Manufacturing

37

The following data are averages for an array of performance metrics over the last four manufacturing
surveys.

WHAT WAS YOUR BUSINESS UNITS APPROXIMATE PERFORMANCE LEVEL FOR THE FOLLOWING?
73%
70%
68%
71%

Capacity Utilization
5%
3%

Customer Complaints
(As a Percentage of Orders Delivered)

9%
5%
59%
61%
64%
64%

Forecast Accuracy (e.g., 10% Over or Under

Forecast = 90% Accuracy)
Incorrect Deliveries to Customers
(As a Percentage of Orders Delivered)

2%
3%
5%
3%

Late Deliveries to Customers

(As a Percentage of Orders Delivered)

7%
7%
10%
9%
4%
4%

Scrap and Rework Costs

(As a Percentage of Sales)

2013

2014

2015

7%
6%

2016

10% 20% 30% 40% 50% 60% 70% 80%

BY WHAT PERCENTAGE HAS YOUR BUSINESS UNITS OPERATIONAL PERFORMANCE IMPROVED,

STAYED THE SAME, OR DECLINED IN THE PAST YEAR FOR THE FOLLOWING?
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0

19%

14%

16%

16%
14%

13%

12%

11%

7%

7%

6%

6%

6%
4%

Capacity
Utilization
2013

38

15%

Delivery Speed
and Reliability
2014

2015

2016

Labor
Productivity

Material
Costs

6%
1%

5%
3%

2%

Overhead
Costs

2%

4%
2%

2%

Unit
Manufacturing
Cost

INDIANAS MANUFACTURING SCORECARD

As with our previous reports, this years report includes a composite scorecard compiled using 16
different critical measures covering the business climate, cash-conversion cycle and manufacturers
performance in order to track the overall health of Indianas manufacturing industry. Using the 2011
study as a reference point, we set that years score at an even par index baseline of .500. From
there, annual scores greater than .500 indicate Indianas manufacturing sector is getting stronger,
while scores lower than .500 suggest Hoosier manufacturers are weakening. This years score of .490,
which is the second year in row that the index has slumped below .500, suggests that the overall health
of Hoosier manufacturers has decreased year-over-year from 2014 to 2016.

INDIANAS MANUFACTURING HEALTH SCORECARD: CRITICAL AREAS AND WEIGHTS

Business Climate
(Weighted 20%)

Manufacturers Performance

Cash Conversion Cycle

Financial Performance (Weighted 20%)

Operational Performance (Weighted 30%)
Investing for the Future (Weighted 10%)

(Weighted 20%)

INDIANAS SIX-YEAR MANUFACTURING HEALTH

.500

Indianas 2011 Manufacturing Scorecard Health

.521

Indianas 2012 Manufacturing Scorecard Health

Indianas 2013 Manufacturing Scorecard Health

.516

Indianas 2014 Manufacturing Scorecard Health

.536

Indianas 2015 Manufacturing Scorecard Health

Indianas 2016 Manufacturing Scorecard Health

.497
.490

0.48 0.49 0.50 0.51 0.52

0.53 0.54

39

ABOUT KATZ, SAPPER & MILLER

Founded in 1942, Katz, Sapper & Miller (KSM) is the largest Indianapolis-based CPA firm. Today, an employeeowned company with 37 partners and more than 300 staff, KSM is widely recognized as one of the countrys
preeminent accounting firms. Our mission is simple: to help our clients be more successful.
The professionals of KSMs Manufacturing and Distribution Services Group are dedicated to providing
practical solutions for the unique needs of manufacturers and distributors. The group is comprised of a
cross-functional team of specialists having extensive industry experience and who regularly work with the
diverse issues confronting manufacturers and distributors.
Services provided are wide ranging and include accounting, audit and tax services; mergers and acquisitions;
strategic planning; process and operational improvement services; and technology and human resources
consulting.
For more information, please visit ksmcpa.com/manufacturing-distribution.
Katz, Sapper & Miller
800 East 96th Street
Suite 500
Indianapolis, IN 46240

ABOUT THE RESEARCHERS

The research study was conducted in conjunction with faculty from Indiana Universitys Kelley School of
Business Indianapolis.
ASSOCIATE PROFESSOR MARK FROHLICH
D.B.A. Boston University 1998
Dr. Frohlichs research interests are in manufacturing strategy, process improvement, and supply chain
integration, and he has been published in a wide variety of scholarly journals including the Journal of
Operations Management, Decision Sciences, and Production and Operations Management. His research
has won numerous awards including best papers of the year in 2001 and 2005, and best operations
management case study in 2010. He was recently identified as one of the most cited authors in the field
by the Journal of Operations Management. His teaching spans the range from supply chain management
and Six-Sigma process improvement to the basics of operations. Through executive education, he has had
the opportunity to teach on four continents in over a dozen countries.
PROFESSOR STEVE JONES
Ph.D. Purdue University 1989
Dr. Jones research interests are in financial management and strategy, including how financial decision
making interacts with capital market conditions. He has been published in the top scholarly journals in
finance, including the Journal of Financial Economics, the Journal of Finance, the Journal of Business,
Financial Management and the Journal of Corporate Finance. He also serves as director of the schools
Finance Education Enterprise, and currently is faculty chair of Kelleys Evening MBA Program. He teaches
courses in financial management, financial markets and investment analysis, and he is a four-time winner
of a Kelley School teaching excellence award.
For more information regarding the Kelley School of Business, please visit kelley.iupui.edu.
Kelley School of Business
801 West Michigan Street
BS 4042
Indianapolis, IN 46202-5151

40

COMPILED THROUGH THE COMBINED EFFORTS OF