The next chapter: Our editorial advisory board discusses the manufacturing industry’s recovery, the challenges that remain, and the opportunities for growth
June 28, 2011
By Mary Del
The story of the manufacturing industry over the last few years has been one of survival. Two years ago, orders were down, workers were losing their jobs and some companies were forced to close shop. But luckily, the story didn’t end there.
The numbers that we have seen over the last year show that a page has turned, and that the manufacturing industry is in full-fledged recovery mode. The statistics speak for themselves:
• North American robotics companies enjoyed their best opening quarter since 2007 in the first quarter of 2011. According to new statistics released by the Robotic Industries Association, a total of 4,021 robots valued at $263.5 million US were ordered by North American manufacturing companies through March – an increase of 31 percent in units and 27 percent in dollars.
• Following two months of little change, employment in Canada rose by 58,000 in April, according to Statistics Canada’s Labour Force Survey for April 2011. While employment in the manufacturing industry remained flat in April, the industry has seen employment gains of 3.3 percent over April 2010.
• Manufacturing sales increased 4.5 percent to $47.7 billion in January, the highest level since October 2008, according to Statistics Canada’s Monthly Survey of Manufacturing for January 2011. Though sales dropped slightly in February (to $47.1 billion), they increased once again in March – jumping 1.9 percent to $47.5 billion.
Don McCrudden, vice-president of business development at Festo, says that this portrait of the industry is consistent with what he has seen.
“Our business pretty much mirrors that performance verbatim,” McCrudden says. “It’s been very positive in the last two years. Surprisingly, to Canadians, our business globally is really on fire….to the tune of 40, 50 percent [growth] in some of these markets….Canada, although our growth is significant double digits, we’re under performing [compared to] these other areas of the world.”
Al Diggins, president and general manager of the Excellence in Manufacturing Consortium (EMC), says that many of his members have been hiring people over the last year – a sure sign that things are looking up.
Both Diggins and McCrudden joined Manufacturing AUTOMATION‘s editorial advisory board at the fifth annual roundtable discussion in Aurora, Ont. in April, where the group discussed the economy and the opportunities that remain for Canadian manufacturers.
Even though numbers are up, manufacturers are still facing some challenges – namely the high Canadian dollar, high energy prices and an impending skilled trades shortage. But just like the dark clouds in the sky on the day of our meeting – one of April’s more severe showers – every cloud has a silver lining.
High Canadian dollar
The biggest challenge still facing Canadian manufacturers, according to Sherman Lang, industrial technology advisor with the National Research Council’s Industrial Research Assistance Program, is a combination of things – “the high Canadian dollar, a slow recovery in the U.S. and high commodity prices, high input costs.”
But McCrudden puts the foreign exchange rate at the top of the list.
“If you plot over time the foreign exchange rate and manufacturing jobs, I think you’ll find it going in tandem.”
David Green, managing partner at Stratmarc Associates, a strategic planning and marketing communications consulting firm, thinks that some manufacturers use the high Canadian dollar argument as a crutch, and wants to move on.
“We can’t do that. We’ve got to be able to compete in a global marketplace whatever the exchange rate [is],” he says. “We’ve heard that old song for so many years. Let’s get over it guys.”
Green encourages manufacturers to look at the high dollar as an opportunity.
“Now is the time to invest in that equipment that you can now get at a lower price,” he says.
Diggins says that the high prices that manufacturers are paying for power is going to result in a “train wreck.” And he wonders how his members, who have been seeing increasingly higher energy bills, will be able to control that cost.
It’s all about energy reduction and allocation, says Lang.
“I have talked to some manufacturers who have taken steps to shift their energy usage into the lower cost times,” he says.
The cost of energy is high, but the opportunity in the renewable energy sector could be in producing the components or the automation needed to source clean energy – solar panels, wind turbines, etc. There has been an increase in this type of activity in Ontario in the past year, with companies setting up shop to manufacture products needed for the renewable energy sector.
“I don’t know how big that will get, but it certainly does seem to be an area where Ontario is looking to make a niche for us in terms of manufacturing the materials that are necessary for these clean energies,” says Cheryl Jensen, vice-president of Technology, Apprenticeship and Corporate Training at Mohawk College.
But Green warns that green energy could be a fad.
“It’s the thing to talk about, and everybody just talks about it. There’s no doubt there’s opportunity, but how big that really is and where it will go in terms of Canada being able to participate from a cost-effective standpoint when a lot of your base technology is coming out of China, coming out of Germany, coming out of other parts of the world” remains to be seen, he says.
Jensen agrees. “I think politicians are also spending a lot of time thinking about how can we capitalize on what might be a fad and what might not be a fad – and that is, what is our energy supply going to look like in the next 50 years and how can we make sure we’re in the right spot in Canada to benefit from that.”
Skilled trades shortage
It’s a topic that has been on manufacturers’ radar in recent years – the impending skilled trades shortage. Even though the recession saw thousands lose their jobs, it didn’t change the fact that skilled labourers are getting older, and many are on the cusp of retirement. This is a topic close to our board members’ hearts and, like most years, it dominated the discussion at our meeting.
“Personally, I don’t see it anywhere near as bad as it was,” says McCrudden. “If you roll the clock back 10 years ago, every company I visited said that the number one thing impeding their ability to grow was finding people…but today you don’t hear that. We hire people regularly, and finding those people today is relatively easy compared to what it’s been historically.”
Bill Valedis, manager of automation and training for Precision Design, Build and Services Inc., says that that view is contrary to his experience.
“I see the opposite. I see the trend continues to be, ‘In the next two or three or five years, we will lose 50 percent of our most experienced people and we don’t know what we’re going to do.’ These are the kinds of things that I hear. And the people that are leaving are creating huge holes, knowledge gaps, that some of our customers are shaking their heads. They can’t figure out what to do,” he says.
And the issue isn’t finding people – we know that many are still out of work. The problem, according to Green, is finding the right people.
“Ideally you’d like to drop somebody into that big gap who can just hit the road running,” says Green, adding that that rarely happens. And compounding that issue is the fact that “industry doesn’t do training as much any more.”
Many companies are unwilling to invest in the young people coming in who are going to be the future technical people, sales people and marketing people, Green says.
“It’s like trying to get people to take on apprentices; they just won’t, even though they get funded for it. So that’s the challenge,” he says. “Now you suddenly get to the point where you’ve got the problem of your middle and senior people leaving who are key to the organization, and you haven’t invested in anybody to replace them.”
“It’s complicated because the companies that employed those knowledge-based people did not do the right things to invest in the continuing education and migration paths of more junior employees into those positions,” says Valedis. “So it’s created a problem whereby this natural migration through retirement is taking place today, [and] in the next five years we’ll see a shifting line. And the people that are coming in, yes they have received their formal education and they’re maybe technology graduates or university graduates, but they don’t have the practical skill set that the manufacturer requires in order to produce the widgets. So we are creating a situation for ourselves.”
Jensen says that the number of apprenticeships has “dropped dramatically” in the last two years, not just at Mohawk, but at other colleges, as well. She says that apprentices are usually the first to go during recessions. So, the problem is that there are fewer companies looking for apprentices and fewer people willing to be apprentices. How can industry address this issue?
“Even though we can say here that manufacturing is recovering nicely in Canada, parents and young people are still hearing [that] manufacturing has been hard hit in Canada,” Jensen says. “We have a big, big sales job to do here in order to convince young people and parents who still have a huge influence on where their children are going, what programs they’re choosing…We as educators and as employers have another big job to do as we did back in the early 2000s when we had this skills shortage, of convincing young people that there are good jobs in manufacturing and automation.”
One way to educate students on the opportunities available to them in the manufacturing industry is to educate the teachers who influence them at the high school level, says Diggins.
“I truly believe that every institution, public to post-secondary, should have their teachers co-op into manufacturing, because teachers don’t know squat about what goes on in manufacturing,” says Diggins.
Valedis works with some teachers with manufacturing experience, but agrees “there are very few of those teachers that are plugged into the manufacturing sector.”
Jensen doesn’t want to place blame, and says that it’s a team effort. “The school boards have a big job to do. They have to accomplish so much in terms of the curriculum. They need all of us to help them to make sure the students get this kind of knowledge,” she says.
McCrudden points to a program recently introduced by the Calgary Board of Education called “Career and Technology Strategy.” The program provides students from kindergarten to grade 12 with “real life learning choices to spark their passions and interests,” according to the program’s website. The grade 10 to 12 strategy gives students the opportunity to take personalized learning courses and explore different careers, including those in trades, manufacturing and transportation.
“The problem is that when you’re 15 and 16 years old, how the heck do you know what you’re going to do. They just haven’t been exposed to anything,” says McCrudden, who has three kids of his own. “So what a great idea that [this program] finally gets the kids some exposure to all kinds of things that are going on out there that they just have no idea about.”
Jensen points to a program that Ontario has implemented at all school boards across the province – the Specialist High Skills Major Program, a ministry-approved specialized program that allows students to focus their learning on a specific economic sector while meeting the requirements to graduate from secondary school.
Along with educating students on the opportunities available to them and exposing them to those opportunities, the other thing that needs to be done to address the impending shortage, says Jensen, is “more companies have to take on co-operative education students and apprentices, and invest in that training early on…And the companies that do that, and through good and bad times invest in co-op students and apprentices, they’re the ones that are coming through the talent management problems in a much more smooth transition than those who aren’t,” she says.
Instead of investing in the future workforce, some companies have opted to contract retirees – a move that Valedis says is dangerous.
“One of the things that you don’t want to do is to keep convincing yourself that if I’m going to lose a certain skill set and that person is retiring, I can solve the problem very easily by just contracting them back. That is absolutely the wrong thing to do. It may be a good Band-Aid for awhile,” Valedis says, “but don’t believe that the problem has gone away.”
Green also sees that trend. “A lot of organizations and companies are contracting people to do certain jobs,” he says. “A lot of that is part-time, and a lot of them don’t get visibility because they’re contract positions, which means there is no long-term commitment, no benefits. Your costs per hour may be higher, but your overall cost to the employer of the employee is less. I think a lot of positions are being converted to that…so consequently you now have a variable workforce that’s easy to move and shift and cut, without having any impact on labour issues. And of course the opportunity of those jobs is no longer there now for young people coming in to go and take because [employers are] continuing with a variable workforce.”
Another way to address the impending skilled trades shortage is to encourage the trend towards entrepreneurship. If schools provide students with the building blocks to become an entrepreneur, they can create their own opportunities.
“Young people coming out of programs now would really like to start their own businesses in automation, manufacturing, etc.,” Jensen says. “Having that sense of entrepreneurship in programs is also very important, because that’s really where our economy is growing, those small and medium-sized companies. And so instilling the culture of entrepreneurship in our young people is extremely important.”
Jensen adds: “I see that many post-secondary institutions are now focusing on, not just expecting young people to be able to figure that out, but giving them the skills in business cases, business plans, how to search out that seat funding, etc., and building that entrepreneurial spirit into the programs.”
Searching for an identity
As we enter this next chapter, the Canadian manufacturing industry needs to find an identity, the board members say.
“Canada has to have a stake in the ground and manufacture something. That’s the value add to our economy. We are a service economy in a lot of ways, but we have to manufacturer something for wealth creation,” says Jensen.
McCrudden agrees that Canada needs to find its niche.
“What does Canada do? What we do is we do mining and we do lumber or forestry, but when you call on those places, a lot of the equipment in those facilities is not Canadian produced. It’s coming from everywhere else in the world,” he says. “If we are going to be the world’s biggest miner, or certainly one of them, can’t we help create this idea of, let’s become the experts in mining from womb to tomb – from putting the shovel in the ground, to making the shovel, to processing the ore or rock.”
But to that point, Green says, “You’re not going to make the money by making all of that stuff here, as long as you have to deal with the costs of labour and other issues.”
Diggins agrees that there are missed opportunities. “How much of our natural resources leave the country without us adding any value to it? Way too much,” he says, adding that we have to “make sure [that] if it’s going to leave the country, we add value to it.”
“If you look at traditional manufacturing, whether it’s a step ladder or a pen, those manufacturing jobs could be anywhere. But processing of the rock is going to be wherever you’re taking the rock out of the ground,” explains McCrudden. “So at least if you’re hooking your wagon up to something, [make it something] that’s got to be here.”
Dear Mr. Harper
Before we parted ways, the board members were asked what the government could do to help the manufacturing industry.
Continued tax credits, says Diggins, adding that the programs currently in place need to continue. “We can’t start disenfranchising potential manufacturers by saying we’re going to tax you another 20 percent, or we’re not going to give you tax credits for innovation to create jobs and create new products and keep them in Canada. These things need to be in place, and if anything else they need to improve them, and infrastructure goes along with that. So all of these things that are incentives for people to be in manufacturing, to get into manufacturing or to increase the presence of manufacturing, need to be there and be improved.”
Lang adds: “If we could see some of the burden of the compliance with regulations appeased, especially for those who are manufacturing overseas or have part of their operation of manufacturing overseas [to] bring things into Canada [or] do additional value add and manufacturing in Canada. For a smaller company, it’s a lot of cost and a lot of burden. A lot of mental focus is taken away to comply with regulations.”
Green says that providing incentives for companies to set up shop in Canada is key.
“Whatever can be done in terms of government support, whether that’s through tax credits or…funding to encourage some of that, I think will be well worth doing, whether that’s at a provincial level or at a federal level,” he says.
Valedis puts education incentives on his wish list. “We’ve heard from the school boards [about] what sort of gyrations they’ve had to go through in order to get a little bit of funding for a specific project…Ease the process,” he says. “Encourage and support financially the schools. That’s where it all begins.”
“I would say on my wish list [is] a focused effort by governments at all levels to participate in the awareness of good jobs in the manufacturing sector,” says Jensen. “I go back to the days when the Canadian Apprenticeship Forum was doing the national commercials on jobs in the trades, and they were so well done, and had such a compelling message that would, I think, compete with any young person wanting to go into sports, because of the excitement of the career potential. So, just that ability for governments to participate in the awareness of the need for these young people and the types of careers that they could have would be a great help.”
“You need to get the government, the levels, connected,” says Green. “If you’re going to have an education policy provincially, then you need to have it consistent with whatever the federal government is driving in terms of economic direction…In particular, in education and training and youth initiatives and skills, whatever the program is, they need to be supported all up and down the government chain.”
And with that, the board members headed back into the storm with a positive outlook, knowing that there will be brighter days ahead, and hoping that the next chapter in the manufacturing industry’s story will not focus on survival, but rather on success.
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