Issues & opportunities: Our editorial advisory board talks manufacturing’s future in Canada

The manufacturing industry has had its ups and downs over the past year.

Some plants are shutting down, while others are increasing production. One month manufacturing sales are up, the next month they’re down. It’s certainly been a roller coaster ride. But overall, according to Statistics Canada, manufacturing sales have rebounded close to the $50.2 billion recorded in October 2008, when the economic downturn began.

It’s no secret that we are still recovering, slowly but surely, and when our board members got together in April for the sixth annual roundtable meeting at the new Annex Business Media headquarters in Aurora, Ont., they were optimistic.

“There’s still a positive feeling out there,” says Al Diggins, president and general manager of the Excellence in Manufacturing Consortium. “I think that everyone we have spoken to in the last six months is happy with where it’s going. We’re seeing a lot more stability than we had two years ago, three years ago.”
Cheryl Jensen, vice-president, Academic, at Mohawk College of Applied Arts and Technology, says that looking at the success of co-op programs is a clear indication of how the economy is doing.

“I would say for co-op, that’s usually a first sign of either an increase in the health of the economy or the first sign of a decline. And our co-op placements in our technology programs…are showing very strong opportunities for our students,” she says.

Jensen adds that the fact the economy in the U.S. is picking up is also great news for Canada’s manufacturing sector.

“If I look at U.S. Steel in Hamilton, if U.S. Steel is doing better in the states, then they will be starting up some work here, so that’s nothing but good,” says Jensen. “We’re looked upon as a bit of a satellite manufacturing facility for them, so the better that economy is, the more people in Canada will be working. And the more work for U.S. Steel in Hamilton, the more spinoff companies do well in Hamilton.”

But while the industry is improving, issues remain. The manufacturing industry is facing a massive skills shortage in the coming years, and some companies are closing shop and moving to lower-cost areas.

What is needed to combat these issues? What role should industry, education and government play in helping to improve the situation? And what role does innovation — an admittedly well-worn term — play in Canada’s future in manufacturing? These were all topics covered during our lively, two-hour discussion.

The skilled trades shortage

For yet another year, the skilled trades shortage topped the board members’ list of challenges facing the industry.

“We have to be mindful of the fact that large numbers of people are going to retire. Whether it’s a crisis or a slower issue, it’s still going to happen. And so I think we still have to find ways,” says Jensen, “to make sure that young people know that there are good careers in manufacturing.”

Diggins says the challenge is finding people with the right skills.

“Young people really are not streamed into manufacturing, and many don’t have the right soft skills to be successful in the workplace.”

Jensen agrees, adding that we need to look at long-term solutions.

“There are people who are unemployed [that] don’t have the skills for the jobs that are there. They don’t have the technical skills [and] they don’t have what we’re calling now the 21st century learning skills — the problem solving, the team building, the communication skills,” she says. “I know we’re paying particular attention to that at Mohawk, about making sure that our students have not just the technical skills, but those other skills.”

So do we need to take a look at changing the education system in Canada as part of this long-term strategy?

“Community colleges, typically they are supposed to be responsive to their community needs, but there are a number of institutions that have gone more to an international and bigger-picture view of the world, and they’re no longer catering to the local needs in some cases,” says David Green, managing partner with Stratmarc Associates. “So the system to fulfill it has got to change, to be able to somehow get the right people into the right programs.”

Bill Valedis, president of Imperial Automation Technologies, and manager of automation and training at Precision Training, Products and Services, agrees.

“Every college needs to identify who is the producer, the manufacturer in their own domain, in their own area, and embed themselves with the industry, and create programs that when the graduate student is hired, on day one, that person is productive at that particular manufacturer’s environment.”

Jensen says that providing students with the tools they need to be innovative is also key.

“Even though innovation is a word that’s been fairly heavily used over the last few years, it really is key to embed those skills of innovation into their educational process so that they think differently, whether they work for a large company or on their own,” says Jensen. “There’s a big drive to have graduates of both university and college to start their own business when they graduate and employ others. So it’s incumbent upon educational institutions to make sure that we’re teaching how to be innovative, what are those skills, how to be entrepreneurial, into our curriculums so that they can hit the ground running when they graduate.”

But Don McCrudden, vice-president of business development with Festo, feels that the education system is on the right track, and he’s seen an improvement in the graduates over the last few years.

“Certainly in the last four years we’ve had lots of examples where we’ve brought in engineering people, mechanical and electrical engineering people, young, [who]…are pretty darn productive really fast,” he says. “There really seems to be a marked improvement in the level of technical people that are coming in off the street. So that would be a positive testimonial [that] our education system seems to be working.”

Teaching the right skills to the next generation is one approach that will help to solve the impending skilled trades shortage. Another part of the long-term solution, according to our board members, is immigration.

“Our population is declining. There aren’t as many youth as there have been. Baby boomers are retiring. And right now the only way to replenish that is with immigration. That’s how Canada was built in the first place. And so we have to make sure that the people we bring here, we have to give them the opportunities through the right skills and training,” says Jensen.

“We need people now, and the only way to get solutions is to identify [the right] people and then, as the government is finally starting to recognize, change the immigration rules so you get the right people,” says Green. “Clearly, we can’t fill it with people here, so you have to use immigration. So those rules need to change, and the government seems to be finally waking up to how to fast track some things and change the rules about identifying the right people.”

Keeping jobs in Canada

Educating the next generation of workers with the right skillset for the manufacturing industry isn’t going to do much if there aren’t any jobs to fill in the country. Indeed, the closing of the Electro-Motive plant in London, Ont., earlier this year that resulted in the loss of 450 jobs at the facility, with production moving to the States, highlighted the fact that, even though the economy is improving, plants are still closing and jobs are being lost to lower-cost markets.

It’s the high costs of doing business here that is to blame for many companies moving production away from the Great White North.

“The cost of power in Ontario is insane. We’ve got some members that their electricity costs have gone up like 60, 70 percent in the last five or six years…And in many cases, the hydro bill is more expensive than the payroll,” says Diggins. “One member, their hydro bill in January was $160,000, and 54 percent of that was the global adjustment. I will guarantee you that that plant will be gone in four or five years. It’s killing them.”

McCrudden shares his own recent story.

“I was on a plane to Mexico in the fall, and I ran into three clients, all in the automotive sector. All three of them were going to Mexico [to work] on new plants. One of them was working on 56 projects this year, globally. How many were in Canada? None. The other one, 16. How many in Canada? None,” says McCrudden.

But Diggins says that due to quality issues and supply chain problems, more and more manufacturers are bringing their purchases back to North America, creating opportunities for Canadian companies.

“We’ve created an interactive manufacturing network,” he explains, “and several of our members have already said, ‘We don’t want to buy [product] from a third-world country, and they’re putting out local opportunity alerts on our site.”

Green agrees that there is an opportunity to bring jobs back to Canada.

“Overseas wages are obviously going up, logistics costs are going up. There’s a whole bunch of reasons why suddenly if you look at the total cost in the supply chain, there’s probably a good reason to be able to start to think about how can we do it more cost effectively in Canada or in North America,” he says.

McCrudden’s answer: “We have to be more creative [and] do it better, faster, smarter.
And that’s what maintains the jobs here,” he says. “It still always comes back to innovation.”

Government involvement

When things go sour, oftentimes the government is criticized for either not getting involved enough, or getting involved too much.

During our meeting, the board members discussed what role, if any, government should play in the manufacturing industry.

“Government policy and direction is certainly important in terms of creating the environment, but I wonder if too many people are relying on that,” says Green. “A lot of Canadian companies tend to whine a lot about, ‘We need more protection and the government should do that to make our business easier.’ Well, that isn’t going to happen. It’s going offshore. So what else can we do? The government is not going to be able to stop that. I think business and industry have to take a stronger role than waiting for the government to do something with policy.

“I just think we’ve got to get over it and be innovative and creative about solving the problem,” he continues. “The reality is it’s going to happen. Stuff is going to get made; the Chinese are going to get better at the quality, and the Indians are going to get better at it, and so are the Brazilians and South American countries, and Eastern Europe…What can we do about it and how can we take advantage of seizing the opportunities in those markets, as well as helping to solve this problem with manufacturing in Canada? Let’s pick the places where we can be more likely successful by working together with organizations like [EMC], CME, SME and others.”

Diggins says that manufacturers are “legislated to death.” He read a note from one of his colleagues, which said that, “Every day I talk to manufacturers, and every day they are struggling with new guidelines, procedures and legislation in some area. It’s taking their time away from key areas like selling, for example.”

Valedis agrees.

“I had a conversation recently with one of our customers…and he told me very, very clearly that ‘the Ontario government and the federal government is regulating us to death. It’s costing us an arm and a leg to stay in business. And the funny thing is if I go south of the border, the rules are different, and I can be more productive. So, should I move my manufacturing facility south?’”

But Jensen says there are areas where government can help make a real difference.

“I think it’s proven in countries where governments invest significant amounts in research and innovation, companies prosper. I think our federal government, in particular, and our provincial government, have done a lot, taken a lot of great pains in these two budgets to keep research and innovation funds where they are and direct it towards pure research, but also to what I’ll call technology transfer and innovation. A lot of money [is] now being poured into the colleges, where it’s what I call on-the-ground tech transfer, which helps small business. They can’t solve every problem, but giving that kind of support where it’s needed, I think in the long run will be very, very helpful. You can’t cut that kind of investment out and expect a country to be productive and innovative,” says Jensen.

Green agrees.

“The issue, back to innovation, is you can provide the tools and the background of how you do it, but the companies who are going to go and make that innovation happen have got to have the time and money and resources to be able to do it, which is the challenge,” he explains. “It’s a well-worn phrase, ‘We’ve got to innovate more’…but can companies afford to do it because it does take time, particularly smaller or medium-sized companies. You need to pay the bills to get the job done, so you need to look at funding from external sources, whether it’s FedDev or the grants.”

In regards to government funding, Diggins worries that the government favours loans for risky startups rather than existing companies with innovative ideas.

“The government, I think, has got their minds set on innovation being new stuff, but we’ve got to take the stuff we’ve got already and commercialize it, make it better and innovate it,” he says.

Valedis says government can help by funding training initiatives.

“International student enrolment is on the rise, and the manufacturing jobs are not here,” says Valedis. “What I’m afraid will lead into the future is we are helping other countries develop. And that’s also scary from my perspective. So, the government needs to fund the kind of hands-on, on-the-plant-floor training programs for our workforce, and I think we need to take a stand and look at who are we educating and why, and how can we change that ratio around.”

The industry’s role: Communication

For the manufacturing industry to survive in Canada, communication is key — communication within the organization and within the industry. The board members agree that companies have to stop being so protective of their information, and instead share their successes, to help other Canadian manufacturers — who might be struggling with the same issues — succeed.

“Just look at this street right here,” says Diggins, pointing out the window of the boardroom to a street lined with industrial buildings. There are “all kinds of factories, thousands of people. They’re not talking to each other. There’s probably not a problem that hasn’t been solved somewhere on this street, and it’s about extracting that ability. First of all, you have to teach them that it’s okay to share ideas. That’s innovation. That’s a big part of it.”

It’s more than just communicating within the industry. Green says it’s about “communication and relationship building” with your customers, which includes “understanding your customer, knowing your market [and] knowing the issues. Communication and relationships are absolutely key today to the success of any company, small or large,” he explains.

“The other thing [is] listen to your employees,” says Valedis. “How many situations have we run up against where we actually get intimate with a company, and we find out that it’s a top-down-driven approach. There’s no communication. That’s a break down right there.”

And this communication issue has to be solved soon, because the next generation of workers is going to want to be more involved.

“The young people coming in are much more interested nowadays in wanting to contribute, wanting to say something,” says Green. “And so you’ve got to be able to create the culture and the environment in which they can be listened to because they can bring some valuable information.”

Top strategies for growth

Before we parted ways for another year, I asked the board members what the most important strategy is that Canadian manufacturers can adopt for growth. Innovation was a recurring theme throughout our discussion, and this question was no exception.

“Innovation and productivity,” says Jensen.

Diggins agrees that innovation is one of the essential ingredients, but there is more.

“Everything is driven by a global marketplace, product demand and consumer awareness. So innovation, flexibility and adaptability are key.”

McCrudden says that companies have to think globally.

“The companies that do well, clearly the common denominator is that they’re looking for markets beyond the scope of domestic Canada. So if you think your sandbox is bordered by the two oceans and the 49th parallel, then right away you’ve got major problems.”
He also had some thoughts on innovation: “Innovation and all of these things really can come back to just looking yourself in the mirror and saying, ‘We do 16 things in this business. Are we doing every one of those 16 things to the best of our ability?’ I’m sure if everybody did that, they would find that there are opportunities for improvement, and it could be even significant improvement in lots of these areas.”  

Green says it’s all about metrics.

“Like one of my mentors said, you’ve got to know where you are, you’ve got to know where you want to get to [and] you’ve got to know how you’re going to get there,” he explains.

And finally, Valedis offers some words of wisdom based on what has worked for his company.

“Keep dreaming all of the time — what can I do and where can I go? It’s kept us alive.”

This article originally appeared in the June 2012 issue of Manufacturing AUTOMATION.