Improving the Performance of Utah’s Manufacturing A Presentation to the Utah

1. Improving the Performance of Utah’s Manufacturing A Presentation to the Utah Alliance for Economic Development David K. Sorensen, Exec. Dir. Manufacturing Extension Partnership of Utah Wednesday, July 14, 2010

2. Understanding Manufacturing What is Manufacturing? How does it fit into the Utah economy? What is Manufacturing like in Utah? How does Manufacturing relate to technology development? How do Manufacturers improve products? What is the potential for Manufacturing? What should we be doing?

3. What is Manufacturing? Manufacturing is all about “adding value” to raw materials to produce finished goods.

4. Value Added Processing Trash Shredded Plastic Trash, $0.12/lb Added Value Finished Goods, $0.50/lb Processing Equipment Manufacturing works in rural Utah

5. How does it fit into the economy?

6. Let’s first look at what elementsmake up the Economy? • The entire economy is made up of 20 “Industry Sectors” or NAICS Codes(North American Industrial Classification System). • These 20 Industry Sectors are grouped into 5 major categories: • Material Production • Finished Goods Production • Distribution • Services • Consumers

7. The Flow of Goods & Services in the Economy Consumers Primary Drivers: Food Clothing Shelter Tools Toys Materials Production Finished Goods Production Distribution Service Providers

8. Manufacturing is Key to Economic Viability! Materials Production Finished Goods Production Distribution Consumers ? Service Providers

9. Materials are not consumed locally. Distribution Consumers Materials Production Service Providers

10. No warehousing or shipping of Utah finished goods. Consumers Distribution Materials Production Service Providers

11. Substantial reduction in demand for services Consumers Distribution Materials Production Service Providers

12. No sector to commercialization of R&D, to employ scientists, engineers and technicians or to produce exports. Consumers Exports Distribution Materials Production ? Service Providers (including R&D technologies)

13. This is the Economy we need to sustain & grow Materials Production Finished Goods Production Distribution Consumers Service Providers Manufacturing is key to economic viability!

14. What is Manufacturing like in Utah?

15. Manufacturing is the largest in the State and 3 Times the Average Mfg Education Health Science Retail Unclassified Finance Const Whole Trans Waste Travel Info Mgt Other Real Mining Utility Rec Ag Source: State of Utah, Workforce Services, 2009 15

16. Wages for Utah Largest Sectors(4 of 20 Sectors with over 100,000 employees) $3,962 Mfg. $3,103 Health Care $2,692 Ed. $2,111 Retail Trade 16 $3,962/$2,635=1.50 Source: Workforce Services, 2009

17. Manufacturing wages are 115% of the state’s average of all other 19 industry sectors! Manufacturing 115% Average 100% Source: State of Utah, Workforce Services 2009

18. Manufacturing creates nearly twice as many secondary jobs as the service industry 258 147 100 Mfg 100 Serv Source: BLS, 2009

19. Manufactured Products Account for 85% of all Utah Patents! Manufactured Products Software & IT Products 19 Source: Stoel Rives 2007 Report

20. Utah’s Private Sector Accounts for 96%of all Utah Patents! Private 96% Public 4% 20 Source: Stoel Rives

21. Manufactured Goods Account for 85% of all Utah Exports! Manufactured Goods All Other Sectors 21

22. NAICS Codes and Titles Summary11 Agriculture, Forestry, Fishing and Hunting 12521 Mining 4422 Utilities 1923 Construction 6931-33 Manufacturing 74342 Wholesale Trade 16144-45 Retail Trade 16348-49 Transportation and Warehousing 12851 Information 8252 Finance and Insurance 8553 Real Estate and Rental and Leasing 5154 Professional, Scientific, and Technical Services 9155 Management of Companies and Enterprises 556 Admin/Support/Waste Mgt & Remediation Ser. 8361 Educational Services 3662 Healthcare and Social Assistance 8771 Arts, Entertainment, and Recreation 5772 Accommodation and Food Services 3381 Other Services (except Public Administration) 9392 Public Administration 66 2221

23. Utah’s Manufacturing Sector is NOTBig Business 58% 16% 14% 6% 5% 1% 88% have less than 50 employees, 58% have 10 employees or less Only 34 of Utah’s 3,900+ manufacturers have 500 or more employees 23

24. How does Manufacturing relate to technology development?

25. What Must Manufacturer’s Provide to Customers to Remain Sustainably Competitive? • A Product That Uniquely Meets Customer Needs • A Product Delivered Now • A Product with Increased Value (More Functionality and/or Less Costs)

26. How does Manufacturing relate to Technology Deployment? • The technology must be appealing to the companies clients • The technology must help the product uniquely meet the clients need • The technology must support timely delivery of the product • The technology must add value and functionality or be more cost effective • The company must have the necessary resources to take advantage on the technology

27. New Technology does not Automatically Result in Economic Development

28. GAMBIT & FAST Program Components TCOs 16% Federal R&D Budget ~$150 Bn Software & Internet cos. Consumer Demand Research Institutions I.P. (new tech & innovation) (75% unlicensed inventory) (25%) licensed 3,000 large manufacturers 84% 300,000 Small Manufacturing Enterprises (SMEs) Match Needs GAMBIT Market Needs Available Technologies

29. Rapid New Product Deployment

30. Rapid New Product Deployment How will we incorporate new technologies into new products If we don’t have a critical mass in manufacturing in Utah?

31. …OR Partner with strength Brand Name Status Which will you choose? Inventory & Suppliers Strategic Partners Loyal, Experienced Workforce Established Sales Team Sufficient Financing Start from scratch… Viable Markets Business Plan Management Team 2 Ways to Commercialize Technology

32. How do they compare? Technology Licensing Options 1 - License to large corporations 2 - Start up a new enterprise 3 - License to small companies

33. How do they compare?

34. How do they compare? *MEP area of major contribution

35. How do Manufacturers improve products?

37. Ice Tray Parts & Processes

39. Old Design 56 Parts 213 Processes Cost ~ $ 3.00 New Design 1 Part 1 Process Cost $ 0.09 Ice Cube Tray

42. Technology & Hi-Tech Companies • New Technologiesgo into New Products. • Products are the Output of Manufacturers • Manufacturers are Our Hi-Tech Companies… not Banks, not Insurance Companies, not Real Estate Firms, Not Hotels, Not Food Service, not retail stores, etc. Manufacturers are Our Hi-Tech Companies!

43. What is the potential for Manufacturing?

44. Problem: Declining Mfg Jobs Percentage DECLINE in Utah Manufacturing Employment 12.4% (% of all Utah non-farm employment) 12.50 12.25 12.00 11.75 11.50 11.25 11.00 10.75 10.50 10.25 10.00 9.75 9.50 9.25 9.00 % of Utah Total Employment 8.9% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Sources: U.S. BLS, Historical Data by State, http://data.bls.gov/PDQ/servlet/SurveyOutput Utah DWS, http://jobs.utah.gov/opencms/wi/pubs/une/employment.pdf, thru 12/09

45. GOAL: 12.6% of Non-Farm Workforce Total Mfg Jobs Lost 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 13.0 12.5 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 0 / 0 10 / 5K 20 / 10K 30 / 15K 40 / 20K 50 / 25K 60 / 30K 70 / 35K 80 / 40K 90/ 45K 100/ 50K 110/ 55K 120 130 140 150 160 8.7% Mfg % of Total Utah Workforce -49,015 jobs -$157.4 million State Income Tax $ Lost Job & Tax Loss: Another View

46. Manufacturers Out Of Business Each Year The average number of employee per manufacturer in the is 32.9. Even if you assume only half that, i.e. 16 employees per manufacturer, there are over 7,000 manufacturing employees are displaced annually and over 65,000 in the past 9 years, not including 2009.

50. What should we be doing?