1 May 17, 2012 Next Generation Manufacturing - Study of US Based Small Manufacturers Delivering Customer Value and Sustainable Profits in an Uncertain Economy

2 May 17, 2012 US Mfg sector is largest in our the economy and provides good paying jobs for millions of people – 36% higher than service sector, Mfg faces challenges – declining employment due to significant (2.5 times) productivity gains; shift away from products to services and imports has led to declines in employment – 1/3 of job losses in manufacturing in 10 years Future looks good in certain industries such as bio, wind, nano, aerospace, autos… State of Manufacturing: Executive Summary Source: A FRAMEWORK FOR REVITALIZING AMERICAN MANUFACTURING, Office of The President of the United States, Dec 2009

3 May 17, 2012 Benefits to society – innovation, higher pay and benefits, career path Total Cost drives location choices Environmental impact creates responsibilities and opportunities Productivity growth is essential for maintaining high wages US total mfg costs are competitive in certain sectors State of Manufacturing: Executive Summary Source: A FRAMEWORK FOR REVITALIZING AMERICAN MANUFACTURING, Office of The President of the United States, Dec 2009

4 May 17, 2012 Note:Overall Pennsylvania is the sixth largest manufacturing state in the U.S. Comparison to Peer States

5 May 17, 2012 Every manufacturer is under pressure Will recovery hold — or stall? Will we be able to find the workforce we need? Will we be able to meet increasing regulatory pressures? Will we be able to control costs? Will we be competitive tomorrow? Next year? Macro- Issues Facing Manufacturers

6 May 17, 2012 Workforce and talent management: – Deficit of workers with critical skills (machinists, welders, technicians Key management practices, such as strategic planning, cultural transformations, and lean manufacturing Continuous improvement and employee involvement, using incentive compensation New product development Lack of access to capital Information technology using the internet and social media Supply chain management, being caught in the middle between suppliers and customers Opportunities for favorable policies and programs in taxes, regulations and economic development and workforce investments. Source:Pennsylvania’s True Commonwealth – The State of Manufacturing, Challenges and Opportunities, Released February 2011 Firm Level Issues Facing Manufacturers

7 May 17, 2012 To compete in 2015, manufacturers must implement six core strategies

8 May 17, Customer-focused innovation Develop, make, and market new products and services that meet customers’ needs at a pace faster than the competition. 2. Human capital Secure a competitive performance advantage by having superior systems in place to recruit, hire, develop, and retain talent. 3. Superior process/improvement Record annual productivity/quality gains that exceed the competition through a companywide commitment to continuous improvement. Six core NGM strategies

9 May 17, Supply-chain management Develop and manage supply chains and partnerships that provide flexibility, response time, and delivery performance that exceeds the competition. 5. Sustainability Design and implement waste and energy-use reductions at a level that provides superior cost performance and recognizable customer value. 6. Global engagement Secure business advantages by having people, partnerships, and systems in place capable of engaging global markets and talents better than the competition. Six core NGM strategies

10 May 17, 2012 The Next Generation Manufacturing (NGM) Study was developed to define the strategies necessary for world-class performance and success into the next generation. Over 3,300 manufacturers across the U.S. responded to the 2009 and 2011 NGM Studies, conducted by The Manufacturing Performance Institute and ASMC, actively supported by MEP organizations across the country. The NGM Study assessed awareness of strategies, progress in implementing best practices to support NGM strategies, and success in achieving NGM operational and financial goals. About the NGM Study

11 May 17, 2012 Who are America’s manufacturers? Small: NGM Study manufacturers report annual revenues of $12 million (median) and approximately $196.5 million (average), and full-time employees of 60 (median) and 595 (average). Established: In operation for 36 years (median) and 44 years (average). Privately held: A majority of manufacturers participating in the 2011 NGM Study (87%) are privately held companies.

12 May 17, 2012 Four out of five U.S. manufacturers were profitable in their most recent fiscal year... Less than $10 million in revenue $10 million to $99 million in revenue $100 million or more in revenue

13 May 17, but stark contrasts remain... The NGM Study establishes aggressive thresholds for assessing superior performance levels within each of the six categories. 10% of firms report value-added per employee of greater than $175,000. Yet 40% of firms report value-added per employee of less than $75,000.

14 May 17, even as investments lag. Spend less than 5% of sales on capital equipment Spend less than 5% of sales on IT

15 May 17, % of U.S. manufacturers may have a change in leadership in the next 5 years

16 May 17, 2012 Most manufacturers recognize the importance of NGM strategies... Superior process improvement (86% of manufacturers rated it “highly important” or “important”) and customer-focused innovation (85%) are the most important strategies among manufacturers over the next 5 years. Sustainability’s importance increased by 24 percentage points since the 2009 NGM Study.

17 May 17, but face serious “execution gaps” NGM Execution Gaps are the differences between the number of firms that recognize the importance of a particular NGM strategy and the number of firms near or at world-class status in that strategy. For example: 72% of manufacturers believe supply-chain management is important or highly important but only 29% of manufacturers are near or at world-class status in supply-chain management.

18 May 17, 2012 Rate your organization’s progress toward world-class status: (rated 4 or 5 on a scale of 1–5 where 5= world-class) Execution gaps threaten U.S. competitiveness Customer- focused innovation Process improvement Human- capital management Supply-chain management SustainabilityGlobal engagement

19 May 17, 2012 Why?

20 May 17, % have business systems and equipment that limit growth... Business systems and equipment to support customer- focused innovation

21 May 17, and lack skilled talent to reach world-class status Sufficient leadership and talent and a development program is in place at just 25% of U.S. manufacturers for process improvement (the highest percentage among any of the six strategies). A majority of firms report “insufficient talent” and/or lack development programs to grow leadership and talent.

22 May 17, 2012 Many U.S. manufacturers have NO strategy to get better No human-capital strategy No sustainability strategy No global-engagement strategy What best describes your strategy?

23 May 17, 2012 Small manufacturers are falling behind — in supply chain... Small Manufacturers (less than $10 million in revenues) Large Manufacturers ($100 million or more revenues) Near or at world-class supply-chain management

24 May 17, in talent and skills development... Small Manufacturers (less than $10 million in revenues) Large Manufacturers ($100 million or more revenues) Sufficient talent and skills-development programs to drive world-class human-capital management

25 May 17, and in systems and equipment to support global engagement. Small Manufacturers (less than $10 million in revenues) Large Manufacturers ($100 million or more revenues) Business systems and equipment able to support current requirements for global engagement

26 May 17, 2012 U.S. manufacturers look for help beyond their own walls Manufacturers large and small routinely seek external support from outside organizations. A majority of manufacturers report their organizations have been positively impacted by: – Industry associations – State manufacturing associations (including Manufacturing Extension Partnerships); and – Consulting firms.

27 May 17, 2012 Manufacturers seek support Regulatory/ compliance issues Operations improvements Workforce skills development Strategic planning Innovation/ R&D Business development

28 May 17, 2012 Is there a path forward?

29 May 17, 2012 Become globally competitive Manufacturers at or near world-class status for NGM strategies do three things differently than manufacturers furthest from world-class: – They invest more time and effort into that particular NGM strategy. – They manage differently, implementing best practices at far higher rates. – They outperform manufacturers furthest from world-class on a wide array of operational and financial metrics.

30 May 17, 2012 How will U.S. manufacturers get to the Next Generation?

31 May 17, 2012 Strategic Partnership Services

32 May 17, 2012 Petra Mitchell President and CEO Catalyst Connection For More Information