Survey Benchmarks Northeastern PA Manufacturer Challenges Against National Peer Group

By Eric Joseph Esoda, CPA, NEPIRC Executive Director

A recent survey of manufacturing leaders performed by NEPIRC, the nationwide Manufacturing Extension Partnership program and the international market research firm of Turner Marketing identified some interesting differences between how northeastern Pennsylvania manufacturers, 125 of which participated in the survey, and over 8,000 of their non-regional peers perceive, prioritize and plan to react to their largest business challenges of 2012.

As part of the survey, manufacturers were asked to identify their top business challenges from a list of nine possible responses. Respondents were free to identify as many as three challenges from among the list, resulting in percentage responses that exceeded 100%. The aggregated responses of northeastern Pennsylvania manufacturers were compared to those of more than 8,100 similarly-sized manufacturers from across the United States for purposes of this report. Table 1-A below summarizes regional and national survey responses.

Similar to their nationwide counterparts, northeastern Pennsylvania manufacturers placed the performance of ongoing continuous improvement activities and the identification of profitable business growth opportunities as their top business concerns going into 2012. However, the two groups interchanged their respective third and fourth most prominent business challenges, and by considerable percentage differences. While only 28% of non-regional manufacturers selected employee recruitment and retention as one of their top challenges for 2012, placing it fourth among their overall list, manufacturers within northeastern Pennsylvania ranked that challenge as their third most pressing business concern, with four out of every ten companies placing it on their worry list. Conversely, while 46% of the overall study group identified new product innovation and development as a strategic difficulty, only 38% of regional manufacturers had a similar response.

The regional manufacturer prioritization of workforce development concerns over those of new product development initiatives, while concerning to say the least, is not surprising based upon the information we’ve been receiving from our clients. There are several factors that contribute to this prioritization, including the emerging Marcellus Shale industry within the region, the overall composition of the area’s manufacturing base, and manufacturer past experiences with new product development, which have not always been positive.

While the growth of the Marcellus Shale industry within northeastern Pennsylvania has had many dramatic positive impacts, companies within that industry tend to employ individuals who have skills very similar to those needed by the manufacturing sector, including welders, maintenance technicians, quality managers and experienced supervisors. This has created further shortages in an already strained supply chain of qualified manufacturing employee candidate. As a result, attracting and retaining good employees is of high concern to our region’s manufacturers.  
 
Northeastern Pennsylvania is also home to many production facilities of larger corporations, where maximizing output is the key to their long-term viability, not the introduction of new products. While northeastern Pennsylvania based companies such as Fabri-Kal, General Dynamics, Medico Industries, Hitachi Metals, Del Monte Pet Products, Dial Corporation and others may have the autonomy and flexibility needed to perform the research and development (R&D), testing and market research required to successfully introduce new products, such capability and focus is more the exception than the norm. Many other regional companies operate primarily as Department of Defense contractors and, therefore, do not place strategic emphasis on new product development. As a consequence, new product innovation is not high on their priority list. Nonetheless, all of these manufacturers need to at least have some practical system of identifying new product ideas and quickly evaluating their likelihood of market success.

Lastly, regional manufacturer past experiences with new product development may have created a survey bias against the strategic prioritization of innovation. In the past, manufacturers have struggled with new product innovations, often citing informal new product development processes, a clunky Stage-Gate-like innovation process, lack of sufficient market research resources and even the Design & Development component of their Quality Management System as barriers to successful product development and launch. Today, however, low-risk, non-capital-intensive innovation systems such as Innovation Engineering, JumpStart, the National Innovation Marketplace and others are available to help manufacturers minimize their new product development downsides and maximize their potential benefits.   

While both the northeastern Pennsylvania manufacturer group and non-regional respondents placed sustainability initiatives as their fifth most common strategic challenge, that is where the similarities ended, as the challenges that ranked sixth through ninth differed among the groups. The most notable differences were in the prioritization of technology needs and supply chain management initiatives.

Nearly 20% of northeastern Pennsylvania manufacturers ranked technology needs within their top three challenges, with responses perhaps skewed by the emerging need for upgraded ERP/MRP systems and management (dashboard) software among larger manufacturers and basic website and broadband technology applications within smaller companies. “We routinely see the need for increased information technology-based services, particularly those that leverage cloud technology, broadband availability and the latest in advanced manufacturing software solutions, among our small and mid-sized manufacturer clients” said Paul Olszewski, NEPIRC’s Business & IT Manager.

With respect to supply chain management challenges, northeastern Pennsylvania manufacturers placed that concern at the bottom of their list, with fewer than 10% of companies identifying it as high-ranking priority, as opposed to the nationwide group, nearly 15% of which are focusing on the matter. This is most likely the result of scarce internal resources among regional manufacturers, as companies remain focused on their own immediate business concerns and do not look out into the periphery to consider how production inefficiencies, location concentration and logistics problems within their supply chains are impacting their businesses. Over the past year, however, we’ve seen how regional, national and even overseas natural disasters can greatly disrupt existing supply chains. Therefore, the internal focus we’re seeing among manufacturers, while understandable, needs to be expanded to include at least first-tier or sole-source suppliers.

Overall, the survey concluded that northeastern Pennsylvania manufacturers’ top strategic challenges fairly evenly represent three critical areas – cost containment and control; top-line growth; and workforce. NEPIRC and its 58 other national affiliates will use this valuable information to develop, deploy and implement solutions that small and mid-sized manufacturers can count on to respond to those challenges and thereby preserve and grow their bottom-line results.