Ferey Feridian’s excellent column this week on the potential of automation to transform U.S. manufacturing also underscores the gap in the rate of adoption between small and large manufacturers and the “uneven rates of digitization across sectors,” referenced by Feridian that we read about each week. It’s a big deal: Ensuring that small companies are tethered to productivity gains will determine whether America’s industrial renaissance fulfills the promise Feridian and others envision.

Three regional industries provide three different case studies in how companies are keeping pace, or not.

The West’s dynamic aerospace and aviation sector is earning plaudits not just for the eye-opening accomplishments of its compelling brands, but for manufacturing prowess that’s fueling growth, much if residing in in the supply chains of SpaceX, Boeing, Lockheed, and others. Today it’s evident that contract manufacturers are responding to the promise and certainty of steady work by investing in equipment, in process upgrades and in technology. Yes, OEMs are demanding lower tolerances, tighter deadlines, and better QC, but in the five short years we’ve been profiling jobs shops throughout the West, there’s been tangible productivity improvements. CompanyWeek’s Contract Manufacturing archive speaks for itself.

In Colorado and much of the West food manufacturing is the single fastest growing manufacturing industry, driven by changing consumer tastes and a preference for all things local. The industry has largely kept pace; smaller brands have managed to self-manufacture or tap a network of co-packers to contract manufacture for them. Technology is also playing a role. Digitization is manifest throughout the sector including apps that help small brands find production facilities nearby.

But that may soon change, in large part by a growing labor crisis. In California, a booming artisanal food sector is certain to pressure the state’s ability to locate and house a sufficient manufacturing workforce. Across the West, a ravenous cannabis industry is siphoning off employees, even though many cannabis businesses already are reported as food businesses. And without meaningful immigration reform, labor markets throughout agriculture and food production will get much tighter before they get better for growers and manufacturers.

Automation is already at the center of any long-term solution in food manufacturing. Technology is migrating across industries into food, from advanced production lines to highly automated logistics and distribution solutions available to small brands. But the race is on and the stakes are high for U.S. manufacturing: Will growth in a modern and decentralized food production ecosystem keep pace as labor markets tighten? The worry isn’t that automation will replace human labor; it’s that industry won’t automate fast enough to make up for an acute labor shortage.

The potential to reshore billions of dollars of product manufacturing frames the outdoor industry opportunity, and technology and automation will determine how fast U.S. brands can repatriate production. An industry long defined by cut-and-sew production is poised for a productivity renaissance.

The wait may be long. Unlike aerospace, apparel and outdoor industry OEMs are largely resigned to maintaining operations offshore and investing in technology and automation through international partners. There are outliers. Brands like Nike, Apple, Patagonia, and GE are investing in U.S. production.

But homegrown brands are the domestic manufacturing heroes in this space, and not surprisingly, companies that would benefit most from technology-fueled productivity gains. It’s here that community players in economic development, in government, in trade and education must be more deliberate in incubating and accelerating the prospects for more domestic manufacturing. And for making technology and automation more accessible to promising companies.

Small steps. In Colorado, the Office of Economic Development and International Trade’s Advanced Industries program today includes outdoor industry and consumer product firms in the pool of grant applicants. Cities throughout the region are fostering industry clusters to better recruit and support consumer-facing brands that make things.

Manufacturing’s future is indeed bright, all the better if the sector’s well-heeled brands and community stakeholders embark on a deliberate path to push technology and automation down and sideways — to small businesses and across industries — in a bid to sustain U.S. manufacturing.

Bart Taylor is publisher of CompanyWeek. Reach him at btaylor@companyweek.com.

I’ve been fortunate to participate in CU Leeds’ excellent Colorado Business Economic Outlook the past two years, parsing manufacturing data with capable economists and business stakeholders lined up by Richard Wobbekind’s team at the Business Research Division. The 54th annual Report will be presented December 10 at the Grand Hyatt in Denver.

Here’s a first look at where manufacturing is forecast to end up in 2018 with a peek at ’19, and what the numbers say about the state of Colorado manufacturing as this incredible economic year winds down. (The primary source of the following data is the Colorado Department of Labor and Employment.)

• Manufacturing is growing modestly in 2018 but faster than forecast in the report last year, with total employment expected to rise 2.8% by year’s end to 147,000 jobs, adjusted from a near-flat projection of 1.1%. The initial forward-looking forecast calls for 2% growth in 2019, to roughly 150,000 jobs.
• The 2018 employment numbers are on track to be the highest since 2006, basically reaching pre-Great Recession numbers. But even at that point, manufacturing was on a long and precipitous employment fall, bottoming out in 2010 at 124,000.
• In 2000, manufacturing sustained nearly 188,000 jobs in Colorado, fueled by a lively Computer & Electronics category (recall the technology corridor in Boulder/Broomfield) that alone supported nearly 47,000 employees. Today, Computer & Electronics is enjoying a comeback of sorts in Colorado, growing to 22,500 jobs and forecast to exceed 23,000 total jobs in 2019, second only to food manufacturing as the top manufacturing industry.
• Readers have asked why we feature so many food and beverage companies, and growth in these industries reveals why. Food is today the single largest manufacturing industry in Colorado supporting just over 23,000 jobs. We track the sector as Food & Beverage, and total employment in those two sectors exceeds 30,000.
• Manufacturing industries outpacing the overall sector’s steady but modest growth in 2018 include Transportation Equipment at 2.8% — a category that includes Colorado’s robust aviation and aerospace industries; Beverage and Tobacco manufacturing (not be to confused with cannabis) at 3.6%; and the aforementioned Computer & Electronics sector at 3.6%. Industries that underperformed include Non-metallic Mineral manufacturing, 1.7%; Fabricated Metals, 0.7%; and Printing & Related Services, down 1% in 2018. It seems a strong overall economy is helping print media hold on: a 1% dip seems relatively healthy given the disruptions in media.

Cannabis is the outlier. Chemical Manufacturing has jumped 9.8% to 7550 jobs and is forecast to add another 5% in 2019, growth likely attributable to cannabis manufacturing. Growth in Food Manufacturing may also be benefitting from an influx of cannabis companies.

If cannabis data seems anomalous, so too does the state of industry reporting overall, not just here but across the U.S. Is manufacturing an industry, or a sector? Are energy extraction companies manufacturers? Are companies based here yet manufacture offshore, manufacturers at all? We’ve visited these questions before. In Colorado, it’s also challenging to track apparel brands, medical device manufacturers, and aerospace companies, as employment categories aren’t always a clean fit.

Anomalies aside, the 2018 numbers tell a fascinating story. For starters, while Colorado’s manufacturing standalone contribution is relatively modest (just under $25 billion, or about 7% of state GDP), contrary to a prevalent narrative, it’s growing. Jobs were to have been replaced by automated operations by now. But as CU’s Brian Lewandowski has noted in CompanyWeek, “With the multiplier effect, direct industry activity supports a total of 441,000 jobs in the state, and contributes approximately $47 billion to state GDP.” And only this week, the Economic Development Council of Colorado pointed to a new study and suggested the state is “poised to grow its manufacturing industry.” (Also check out Oregon’s sector — today comprising 20% of the state’s GDP.)

But it’s growth industries here that hold so much promise, not only in leading employment gains, but in redefining the narrative around manufacturing. This is not your grandfather’s sector. Manufacturing today is a mix of disruptive food and beverage brands; of advanced fabrication sending satellites into orbit, fashioning electric motors, and developing the next wave of U.S.-made medical devices and bio-products; and of aspirational brands across the catch-all “Other” category in the language of economists.

It’s also a sector underpinned by a solid foundation — a cadre of welders, benders, and cutters in such high demand that RK, a regional infrastructure giant, today has 300 apprentices in its four-year program, with plans to hire them all. 300!

Underestimated, the manufacturing economy soldiers on.

Bart Taylor is publisher of CompanyWeek. Email him at btaylor@companyweek.com.

I wouldn’t be the first to say that VF Corporation‘s recent decision to move to Colorado was the culmination of one of Governor Hickenlooper’s big missions. He set out to establish his state as an international leader in the powerful new outdoor recreation space, and he’s succeeded, some would say brilliantly.

But even as we gathered last Thursday afternoon for the fifth annual Apparel & Outdoor Industry Manufacturing Summit (here’s a recap), I suggest we pump the brakes on pronouncing the governor’s tenure an unabashed Outdoor Industry success. Early in his second term, the governor traveled to the Interbike conference to announce a $100 million investment in Colorado cycling infrastructure. In the following column from 2015, I made note then of the importance of the initiative, but also cautioned that “recreation” doesn’t necessarily equate to “industry.”

There’s been important progress. That visionary brands and companies are today investing in infrastructure and programs to manufacture more of the tools and toys of OI in Colorado is heartening. We heard from several such players at the Summit in Denver.

But there’s so much more to be done. The next governor of Colorado must help global brands identify a path to bring production home. He must convince bellwether communities like Denver to get off the sidelines, to view OI manufacturing as a corollary to bike trails and ski hills. He must be an evangelist for the new trade — and personally recruit a new generation of young people to design and fabricate a wave of new OI products here in Colorado.

Well done, Governor. We hope Colorado’s next chief executive embraces your mission and develops a worthy successor, one brimming with possibilities of new industry and commerce.

—

From September 22, 2015:

There’s much to like about Gov. John Hickenlooper’s bold pronouncement at the Interbike conference last week to invest $100 million in Colorado cycling infrastructure — trails, bike lanes and interconnectivity. It’s practical and progressive and on the surface it’s a timely and well-aligned economic development strategy. Building on Colorado’s already strong national reputation as a destination for outdoor enthusiasts, Hickenlooper’s making a wise bet that ongoing leadership will translate into an economic windfall.

It’s also expensive, especially relative to money not being spent on roads and highways. But cycling enjoys bipartisan support and not every politician who complains that dollars should instead be spent on roads can stand in Sen. Randy Baumgardner’s shoes. Last year, the Republican from Hot Sulphur Springs introduced a bill to raise $3.5 billion for road projects. (It failed.) Most of Hickenlooper’s opponents have done far less to advance transportation infrastructure funding. The politics fall the governor’s way.

All that said, Hickenlooper’s bold stroke falls just short. Today, the economic benefits of cycling — or skiing, hiking, and other health and fitness industry for that matter — go beyond the number of new trails or urban bike lanes. Hickenlooper missed a chance to make a bigger splash.

A plan that truly taps the economic benefits of cycling would have included a vision to establish Colorado as the new U.S. destination for cycling industry. The seeds of an international-leading sector are here: trailblazing frame, component, clothing and cycling gear brands and entrepreneurs, lifestyle talent to employ and world-class terrain and topography including Colorado’s embarrassment of outdoor riches to support testing and training.

To be fair, the dynamics of manufacturing domestically have to this point been a significant barrier. Outliers like Hanson ski boots notwithstanding, most everything we’ve bought the past generation to ski or hike or ride or wear have been made offshore.

But that’s changing, and in a profound way. Over the past two years we’ve written about dozens of equipment, component and apparel companies making things here and in Utah. The sea change, for those paying attention, is unmistakable: The economics of making in the U.S. have shifted, and those who realize this will birth new industry clusters that transform communities.

It also requires developers to connect the dots and ironically, Hickenlooper’s own economic blueprint is a barrier. Tourism and outdoor recreation are largely disconnected from lifestyle manufacturers. A new Office of Outdoor Recreation was developed last year and could provide a bridge but it’s unclear how the office plans to marry up related sectors into effective outdoor industry clusters.

The governor’s pronouncement was timely and informed. It will benefit from a related industry push that costs less money as it challenges Colorado’s economic development orthodoxy.

Bart Taylor is founder and publisher of CompanyWeek. Reach him at btaylor@companyweek.com.

The story of California’s economic success nearly always comes with a asterisk. Push past the United Kingdom as the fifth largest economy in the world? Suffer the editorial writers at the Orange County Register, who opined, “High-flying California economy faces a hard fall“:

“Despite ushering in revolutionary global change, California’s leading tech companies have concentrated wealth and power in a tiny circle — pushing more and more out of cities and into traffic, and doing little to stop stagnation and social rot below the upper tiers of the economic pyramid.”

Stagnation and social rot?

I get the point, but at the same time, a quiet revolution is shaping the state’s economic fortunes, in a sector that promises growth and progress below the “upper tiers.” California manufacturing is the change agent. Consider:

• In its annual ranking of largest public manufacturing companies released last week, the IW500, IndustryWeek ranked the top 10 manufacturing states, states with the highest number of companies in the top 100. California ranked second to Texas.
• Texas and California are America’s top exporting states as well, no surprise in that manufacturers make exports possible. California exports increased to $171.9 billion in 2018, up 7.3 percent year-over-year and 11.5 percent of the U.S. total in 2018.
• It’s not only the size of the manufacturing sector that sets California apart, it’s the makeup. California’s list of top 10 exports is arguably the most industry-diverse in the lead group, thus more resilient to slowdowns than any state in the top five, led by:
  • Aircraft including engines, parts: $6.5 billion (3.9% of California’s exports)
  • Modems, similar reception/transmission devices: $6.3 billion (3.8%)
  • Diamonds (unmounted): $4.6 billion (2.8%)
  • Shelled almonds: $3.7 billion (2.3%)
  • Machinery for making semiconductors: $3.3 billion (2%)
  • Miscellaneous petroleum oils: $3.1 billion (1.9%)
  • Blood fractions (including antisera): $2.8 billion (1.7%)
  • Cell phones: $2.5 billion (1.5%)
  • Computer parts and accessories: $2.1 billion (1.3%)
  • Spacecraft, satellites, launch vehicles: $2 billion (1.2%)
• California is also riding a wave of reshoring from Asia. The reason is straightforward: Increasingly, it makes economic sense for American companies and consumer brands to bring production back home. And with its nation-leading manufacturing and supply-chain ecosystem, California will be a popular destination. Harry Moser, founder and CEO of Reshoring Initiative, is a leader in measuring and comparing the cost of manufacturing offshore and in the U.S., and the numbers continue to trend in the favor of domestic production. “20 to 25 percent of the roughly $2.2 trillion in goods imported to the U.S. have a higher U.S. FOB price, but a lower total cost of ownership (price plus all logistics, risks and opportunity costs),” Moser says. “Just getting companies to do the total cost of ownership math correctly would result in a 20 percent increase in domestic manufacturing. Call it $400 billion in new goods produced here and two to three million new manufacturing jobs.” It’s a business development bonanza.
• Much of this reshoring will be in industries that favor California manufacturing. But reshoring aside, California’s enjoying organic growth in manufacturing’s high-flying U.S. industries like food and beverage, outdoor industry, aerospace, bioscience, and ag-tech, where high-tech fabricating and advanced manufacturing inform operations. California’s R&D ecosystem is a catalyst.
• SF Made and others are working with early-stage manufacturers to reshape urban areas and incubate and accelerate promising makers and small manufacturing businesses. As with other high-growth regions in the U.S., the seeds of a long-term manufacturing comeback are being planted in California, seeds taking root as we write.

Escaping the negative press seems a challenge for California’s otherwise well-intentioned business leaders. Those charged with managing the Golden State’s economic narrative would do well to rally around manufacturing to redirect the dialogue.

Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek.com.