Hoosier manufacturers cite workforce shortages, global competition, anti-growth policies as pessimism grows in 2015 Indiana Manufacturing Survey

Katz, Sapper & Miller's annual survey is authored by IU Kelley School of Business experts in partnership with Conexus Indiana, Indiana Manufacturers Association

  • Oct. 8, 2015


INDIANAPOLIS -- Katz, Sapper & Miller released its annual Indiana Manufacturing Survey Oct. 6 in collaboration with the Indiana University Kelley School of Business. This year's survey, again authored and analyzed by Steve Jones and Mark Frohlich of the Kelley School's Indianapolis campus, reveals growing discontent among the industrial employers that supply hundreds of thousands of Hoosier jobs.

Katz, Sapper & Miller and the Kelley School of Business partner with the Indiana Manufacturers Association and Conexus Indiana to reach hundreds of employers for the statewide survey. Respondents range from small machine shops to global conglomerates representing automotive, aerospace, industrial equipment and other sectors, including high-tech and medical products. 

The questionnaire again asked participants to rate their overall financial performance, from "healthy" to "challenged." From 2009 to 2014, as Indiana recovered from the national recession, "healthy" responses more than doubled from 23 percent to 47 percent, while "challenged" dropped nearly two-thirds. Regarding their current situation, however, "healthy" responses dropped to 38 percent, and "challenged" rose 10 percent, to 27 percent.

"The post-recession bounce is over for many manufacturers, and they feel suddenly besieged by burdens -- government regulation, rising energy costs, skill shortages and global competition," said Steve Jones, an associate professor of finance and chair of Kelley's Evening MBA program, who co-authored the survey.

"Most of these aren't new or short-term challenges," Jones noted. "But they gain urgency when economic momentum slows. As margins shrink, pessimism grows; 63 percent of Indiana manufacturers don’t believe that U.S. manufacturing will ever again lead the world."

This stark outlook from the most manufacturing-intensive state in the nation is unsurprising in context with other key findings from the 2015 survey.

The Public Sector -- Manufacturing Hurdles?

The downbeat attitude about global competitiveness comes even as a higher percentage of respondents reported exporting than in 2014.  A strong majority believe that Indiana policies are mostly supportive of manufacturing (81 percent agreeing), but government overall is viewed with skepticism and singled out for criticism: 

  • While the state of Indiana receives generally high marks, 88 percent think the federal government is not doing a good job of supporting the sector. 
  • Roughly one in four find both Indiana and national policymakers unsupportive of manufacturing; only one in 10 see state and federal governments both doing a "good job" with industry.
  • Companies are concerned about the corporate tax structure (85 percent rate it as extremely or somewhat important, slightly higher than 2014) and are still grappling with health care costs and regulations (92 percent).
  • Manufacturers are also troubled by environmental mandates: Three related issues -- energy-efficiency standards, environmental regulation, and specific efforts to curb carbon emissions -- were rated extremely/somewhat important by more than 80 percent.

"Manufacturers actually see better prospects for market growth than they did last year," noted Mark Frohlich, an associate professor of operations management at Kelley Indianapolis and survey co-author. "But they're less confident in their ability to turn opportunities into sales, and they tend to view government as an impediment rather than a partner."

Perhaps the biggest failing employers find with the broader public sector -- including educators and workforce agencies -- is its inability to provide a job-ready labor force.

Workforce -- a 'Talent Tax' on Indiana Manufacturing

The shortage of skilled workers has been consistently recognized as a top challenge facing Indiana's manufacturing sector -- and the situation seems even more critical in 2015:

  • The biggest reported shortages were in skilled production workers, production support, scientists and design engineers; 70 percent of respondents identified a moderate or severe shortage of skilled production workers.
  • All of these were ranked more serious than in 2014. Despite widespread consensus on the issue's importance and promising partnerships among state government, post-secondary and vocational education and industry groups, the workforce pipeline isn’t yet meeting the demands of manufacturers today.
  • To compensate for workforce shortages, most employers are resorting to overtime for existing workers (75 percent of respondents) and relying on internal training programs to prepare new employees (79 percent).

"Paying overtime and investing in their own training programs is a costly burden for companies that already fear shrinking margins," noted Jones. "It amounts to a 'talent tax' on Indiana's most critical industry, imposed by the state's failure to prepare more Hoosiers to take on today's high-skill, high-tech manufacturing jobs."

Finding a Winning Strategy

Indiana's "skill gap" is especially troubling given the emphasis on superior product design, quality and on-demand logistics as the way to build a stronger business.  Asked about factors that were "extremely important" to winning new business, 50 percent listed "product quality" (with another 26 percent adding "product design"), and 44 percent named "fast/reliable delivery" as a top priority.  Only 21 percent identified "lower selling prices."

"It's positive for Indiana's economy that our manufacturers are focused on quality and service instead of competing on cost," said Jason Patch, chair of Katz, Sapper & Miller's Manufacturing & Distribution Services Group. "But that strategy takes access to talent and infrastructure as part of a pro-growth business climate."

Patch added that the number of survey participants planning to open a new Indiana facility in the next year dropped nearly in half from 2014 -- from 20 percent to just 11 percent.  "Just like the manufacturers in our survey, Indiana can’t just be the lowest-cost state," he said. "We have to deliver higher value in terms of workers, supply-chain capabilities and more. If we don't, others will be quick to fill the gap."

Download the full 2015 Indiana Manufacturing Survey report here.

About Katz, Sapper & Miller

As one of the top 65 CPA firms in the nation, Katz, Sapper & Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has more than 300 employees and is headquartered in Indianapolis, Ind., with offices in Fort Wayne, Ind., and New York. Katz, Sapper & Miller was named one of the "Best of the Best" accounting firms in the nation by INSIDE Public Accounting magazine and has been recognized by the Indiana Chamber of Commerce as one of the "Best Places to Work in Indiana." The firm is an independent member of PrimeGlobal, a global association of independent accounting firms.

About the Kelley School of Business Indianapolis

The Indiana University Kelley School of Business has been a leader in American business education for more than 90 years. With over 105,000 living alumni and an enrollment of nearly 9,500 students across two campuses and online, the Kelley School is among the premier business schools in the country. Kelley Indianapolis, based on the IUPUI campus, is home to a full-time undergraduate program and four graduate programs, including master's degrees in accounting and taxation, the Business of Medicine MBA for physicians, and the Evening MBA, which is ranked 12th in the country by U.S. News & World Report and No. 1 in academic quality by Bloomberg Businessweek.

About the Indiana Manufacturers Association

Formed in 1901, the Indiana Manufacturers Association is the second-oldest manufacturers' association in the country and the only trade association in Indiana that exclusively focuses on manufacturing. The Indiana Manufacturers Association is dedicated to advocating for a business climate that creates, protects and promotes quality manufacturing jobs in Indiana. Indiana is one of the top manufacturing states in America in the wealth and jobs created, sustained and supported. More than 50 percent of all employment in Indiana has some connection to manufacturing.

About Conexus Indiana

Launched by the Central Indiana Corporate Partnership, Conexus Indiana is the state's advanced manufacturing and logistics initiative, dedicated to making Indiana a global leader. Conexus is focused on strategic priorities like workforce development, creating new industry partnerships, and promoting Indiana's advantages in manufacturing and logistics.


Richard Schneider
Jennifer Moore
Chris Watts