By Jim Damicis, Senior Vice President, Camoin Associates; Christa Franzi, Senior Economic Development Specialist, Camoin Associates; Ian Flatt, Economic Development Analyst, Camoin Associates
Despite transformations within the industry, including outsourcing and automation, manufacturing is alive and well in the United States. Over the past several decades, the industry has shed jobs, devastating communities and regions that relied on these employers to provide well paid employment. However, even as the industry was cutting jobs over this period, manufacturing output and productivity were increasing dramatically, representing new investments in technology and skilled workers. Recently, the rate of job loss has begun to decrease and the manufacturing sector is projected to add jobs over the next several years. In regions across the country, gains in the manufacturing sector have been an important part of the economic recovery.
Despite its diminished employment footprint, the manufacturing industry continues to be a major driver of economic output in the US.
The sector is closely tied to research and development (R&D), innovation, technology, and exports and typically pays higher wages than other sectors, further driving the economy. In recent years, American manufacturing has been undergoing what some have called a renaissance, capitalizing on a range of new opportunities:
- The declining price of computer power allows small companies to be players in the global market;
- 3D printing makes small-batch, custom manufacturing possible, allowing smaller companies to compete and grow;
- Technology is creating new opportunities in niche manufacturing sectors that are at cross sections of manufacturing and other industry
- sectors such as advanced materials and composites, nanotechnology, and bio-related and biotech manufacturing.
- On-shoring and near-shoring, driven by:
- – Increasing labor costs in China;
- – Reduced value of the U.S. dollar;
- – Cost of transportation and logistics to get products to end users;
- – Increases in American oil and natural gas production, which has led to:
- Increasing demand for machinery and chemicals
- Declining energy costs in the U.S.
5. Lack of quality control and intellectual property protection in other markets
While these opportunities and trends apply to the manufacturing industry as a whole, the effects are particularly profound for advanced manufacturing.
What is Advanced Manufacturing?
Advanced manufacturing brings to mind certain buzz words: cutting edge, innovation, value-added, customization, emerging technology, skilled workforce…and so on. Conceptually, it seems obvious; we can picture what advanced manufacturing is. The challenge comes when attempting to create a definition and delineate between traditional and advanced manufacturing. Whether trying to track the advanced manufacturing industry nationally or at a regional scale, a consistent and clear definition is needed.
The Science and Technology Institute, a federally funded research and development center, assembled a summary of some advanced manufacturing definitions that have been proposed by experts. These definitions are outlined in brief below:(1)
New Manufacturing Industries. Based on what is being produced, this definition focuses on new and emerging industries such as aerospace and bio-manufacturing (the manufacturing arm of the biotechnology industry) as opposed to “traditional” manufacturing such as steel, automotive, or machinery.
Use of New Methods for Manufacturing. This definition includes industries that develop newer and better products through the use of advanced production technologies. Paul Fowler of the National Council for Advanced Manufacturing explains that under this definition, advanced manufacturers use computer, high precision, and information technology combined with a skilled workforce.
Sustaining the Cutting Edge. Another definition offered by some experts is the rapid transfer of science and technology into manufacturing processes and products. Today’s digital economy allows competitors to quickly adopt new products, replacing the current cutting-edge technology. Therefore, to remain a front-runner, the time from research and development to production must be reduced.
Manufacturing Frontier. This definition contrasts with those that distinguish between traditional and advanced manufacturing, noting that technological advancements and innovation take place in both well-established and emerging industries and apply to both existing and new products. This viewpoint presents a dynamic non-definition as businesses strive to achieve and maintain a competitive advantage. As the “frontier” continually changes, so does what comprises advanced manufacturing.
Some believe that the range of definitions for advanced manufacturing has contributed to years of underinvestment in US manufacturing by both the public and private sectors, noting that, “without strong agreement about what advanced manufacturing means, we’ve over-valued some segments of the manufacturing sector and under-valued others.” 2
Taking into account the definitions above, the 2011 report to the President, Ensuring American Leadership in Advanced Manufacturing, and the 2012 report, Capturing Domestic Competitive Advantage in Advanced Manufacturing, prepared by Presidents’ Council of Advisors on Science and Technology offer a comprehensive definition:
“Advanced Manufacturing is a family of activities that (a) depend on the use and coordination of information, automation, computation, software, sensing, and networking, and/or (b) make use of cutting edge materials and emerging capabilities enabled by the physical and biological sciences, for example nanotechnology, chemistry, and biology. This involves both new ways to manufacture existing products, and especially the manufacture of new products emerging from new advanced technologies.” 3
“Advanced Manufacturing is not limited to emerging technologies; rather, it is composed of efficient, productive, highly integrated, tightly-controlled processes across a spectrum of globally-competitive U.S. manufacturers and suppliers. For advanced manufacturing to accelerate and thrive in the United States, it will require the active participation of communities, educators, workers, and businesses, as well as Federal, State, and local governments.” 4 What is the difference between typical and advanced manufacturing? In today’s rapidly shifting global economy, is there a difference anymore? Any given manufacturer is not likely to align perfectly with a single definition. The chart below summarizes how the manufacturing environment is changing in key areas.
Table Source: Research by Camoin Associates, Presentation by Robert M. Ady to the International Economic Development Council, September 18, 2011.
Throughout the country, localities, regions, and states have defined advanced manufacturing for their community using the North American Industry Classification System (NAICS) codes. Defining the cluster in this way enables economic developers and policymakers to track changes in the industry and analyze trends. Because this report is looking at the advanced manufacturing cluster at the national level, a broad definition that includes 124 of the 364 manufacturing NAICS codes at the 6-digit level was used.6 The list of NAICS codes used by the New Jersey Department of Labor and Workforce Development in several recent reports was relied upon heavily for this report, however, chemical manufacturing codes were removed to make the definition more applicable to the nation as a whole.
Several caveats should be mentioned when defining advanced manufacturing using NAICS codes. First, every region and state will have a different definition of advanced manufacturing, depending on the types of manufacturing businesses in the area. For example, paper manufacturers in a certain region may be using advanced techniques while companies manufacturing the same goods in a different area may not. Second, two businesses in the same NAICS code could be using different methods of production, making one considered “advanced” and the other “conventional.” Third, definitions can change. A technological revolution in an industry sector could transform it from being considered “conventional” to “advanced.” Conversely, an industry sector may lose its edge and no longer be considered an advanced manufacturer.
This definition based on NAICS codes was created for the purpose of analyzing data and observing trends. States and regions should consider the characteristics of manufacturers in their area to determine how advanced manufacturing should be defined and tracked.
Communities will need to tailor this definition to their economy, eliminating some NAICS codes and adding others.
Employment, Occupations, and Earnings based on 2014 data:
All data in this section sourced from Economic Modeling Specialists, Inc. (EMSI), Complete Employment, 2014.3 Based on the data in the tables below, it is clear why advanced manufacturing has been top of mind for economic developers and policy makers across the country. The wages are high, the sector proved to be more resilient than manufacturing as whole through the recession, and the growth prospects are strong. The advanced manufacturing sector is expected to grow five times faster than the manufacturing industry as a whole over the next ten years.
The manufacturing industry generally provides higher than average wages to its employees. The wages of advanced manufacturing employees, however, are even higher, with average wages in advanced manufacturing 13 percent higher than wages in the manufacturing industry as a whole and 48 percent higher than the average wage for all industries in the U.S.
According to the data used in this report, advanced manufacturers also have a higher average number of employees per establishment than other manufacturers and all industries. However, this average masks the broad range of sizes of advanced manufacturing establishments. While there are some advanced manufacturing industries, such as aircraft manufacturing with an average of 324 employees, that require economies of scale to operate successfully, many other sectors have much lower averages. Advanced manufacturers can range from large operations with hundreds of employees to much smaller operations that employ a handful of highly-skilled people.
In 2014, the top five largest manufacturing sectors were:
- Machine Shops
- Aircraft Manufacturing
- Semiconductor and Related Device Manufacturing
- Other Vehicle Parts Manufacturing
- Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing
In terms of absolute growth (number of jobs), over the next 10 years, leading sectors are expected to be:
- Machine Shops
- Sheet Metal Work Manufacturing
- Motor Vehicle Seating and Interior Trim Manufacturing
- Other Motor Vehicle Parts Manufacturing
- Fabricated Structural Metal Manufacturing
In terms of fastest growing sectors (percentage growth) over the next 10 years leading industries are expected to be:
- Blank Magnetic and Optical Recording Media Manufacturing
- Motor Vehicle Seating and Interior Trim Manufacturing
- Printed Circuit Assembly (Electronic Assembly) Manufacturing
- Plate Work Manufacturing
- Industrial and Commercial Fan and Blower and Air Purification Equipment Manufacturing
What this Means for Economic Developers?
The manufacturing environment is changing rapidly, therefore economic development approaches must be adapted to enable manufacturing to thrive and grow in local and regional economies. New strategies will have to be implemented and updated as the needs of this industry sector change. As advanced manufacturers constantly evolve to remain on the cutting edge, so too must the strategies of communities and economic developers working with them.
One of the most important drivers for advanced manufacturing businesses is the availability of a skilled workforce. In some industries, workers can be trained to perform duties on the job. Generally, advanced manufacturing is not one of those industries. The integration of technology and advanced machinery diminishes the need for “unskilled” workers and increases the reliance on workers with the sophisticated skills required to operate the equipment. Advanced manufacturing training courses and programs in community colleges, technical schools, and even K-12 education systems are essential to supporting growth in the advanced manufacturing sector.
Advanced manufacturers rely on a strong regional economic and education institutions. Crucial components of an advanced manufacturing establishment are sophisticated supply chains and distribution systems, reliable technological and industrial infrastructure, and research and development. Few individual communities can supply all of these needs, requiring broad cross border and cross regional collaboration. Engaged higher education institutions, particularly those with strong engineering programs, are another pillar of a successful advanced manufacturing ecosystem. By providing access to a steady pipeline of skilled graduates and new research and development, colleges and universities have been integral to growing the advanced manufacturing industry in regions and states across the country.
The specific skills required of advanced manufacturing employees also make employee recruitment important to some sectors. A community’s attractiveness to outsiders, with desired amenities and a high quality of life, are important as advanced manufacturers recruit talent that cannot be hired locally.
Most regions and communities will not be a fit for all advanced manufacturing sectors, however, by knowing and understanding your strengths and the requirements of businesses in these sectors, new opportunities in the wide-range of advanced manufacturing sectors can be capitalized on. To do so it is important to recognize that success is not just about one business or a group of business. You must consider the regional ecosystem – develop partnerships and initiatives.
- Workforce – Education/training organizations – aligning with existing and future needs
- R&D/Innovation Institutions
- Industry/Trade Associations
- Supply Chain
And finally, don’t discount small business – not all advanced manufacturing is large.
A Community to Watch: The City of Allentown, PA is embarking on an exciting journey. Originally developed around heavy industries such as iron and machinery, Allentown and the surrounding Lehigh Valley region have a diverse manufacturing economy that is spread over many sectors. As the City and its partners work to prepare for a future in advanced manufacturing, it is clear that this community “gets” that collaboration is vital for success.
Through its re-industrialization initiative, the City is executing a collaborative approach to retaining and growing its advanced manufacturing industry. Embracing the mantra “we’re a manufacturing city in a manufacturing region,” Allentown’s inter-disciplinary initiative includes strategies to connect the economic development community, strengthen the workforce, re-awaken the built environment, educate the real estate community about urban manufacturing opportunities, and capture the energy of the entrepreneurial, innovation-based companies. This initiative is bringing together economic developers, educators and training providers, land use planners, real estate professionals, business leaders, and public officials all focused on supporting advanced manufacturing in a challenging urban environment.
Thank you to:
We’d like to thank Janet Ady for kindly providing us with slides prepared and presented by the late Robert Ady of ADY International Company.
1 White Papers on Advanced Manufacturing Questions, Science and Technology Institute, 2010, http://www.whitehouse.gov/sites/default/files/microsites/ostp/advanced-manuf-papers.pdf.
2 Patricia Panchak, “The Manufacturer's Agenda: Why We Need a Better Definition of 'Advanced Manufacturing'”, Industry Week, 2012, http://www.industryweek.com/leadership/manufacturers-agenda-why-we-need-better-definition-advanced-manufacturing.
3 Report to the President on Ensuring American Leadership in Advanced Manufacturing, President’s Council of Advisors on Science and Technology, 2011, http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-advanced-manufacturing-june2011.pdf.
4 Report to the President on Capturing Domestic Competitive Advantage in Advanced Manufacturing, President’s Council of Advisors on Science and Technology, 2012, http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast_amp_steering_committee_report_final_july_17_2012.pdf.
5 Additive Manufacturing Categories Processes and Materials, Advanced Manufacturing CRC, 2012, http://amcrc.com.au/wp-content/uploads/2013/03/ADDITIVE-MANUFACTURING-CATEGORIES-PROCESSES.pdf.
6 See attached table for a full list of manufacturing NAICS codes used in this report