Newsmakers’ Forum panelists (l-r) Susan Van Weelden, director of community engagement and economic development for Elgin Community College; Glen Komperda, regional business sales manager for Harris N.A.; Dan Klaras, president of Assurance Agency; Dan DesRochers, vice president and general manager of Elgin Sweeper Company; and Jerry Lopatka, managing principal of Dugan & Lopatka.
The largest issue for area manufacturers is filling the void of skilled workers in their facilities. Yet a host of other issues, many of which are the result of the ongoing recession, still have Illinois manufacturing in a bind.
A group of experts outlined these topics and more at The Business Ledger’s Newsmakers’ Forum on manufacturing, held at Elgin Community College (ECC). One panelist, Susan Van Weelden, director of community engagement and economic development for ECC, sees Illinois’ extensive manufacturing base making a comeback.
“I’ve visited about 12 manufacturers in the past 12 months, and I’m happy to report that those 12 are in the hiring mode or preparing to hire,” she said. “I asked Pam McDonough, head of her own construction company and CEO of the Alliance for Illinois Manufacturing, and she is starting to feel cautiously optimistic.
“She reports Chicago-area manufacturers rank second nationally in the number of manufacturing companies. No other metro area can compare to the Chicago area’s diverse manufacturing base. The regional gross manufacturing product for the Chicago area is $59 billion.”
Dan DesRochers, vice president and general manager of Elgin Sweeper Company, a subsidiary of Federal Signal Corporation in Oak Brook, is seeing manufacturing recover at different stages.
“I would characterize the environment that we’re experience as fairly funny as far as recovery,” he said. “About a third of manufacturers are experiencing significant recovery. Another third is cautious. Another third are still languishing and not making a profit.
“Large equipment manufacturers like Caterpillar are returning people to work. Even within Federal Signal, our divisions are at a different level of success depending on customer base. If your customer base is primarily municipal, obviously you are down. If you’re an industrialist provider like power plants and refineries, then your business is booming. Those companies are now investing in buying equipment. It’s quite a broad perspective.”
Jerry Lopatka, principal of Wheaton-based tax firm Dugan & Lopatka, believes a manufacturer’s success is based on what it is making and who it is selling to.
“When people ask me how manufacturers are doing, I think of three things. One, what are they making? Two, who are they selling to? Three, where is their product going? If you answer those three things, you’ll get a better sense of how the manufacturing company is doing.
“I look at someone who makes plastics like a consumer staple, that’s a commodity so that’s pretty stable. You have things like smart phones that also have plastics in them. If your customer that you are selling to is in this marketplace, you’re probably doing very well. It depends on what you’re making and who you’re selling it to in terms of industries and where is it going.
“One of our most successful manufacturing companies is going to have a record year, both top line and bottom line. Their margins are phenomenal. But where is their product going? Ninety to 95 percent are going overseas. Most is going to South America; some of it is going to the Pacific Rim. But only 5-10 percent are going here in the U.S.”
As a result of the recession, many manufacturers have had to utilize cost-cutting measures just to survive the downturn.
“In 2008 and 2009 we’ve seen revenue drop across the board for our client base,” said Glen Komperda, regional business sales manager for Harris Bank. “So without that top-line revenue our clients had to focus on controlling costs. Some of our clients weren’t quick enough in cutting labor. A lot were slow to respond in reducing the labor force which led to additional hardship.
“My clients went through, line item by line item, with their accountants trying to find out, where can we reduce additional costs? How can we become more efficient? What technologies are out there to make me more profitable? Because in this new world, they don’t know when they will get back to the revenue levels they saw in 2007 and 2008.
“So we’ve seen a real focus on where they can reduce overhead and expenses. That’s a real creative solution, one they wouldn’t have had to do before. They were never forced to control the costs they’re controlling today given this economic downturn.”
DesRochers’ company has not only focused on cutting costs, but also redevelopment.
“Our company had our first layoff in 27 years,” he said. “We’ve seen two years of flat revenue while other companies are recovering. So you face a very serious issue. It is important to focus on retention. What are you doing for the people you retained?
“You’ve done all the overhead cuts, now the focus is on product redesign and it’s not as simple as going to a supplier and asking for a reduction. That’s dumb. So we have to re-evaluate the product. You can’t stop developing new products. We added 20 percent to our engineering group to refocus. You can’t go on for this long of a period just controlling expenses.”
Yet getting those products made can be a daunting task when there is a shortage of skilled labor.
“It’s ironic that, even with unemployment where it’s at, we often have a hard time hiring the right people,” DesRochers added. “There’s a shortage of skilled labor.”
Van Weelden believes area community colleges and workforce boards are taking the right steps to address this problem.
“I sit on the Kane, Kendall, DeKalb boards and we are given proposals and administer about $18 million in federal funding,” she said. “We are given proposals by different agencies. Their point is to better train people in the workforce and those going into the workforce and we scrutinize those proposals and get the most bang for our buck. The country has a system of workforce investment boards. There is money for resources there.
“We have a state-of-the-art industrial training center here at ECC and we are continually adding new equipment and new programs. Students learn in the labs that are stocked with tools and resources used in the workplace. They learn the skills and behaviors in demand with area employers. Our Illinois small business development centers, procurement technical assistance centers and international trade centers offer a wealth of assistance and resources, much of it free for area manufacturers.”
As these issues are addressed and remedied, what can an employer that has been able to fill those positions do to make sure those workers are not over-qualified or have a track record of workers’ compensation problems?
“What we try to push from a risk management standpoint is that not only do you have to have a qualified employee, but you need one that does not cost you more money in the long run via workers’ comp, medical claim issues, etc.,” said Dan Klaras, president of Assurance Agency. “Be strong on the front end, both in the application process, but also asking the right questions. Make sure their background check and reference checks involve former employers. Do the drug testing, etc.
“Usually you’ll get the best qualified candidate, yet with today’s increase in unemployment, you’ll have to assume there will be more workers with those historical problems because they tend to be the first laid off. You could be taking on someone else’s issues.”
Manufacturers are also dealing with an extremely tight lending environment.
“Take a look at lending relationships going back 20 years; they’ve changed dramatically from the standpoint of the level of detail we require to access the opportunity,” Komperda said. “If banks are looking to finance and offering working capital, or building acquisition money, guidelines are very different from two to three years.
“The Chicago area is the most-banked area in the country. It’s less today. Three years ago I had people telling me, ‘Look, I have three other banks that can take you out of this deal.’ Today it is a very different story.”
Because of the economy, bankers have changed their lending requirements, he said.
“Now we are into strong balance sheets and strong cash flow. You need to be able to support the opportunity you’re presenting to your banker. In the past, because of so many banks in the Chicago area, there was such easy capital that a lot of opportunities were financed that traditionally would not have been so. We are going back to the basics. If you have a strong business model, strong cash flow, those are what we’re looking at today.”
The impact of health care reform will be felt over the next five years, meaning manufacturers must begin looking at ways to reduce their health-related expenses, said Klaras.
“The real positive that I see out of the health care reform that will be critical for manufacturers is hopefully we all understand that we have to get our arms around wellness in our businesses,” he said. “We have to get our arms around consumerism for our employees, meaning that they really understand the medical dollars when they’re making choices when going into a medical facility and how they enter there, whether it’s the emergency room or through a regular appointment. I’m hoping this bill, with all its flaws, really gets us down that path.”
Wellness programs will be a big part of Elgin Sweeper Company’s initiatives going forward, said DesRochers.
“About a year ago, Federal Signal enacted a wellness program for its employees and offered them a $100-per-month savings on their health insurance co-pay. We had 80 percent participation,” he said. “We should have done this five years ago.
“The reality is, as we sit here today, next year’s health care costs for each of our divisions will be up 20 percent. We will have to bear those ourselves and not be able to pass those along to our customers. Wellness programs are key; unfortunately many companies have not started soon enough.”