Manufacturing in Waterloo Region

Dynamic and in Need of Talent -

Manufacturing in Waterloo Region

Project funds provided by:

This report was compiled by Diane Soucie, Net Success Inc. and Paul Knafelc, Community Benchmarks Inc.

This project funded in part by:

The full technical report is available on www.workforceplanningboard.com

Table of Contents Summary Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Manufacturing Employment Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Manufacturing Businesses as a Percentage of All Businesses . . . . . . . . . . . . . . . . . . . . . . 6 Industry Employment Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Labour Market Demand in Waterloo Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Growth Within a Shaky Global Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 New Materials, Processes and Digitization of Manufacturing . . . . . . . . . . . . . . . . . . . . 12 Conclusion and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Dynamic and in Need of Talent Manufacturing in Waterloo Region

List of Tables Table Title

Page

1

Manufacturing Sector Employment (3 Month Moving Average) Kitchener CMA –2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2

Manufacturing Businesses as a Percentage of All Businesses By Employee Size Range - Kitchener CMA - 2012 . . . . . . . . . . . . . . . . . . . . . . . . . 6

3

Manufacturing Businesses as a Percentage of All Businesses By Revenue Range - Kitchener CMA - 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4

Demographics of Manufacturers in Waterloo Region Contacted in August and September 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

5

Direct and Indirect Manufacturing Positions Filled in Waterloo Region in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Waterloo Region Manufacturing Study - November 2012

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Summary Report Introduction The Manufacturing Sector of Waterloo Region, built on the innovative practices of centuries of skilled craftspeople combined with an unwavering spirit of entrepreneurialism, has always been important to the economy of Waterloo Region.

The intent of this research is to examine both the significance and labour skill requirements of the Manufacturing Sector in Waterloo Region through the review of statistical data as well as by interviewing representatives of a cross-section of manufacturing enterprises, industry associations and educators in the Waterloo Region.

The Manufacturing Sector in Waterloo Region is the backbone of the local economy. While the sector did not escape the impact of the global recession, indicators demonstrate that Manufacturing is an important generator of revenue and by far the Region’s most important employment sector, exceeding the Retail Trade Sector and Wholesale Trade Sector combined by over 9,000 jobs. However, skills shortages threaten the momentum of growth. A constricted labour market supply is inhibiting expansion within existing markets like automotive, aerospace, communications and electronics as well as emerging Manufacturing opportunities in ship-building, mining and oil and gas production.

Despite the significant loss of businesses and jobs from 2008 to 2011, manufacturing employment has rebounded sharply. The annual average number of people employed in Waterloo Region’s Manufacturing Sector in 2011 was 50,800 down from 61,600 a decade earlier. However, 2012 monthly numbers from the Labour Force Survey reveal significant linear increases with employment surpassing 59,000 in each of June, July, August and September.

In 2011, the Manufacturing Sector employment represented 18.4 percent of total Regional employment, compared to 11.8 percent in Ontario. This stark difference points to Waterloo’s unique manufacturing attributes and ability to adapt. Over the June, July, August, September and October 2012 period manufacturing employment in the Region surpassed 20 percent of total employment.

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Waterloo Region Manufacturing Study - November 2012

While Waterloo Region’s manufacturing businesses accounted for less than 5 percent of the total number of businesses (June 2012), they represent a disproportionately large share of all businesses with more than 10 employees.

They also account for a large share of businesses with revenue exceeding $2,000,000.

Waterloo Region has a highly diversified Manufacturing Sector that is international in scope and operating in 21 different 3-digit industries as defined by the North American Classification System (NAICS). At the more detailed 6-digit level of the NAICS, manufacturers can be found in 199 different industries.

The Region’s 3-digit industries all retracted between 2008 and 2011. In fact, 207 businesses were lost over this time period. Over the December 2011 to June 2012 period, however, many industries have seen the number of businesses and employment levels stabilize.

Several other 3-digit Manufacturing industries added both businesses and employment, with the Electrical Equipment, Appliance and Component Manufacturing Industry (NAICS 335) experiencing the greatest growth.

Not only does the data point to recovery, but published reports support a developing resurgence within the Manufacturing Sector. For example, Scotiabank’s Global Auto Report, released October 4, 2012, points to an increase of 8 percent year over year in July and August 2012 in the automotive sales globally and 6 percent for the same time period in Canada.1 This growth is reflected locally where Toyota Canada has added 400 employees at both their Woodstock and Cambridge manufacturing facilities generating direct opportunities and significant spin-off job creation in the automotive parts manufacturing industry.2 Growth in aerospace and an announcement that frigates valued over $30 billion will be manufactured in Canada over the next 25 to 30 years has generated optimism that opportunities for manufacturing in Ontario will result.

Manufacturing is an important generator of revenue and by far the Region’s most important employment sector

Canadian Manufacturers and Exporters (CME) confirms the need for skilled workers across a wide spectrum of manufacturing functions stating, “Our members agree that the number one challenge they face is finding qualified and available labour to fill positions, including management, general labour and skilled labour. As major projects like shipbuilding, oil and gas, nuclear and hydro-electricity, mining, as well as manufacturing and exporting continue to develop across Canada, the need for skilled workers should only rise”.3

1 http://www.gbm.scotiabank.com/English/bns_econ/bns_auto.pdf 2 Toyota adding 400 jobs (The Record, Mar 28 2012) and Toyota to expand Cambridge plant (The Globe and Mail, Jul 24, 2012) 3 Mathew Wilson, Canadian Manufacturers and Exporters, http://www.cme-mec.ca/?action=show&lid=JCKNC-E742G1W6JA&comaction=show&cid=429ET-ZAA45-VBWZG

Waterloo Region Manufacturing Study - November 2012

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Waterloo Region employers we spoke to substantiate this increased activity locally, confirming that they have filled dozens of occupations in 2012 ranging from entry-level to highly skilled engineering opportunities including machine operators, welders, skilled trades, robotic technicians, software developers, designers and manufacturing engineers. Job creation also took place in supporting occupations like finance, logistics, export compliance, procurement and human resources.

However, immediate skills shortages are appearing that threaten sustained growth in Waterloo Region’s Manufacturing Sector. Employers used words like “desperate” and “critical” to describe shortages of welders, vertical and horizontal bore machinists, computerized numerical control (CNC) lathe and mill operators, robotic technicians and design engineers. Millwrights, electricians, maintenance mechanics, and process machine operators are in short supply. Employers are concerned about the ability of the Waterloo Region labour market to supply required expertise including skilled trades, designers, software development, optics, mechanical and industrial engineering.

The impact of the manufacturing skills shortage in Waterloo Region is being recognized nationally as a result of a study conducted by Canadian Manufacturing to assess the sector’s outlook in 2012.

Finding skilled workers was identified as a key concern for manufacturing companies, particularly in the Technology Triangle of Kitchener, Waterloo and Cambridge, Ontario.

Companies indicated that they are focused on not only attracting skilled workers, but on retaining them.4 Not only are employers identifying immediate labour market shortages, educators are very concerned with increasingly low enrollment in skilled trades and advanced technology post-secondary programming. Administrators at Conestoga College report that they are not able to satisfy the demand for skilled Manufacturing workers while, at the same time, they are experiencing difficulty filling Manufacturing programs. A Pressure Systems Welding post-graduate diploma program at Conestoga College was suspended due to lack of enrollment and the feasibility of offering pending machining programs in 2013 is now in question. Conestoga College is not alone in this dilemma; five of the twelve Ontario community colleges that played a leadership role in manufacturing training since 2002 have completely discontinued their programming since 2009 and one other college is compressing five individual manufacturing programs into one. Leaders at Conestoga College emphasized the need to market the potential for employment and career advancement available in manufacturing to students, parents, teachers and guidance counsellors.

4 Canadian Manufacturing, PLANT Magazine, 2011, www.canadianmanufacturing.com

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Waterloo Region Manufacturing Study - November 2012

The challenge of attracting people into manufacturing is made even greater as both the media and those in a position to influence youth continue to hold on to an outdated stereotype of manufacturing as a dirty and dangerous work environment where workers do low-skill, low wage and repetitive jobs. Feedback from representatives of the Waterloo Region’s Manufacturing Sector supports industry expert Mike Collins’ view that manufacturers “need people who can operate, maintain, and troubleshoot high tech equipment. Young people need to understand that there is a wide variety of career opportunities including design engineering, production control, purchasing, sales, marketing and general management jobs.

In order to recruit the necessary people, manufacturing really needs to describe opportunities in manufacturing as a career – not just another job”.5

Research Approach The data for this report are drawn from Statistics Canada’s Canadian Business Patterns and Labour Force Survey. It should be noted that the research uses the most current data available. Data for three different time periods – December 2008, December 2011 and June 2012 – are examined.

“High Tech” should not be considered separately from manufacturing.

Manufacturing is “High Tech”.

This study primarily refers to Waterloo Region or the Region, although, the data is for the Kitchener Census Metropolitan Area (CMA). Both Canadian Business Pattern revenue data and Labour Force Survey data is collected at the CMA level (not the Census Division level).

Waterloo Region (Census Division) consists of the cities of Cambridge, Kitchener and Waterloo and the townships of North Dumfries, Wellesley, Wilmot and Woolwich.

The Kitchener CMA consists of the cities of Cambridge, Kitchener and Waterloo and the townships of North Dumfries and Woolwich.

This Summary Report captures key info and recommendations. There is a full technical report available which is comprised of 2 sections. The technical report can be downloaded at www.workforceplanningboard.com.

5

Manufacturing as a Career, Mike Collins, June 13, 2012

Waterloo Region Manufacturing Study - November 2012

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Manufacturing Employment Characteristics TABLE 1

Manufacturing Sector Employment (3-Month Moving Average) Kitchener CMA - 2012 January February March

April

May

June

July

August September

50,200 51,800 54,500 57,600 58,500 59,500 61,400 61,700 59,200 Source: Statistics Canada, Labour Force Survey

Manufacturing Businesses as a Percentage of All Businesses While Manufacturing represents less than 5 percent of all businesses in the Region, they account for a disproportionate share of businesses having over 10 employees. For example, Manufacturing businesses account for 17.4 percent of all business with 50 to 99 employees; 16.9 percent of all businesses with 100 to 199 employees; and, more than 30 percent of all businesses with 200 or more employees. Considering the total business count includes public sector business establishments such as hospitals and educational institutions, the importance of manufacturing as an economic base is evident. Details are presented in Table 2.

TABLE 2

Manufacturing Businesses as a Percentage of All Businesses

By Employee Size Range - Kitchener CMA - 2012 Number of Manufacturing Businesses

by Employee Size Range

Manufacturing Businesses

Owner operated

412

15,460

2.7

1 to 4 employees

298

6,852

4.3

5 to 9 employees

187

2,922

6.4

10 to 19 employees

190

1,970

9.6

20 to 49 employees

174

1,368

12.7

50 to 99 employees

75

430

17.4

100 to 199 employees

35

207

16.9

200 to 499 employees

34

113

30.1

500 or more employees

13

38

34.2

1,418

29,360

4.8

Total Number of Businesses

Source: Statistics Canada, Canadian Business Patterns

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Manufacturing Businesses All as a Percentage of Businesses All Businesses

Waterloo Region Manufacturing Study - November 2012

Similar to the observations above, the proportion of manufacturing businesses compared to all business is skewed by revenue range. While representing less than 5 percent of all businesses, manufacturing businesses represent 22.2 percent of those with revenue exceeding $50,000,000 and 14.0 percent of all businesses with revenue between $10,000,000 and $49,900,000. The importance of the Region’s Manufacturing Sector cannot be emphasized enough, considering this revenue data shows the extent of the financial flow into an area (Table 3).

TABLE 3

Manufacturing Businesses as a Percentage of All Businesses

By Revenue Size Range - Kitchener CMA - 2012

Manufacturing

Businesses

Manufacturing Businesses All as a Percentage of Businesses All Businesses

$0 to $99,000

365

13,655

2.7

$100,000 to $499,000

375

8,895

4.2

$500,000 to $1,900,000

280

4,230

6.6

$2,000,000 to $9,900,000

225

1,890

11.9

$10,000,000 to $49,900,000

80

570

14.0

> $50,000,000

30

135

22.2

29,360

4.6

Total

1,355 *

Source: Statistics Canada, Canadian Business Patterns *Does not sum to actual value due to rounding

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Industry Employment Growth (December 2011 to June 2012) Salient observations (inferred) regarding industry employment growth are provided below. Industries showing the most significant employment growth are highlighted below.

Even though the Food Manufacturing Industry saw the total number of businesses decline from 90 in 2008 to 82 in 2011 and to 77 in 2012 its likely employment increased between 2011 and 2012. While the number of businesses continued to decline in three employee size ranges, the addition of businesses in 20 to 49, 100 to 199 and the 200 to 499 employee size ranges (500 plus range remained the same) would have created more jobs than lost in other employee size ranges.

The Leather and Allied Product Industry (NAICS 316) maintained nine businesses over all three time periods the number of businesses with over 50 employees increased from one to two businesses.

The Wood Product Manufacturing Industry (NAICS 321) rebounded between 2011 and 2012 with the addition of 4 businesses; key to this change was the addition of a business in each of the 10 to 19 and 20 to 49 employee size ranges.

The Machinery Manufacturing Industry (NAICS 333) experienced a drastic loss of business between 2008 and 2011 but rebounded over the 2011 and 2012 time period. Even though owner operated business continue to decline by seven businesses, significant gains were made in five employee size ranges with the 100 to 199 employee size range, the largest, boasted an increase of 2 businesses.

The Electrical Equipment, Appliance and Component Manufacturing Industry (NAICS 335) showed definite signs of growth between 2011 and 2012 gaining or maintaining businesses in all employee size ranges except the 5 to 9 employee size range. There is no doubt that the number of people employed increased substantially over the short time frame.

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Waterloo Region Manufacturing Study - November 2012

The table below shows the demographics of local manufacturing companies contacted during August and September 2012.

TABLE 4

Demographics of Manufacturers in Waterloo Region Contacted in August and September 2012

No. of Percent Primary Manufacturing Sector Employees Hourly Located Head- Customer Employees In quartered Base Aerospace

130 33% Kitchener Canada Global

Automation America

140

67%

Cambridge

Cambridge

North

Automotive Parts

150

67%

Waterloo

Germany

North America

Automotive Parts

215

67%

Kitchener

Germany

Global

Construction Equipment

30

70%

Kitchener

Kitchener

Canada

Consumer Products

40

80%

Cambridge

Germany

North America

Defense Equipment

100

65%

Kitchener

U.S.A.

North America

32

65%

Kitchener

Kitchener

North America

450

85%

Cambridge

Cambridge

North America

75

70%

Waterloo

Waterloo

North America

Transportation

400

75%

Kitchener

Kitchener

North America

Transportation

220

67%

Kitchener

Kitchener

North America

Vision Technology

750

30%

Kitchener

U.S.A.

Global

Vision Technology

330

20%

Waterloo

U.S.A.

Global

Fasteners Food Processing Furniture

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Labour Market Demand in Waterloo Region The manufacturers we contacted provide a snapshot of the extent and variety of hiring activity conducted in Waterloo Region. Table 5 identifies a collection of positions filled in 2012 ranging from low-skill, entry-level to highly skilled engineering professionals as well as indirect support functions.

TABLE 5

Direct and Indirect Manufacturing Positions Filled in Waterloo Region in 2012 Entry Level / Semi-Skilled

Skilled Trades

Post-Secondary Professions

Assembly / Production Apprentice Electrician Continuous Improvement Technicians General Labourers

Apprentice Millwright

Design Engineers

Machine Operators

Computerized Numerical Control Machinist (Mill and Lathe)

Electrical Engineers

Polishers

General Machinists

Electronic Engineers

Press Operators Millwright

Industrial Engineering Technicians and Technologists

Plating Staff

Manufacturing Engineering Technician and Technologists

Toll and Cutter Grinder

Mechanical Optics Engineers

Toolmakers

Process Engineer

Welders

Quality Technicians

Robotics Technicians

Software Developers

Manufacturing Support Functions Entry Level / Semi-Skilled

Skilled Trades

Post-Secondary Professions

Customer Service

Account Manager

Janitorial

Accounting Analyst

Shipper Receiver

Controller

Export Compliance

Human Resources

Information Technology

Logistics Coordinator

Marketing Procurement

10

Project Managers

Transformation Specialist

Waterloo Region Manufacturing Study - November 2012

With the exception of entry level jobs, employers indicated that the occupations being filled were either newly created or were replacements for positions eliminated between 2008 and 2010. Also, with the exception of low-skill, entry level occupations, staff turnover has been negligible.

In every case, employers were either integrating new technologies to enhance productivity or were in the process of making planning and purchase decisions. In all cases, employers believed that their existing employees would be able to meet the new skill requirements of the enhanced technology with the support of in-house training. It should be noted, however, that those employers who were at a more advanced stage of introducing new technology were “surprised” that the process was more difficult than anticipated. One employer pointed to the need for a cultural shift within their facility toward a “profitability partnership” in order to more efficiently embrace technological change.

The “greening” of industry had only marginal impact on the human resource requirements of the companies we spoke to. In only one case did a company report job creation in order to meet ISO 14000 environmental standards. Most often, companies were expanding the duties of existing positions to meet their corporate mandate for environmental stewardship.

Growth Within a Shaky Global Economy The manufacturing sector in Waterloo Region produces a diverse range of products and services with companies operating within international supply chains. They are, therefore, not immune to global economic uncertainty. In their 2012 Outlook, the Canadian Manufacturing publication, PLANT summarized challenges faced by the Manufacturing Sector as a shaky European economy, supply chains disrupted by natural disasters, a slow U.S. economy, “Buy American” protectionism, a Canadian dollar approaching or surpassing parity with the U.S., skill shortages and aggressive global competition.6

employers were either integrating new technologies to enhance productivity or were in the process of making planning and purchase decisions.

Despite these challenges, manufacturing continues a recovery led by the auto industry.

Strengthening motor vehicle sales in the United States and Canada has resulted in a 19 percent increase in the assembly of light vehicles in 2012. The Conference Board of Canada in their Industry Highlights (August 2012), cautiously projected that: • Motor vehicle parts production will grow by almost 15 per cent in 2012.

• Aerospace is expected to grow by almost 7 percent in 2012 after three years of declining or stagnant production. Strong demand for aircraft in emerging countries combined with expectations for sustained recovery in the United States is projected to boost production by more than 3 per cent annually over the next four years.

• Wood and Furniture industries will grow by 8 percent and 3.3 percent respectively thanks to a pent up demand in the U.S. housing market.7

6 7

Business Outlook: 2012, Canadian PLANT Magazine, 2011, www.canadianmanufacturing.com Conference Board of Canada, Industry Highlights, August 2012

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New Materials, Processes and Digitization of Manufacturing Waterloo Region also has a long history of innovation and entrepreneurship and local companies are quickly adopting exciting advances in manufacturing processes and materials. In April 2012, the Economist featured a number of articles on the future of manufacturing, describing it as a convergence of “clever software, novel materials, more dexterous robots, new processes (notably three-dimensional printing) and a whole range of web-based services”. The digitization of manufacturing, they contend, will allow the production of smaller batches of products tailored to individual customer’s requirements.

New materials like carbon fiber which is now replacing steel and aluminum will be lighter, stronger and more durable; the internet is facilitating collaboration on new products as well as entry into the sector by small start-ups. As a result, the next generation of manufacturing jobs is just as likely to be located in an office tower populated by designers, engineers, IT specialists, logistics experts, and marketing staff as it is on the factory floor.8 Today’s manufacturing environment make the sector an exciting place to work and do business. There is no denying the region has faced challenges over the past four years, however, Waterloo Region’s manufacturers continue to be committed to building their businesses as they innovate, invest and add value.

8

12

The Third Industrial Revolution, The Economist, April 21, 2012

Waterloo Region Manufacturing Study - November 2012

Conclusion and Recommendations Local and global advances highlight Manufacturing as a sector embracing fast-paced technology change; collaborative streamlined processes; new materials; integrated automation; and shifting global supply chains. Feedback from employers and the statistical data reveals a Manufacturing Sector that is tremendously important to the Waterloo Region economy constrained by a skills shortage that puts growth at risk. To address these threats, we recommend that: When referring to the Manufacturing Sector, professionals in business and education including economic development officers, should not inadvertently contribute to the negative image of manufacturing by distinguishing between “Manufacturing” and “Advanced Manufacturing”. All manufacturing in Canada in 2012 incorporates technology and is “Advanced”. Similarly, reference to “High Tech” should not be considered separately from manufacturing. Manufacturing is “High Tech”.

Economic Development Offices throughout Waterloo Region should develop or re-visit strategies to support manufacturing growth within their municipality.

Workforce Planning Board of Waterloo Wellington Dufferin, School Boards, Conestoga College and other workforce development organizations collaborate to develop, implement and support Science, Technology, Engineering Mathematics (S.T.E.M.) initiatives.

Manufacturing Sector that is tremendously important to the Waterloo Region economy constrained by a skills shortage that puts growth at risk.

Workforce Planning Board of Waterloo Wellington Dufferin, School Boards, Conestoga College and other workforce development organizations collaborate to develop and implement strategies to strengthen secondary school administration, guidance counselors, teachers and parents understanding of the breadth of opportunities and the working environment within today’s manufacturing operation.

The province of Ontario examine the abandonment of manufacturing training and education by Ontario colleges encouraging and supporting each college’s steps to reinstate training to meet current and projected demand in the manufacturing sector.

The Manufacturing employers in Waterloo Region contribute and participate in strategies developed by educators and advocates to strengthen the Manufacturing sector’s labour market supply including apprenticeship training.

Manufacturing sector employers utilize the Manufacturers Innovation Network as a centralized place to promote employment opportunities to job seekers while promoting the sector to the broader community.

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The Workforce Planning Board of Waterloo Wellington Dufferin incorporated in 1997 is one of twenty-five local board planning zones in Ontario contracted by Ontario’s Ministry of Training, Colleges and Universities to facilitate labour market planning and workforce development initiatives at the local level.

Report compiled by: Diane Soucie, Net Success Inc. and Paul Knafelc, Community Benchmarks Inc.

Workforce Planning Board of Waterloo Wellington Dufferin 218 Boida Avenue, Unit 5 Ayr, ON N0B 1E0 Telephone: 519-622-7122 Fax: 519-622-7260 www.workforceplanningboard.com