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Showplace Wood Products employee Clint Struiksma assembles cabinetry at the company's South Dakota manufacturing facility. PHOTO: SHOWPLACE WOOD PRODUCTS

MANUFACTURING: Manufacturing Might

Since 2008, Enterprise Minnesota has been regularly checking the pulse of the state's manufacturing industry by conducting an annual survey of small- to mid-sized manufacturers, asking them to provide the company outlook and explain the issues they are confronting. Bob Kill, president of the nonprofit consulting firm, which serves as Minnesota's affiliate of the federal government's Manufacturing Extension Partnership program, says it is the most in-depth survey of its kind in the nation. This year's survey encompasses the views of 400 manufacturing executives from a cross-section of Minnesota companies. As in previous years, pollsters asked participants to provide input on a variety of topics, including the potential for industry growth, changes in revenue, the federal government budget, work force and recruitment and health care. While the survey includes only Minnesota manufacturers, Kill says the findings could also be applied to the Dakotas and other surrounding states.

Overall, manufacturers in Minnesota reported cautious optimism regarding the current state of the manufacturing industry and expressed more confidence in the financial future of their companies and in the future of the industry compared to the cusp of the recession in 2008, as would be expected.

For the fifth year in a row, Minnesota's manufacturers said health care coverage is the most important issue facing their companies. The majority of survey participants said they expect the problem to get worse before it gets better. More executives also now view health care as a recruitment tool than ever before, although the number of firms reporting that they offer some type of wellness or health management program is on the decline. Only 30 percent of participating firms offered those types of benefits this year, compared to 31 percent last year and 34 percent in 2011.

Kill noted this year's forecast is a more gray outlook than previous years because several of the factors contributing to the overall outlook are outside of the industry's control. For example, this year, for the first time ever, uncertainty surrounding the federal budget and taxes shared the top spot with health care as the No. 1 concern among survey participants. Concern over the ability to attract and retain employees also continues to increase, growing from 14 percent in 2011 to around 30 percent today.

Dave Thomas, CEO of Detroit Lakes, Minn.-based control products manufacturing firm SJE Rhombus says his company is experiencing a situation similar to what is reflected in the State of Manufacturing report. While business for the company has increased somewhat this year and is expected to continue to increase in coming years, his outlook for the industry is cautiously optimistic. "We see it as being stronger than it's been, but certainly not the best of times," he says. "We're very happy with our progress. We're happy with how the markets are developing. But there's still some headwinds that we're battling in terms of economic uncertainty, health care cost uncertainty and government spending uncertainty."

SJE Rhombus employs approximately 400 people companywide, and about half of them work at the company's headquarters in Detroit Lakes. Thomas says workforce recruitment is always a concern, but the company boasts strong employee retention, which he credits to the company being employee owned and to efforts made to ensure workplace pride. He agrees that rising health care costs and the impacts of the Affordable Care Act are major concerns and says the company is still evaluating how to deal with anticipated changes.

Paul Sova, president and chief operating officer of Harrisburg, S.D.-based cabinet maker Showplace Wood Products, says his company is also continuing to evaluate how best to handle health care changes in coming years. The company has so far absorbed increases in health care costs, but it's unclear how long that trend can continue. He estimates that fees and taxes associated with the implementation of the Affordable Care Act next year will cost Showplace $100,000. But while some companies are opting to drop health care plans for employees as costs increase, Sova says that is not an option Showplace is willing to entertain. "We believe, especially in this environment, as competitive as it is, that to get people to come to work we need to offer benefits that are top flight and we will continue to do that," he says.

Among the benefits Showplace offers are an on-site fitness center and regular visits from a physician's assistant to provide checkups for company employees and their children. The company is also 100 percent employee owned. Still, Sova says workforce recruitment and retention continues to be a challenge for all light manufacturers in South Dakota, due to the state's overall low unemployment rates and aging population. The company has been growing for the past three years, however, and has added 64 employees since the beginning of this year as it responds to increased customer demand. About 430 employees now work at the company's two manufacturing facilities in Harrisburg and Beresford, S.D.

Sova notes that inflation and foreign imports are also of particular concern for cabinet manufacturers and will be ongoing issues for that sector of the industry. He believes inflated wood costs may be alleviated somewhat as supply catches up with demand post-recession, but he is wary about cheaply priced, foreign-made cabinets entering the U.S. market. "That's a growing threat and we are concerned about that," he says, adding that the foreign cabinets generally sell at a lower price point than Showplace products and haven't yet impacted the company's business.

Showplace sells its products throughout the U.S., but maintains its largest presence in the Midwest. The company was impacted somewhat by the recession and has been recovering for the past few years, growing at a rate of between 6 and 8 percent. Sova anticipates continued growth at Showplace as the housing market continues to improve and as consumers gain more confidence and are willing to spend money on renovations in their existing homes. In the short term, Sova says Showplace is more optimistic about the second half of 2013 than it has been about the second half of the past few years, based upon strong outlooks for housing starts and remodeling. "That's really contrary to what we have seen in the past three years, where the second half has been a bit of a disappointment in cabinet building and American housing," he says. "We believe this year things are different. The dynamics are better and our business is going to be stronger. We're bullish about the remainder of this year and next year."

Housing starts also strongly impact the business of West Fargo, N.D.-based Bobcat Co. and are a major factor in the equipment manufacturer's tempered outlook. "Things are certainly better than they were, but there's still a sea climb to get back to where they were," says Laura Ness Owens, communications director.

Bobcat currently employs about 2,000 people at locations throughout North Dakota. The company restructured in 2009 and closed its Bismarck, N.D., manufacturing facility, but it has since restrengthened its presence in the state's capitol and has experienced growth at all of its locations. "We have continued to rebuild our business and we now are producing a majority of our attachments in Bismarck in our former product manufacturing facility," Ness Owens says. The company currently employs more than 600 people in Bismarck, up from a low point of about 250 a few years ago. About 50 new employees have been added there in the past year as the company prepares to open its Acceleration Center next summer. The facility will serve as a research and development facility where the company's brightest minds can collaborate on new product design and testing, which Ness Owens says will help the company maintain its reputation as being a leader in innovation. "We've hung our hat on innovation for many years and as our company has grown it has spread out," she says. "We know that if we bring those minds together we can do even more."

As with other manufacturers, a number of factors play into Bobcat's challenge of finding and retaining skilled workers. However, in Bismarck particularly, Bobcat must also compete with oil and gas-related jobs, which presents a significant, but not insurmountable challenge, she says. To compete, Bobcat works closely with area universities to recruit new workers and will continue to build its reputation as being a good place to work.

Looking ahead, Ness Owens also expresses cautious optimism and points to a strong agriculture industry, improved housing reports and strong sales numbers as positive growth indicators for the company. "In terms of our business, we've seen some good solid growth over the last couple of years," she says. "We're comfortable with the growth that we've seen and we're certainly busy, but there's always opportunity." PB

Kris Bevill

Editor, Prairie Business