““Challenges Facing Challenges Facing Manitoba Manitoba

ManufacturersManufacturers””

Presented by:CME – Manitoba DivisionTony van Rosmalen, Vice-PresidentOctober 6, 2006APEGM Professional Development

We cannot afford to We cannot afford to be complacent about be complacent about manufacturing in manufacturing in CanadaCanada

Some Scary Thoughts Some Scary Thoughts ……The Canadian dollar has appreciated in value by 50% over the past three years.

Canadian manufacturers have lost 15% of US market share since 2003 – mainly to China.

Canadian manufacturers export less than 5 days production a year to China and our manufactured exports to China fell last year by 20%.

Manufacturing productivity in Canada is 20% lower than in the United States.

The value of technology in place across Canada’s manufacturing sector has dropped by 5% since 2000.

Over 700 manufacturing firms closed in 2005.

Employment in Canadian manufacturing has dropped by 200,000 overthe past two years – and will fall by at least 100,000 in 2006 – but labour shortages are blocking growth in Western Canada.

Your competitor is only a mouse-click away on your customer’s computer.

TodayToday’’s Presentation:s Presentation:

An overview of CMEManufacturing in Canada and in ManitobaThe Issues and ChallengesActions & OpportunitiesRecommendations - Call to Action

Canadian Manufacturers & ExportersCanadian Manufacturers & Exporters

Represents the interests of Canadian business, at both the national and provincial levels

First established more than 130 years ago

Members include Canada's leading businesses engaged in manufacturing and in the export of goods and services.

Members represent 75% of the country's manufacturing output and 90% of exports.

80% of members are small and mid-sized

Canadian Manufacturers & ExportersCanadian Manufacturers & Exporters

CME’s Mission:To continuously improve the competitiveness of Canadian industry and to expand export business.

Achieved through:Effective advocacy Information, programs and support Opportunities for networking and professional growth.Promoting advanced technology.

The Importance The Importance of Manufacturing in Canadaof Manufacturing in Canada

Single largest business sector in Canada

Directly accounts for 18% of Canada’s GDP

Every $1 of manufacturing output generates $3.05 in total economic activity – largest economic multiplier

Approximately $612 billion in annual shipments (2005)

2.1 million Canadians employed in manufacturing

Wage levels 22% above national average

Accounts for 2/3 of Canada’s goods & services exports = $450 billion (2005)

Accounts for 2/3 of private sector R&D in Canada

Has reduced GHG emissions 7.4% below 1990 levels

Canada: Manufacturing ShipmentsCanada: Manufacturing Shipments

250

300

350

400

450

500

550

600

650

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

BIL

LIO

NS

OF

DO

LL

AR

S A

NN

UA

LIZ

ED

Manufacturing in ManitobaManufacturing in Manitoba

Manitoba’s largest industrial sector –13% of GDPManufacturing’s multiplier provincially -$2.70:$1:00Employ 12% of Manitoba’s workforce68,000 direct jobsAccount for 54% of Province’s exportsApproximately 2000 firms

Manufacturing in ManitobaManufacturing in Manitoba

FURNITURE5%

OTHER MANUFACTURING

20%

MACHINERY7%

ELECTRICAL EQUIPMENT

1%

FABRICATED METAL PRODUCTS

5%

PLASTIC & RUBBER PRODUCTS

5%

CHEMICAL PRODUCTS7%

TRANSPORTATION EQUIPMENT

15%

FOOD PRODUCTS23%

TEXTILES & CLOTHING

2%

PRINTING4%

WOOD PRODUCTS6%

Manitoba: Manufacturing ShipmentsManitoba: Manufacturing Shipments

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Shipments Performance Shipments Performance June 2005 June 2005 –– June 2006June 2006

0.8

6.6 7.9

13.2

-3.6 -3.6

6.9

1.0

-8.1

-12.3

-28.8

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

CANADA BC ALTA SASK MAN ONT QUE NB NS PEI NL

YE

AR

-OV

ER

-YE

AR

PE

RC

EN

T C

HA

NG

E

Manufacturing ProductivityManufacturing Productivity

85

90

95

100

105

110

115

120

125

130

2000 2001 2002 2003 2004 2005 2006

IND

EX

(JA

N 2

000

= 1

00)

CANADIAN DOLLAR IN U.S. FUNDS

MANUFACTURING PRODUCTIVITY (Shipments Volume Per Worker)

Manufacturing EmploymentManufacturing Employment

90

95

100

105

110

115

120

125

130

2000 2001 2002 2003 2004 2005 2006

IND

EX

(19

89 =

100

)

CANADIAN DOLLAR IN U.S. FUNDS MANUFACTURING EMPLOYMENT

2004 = 2,275,200 (peak)2005 = 2,207,400

August 2005 = 2,182,200August 2006 = 2,086,100

Work in Progress to ShipmentsWork in Progress to Shipments

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

2000 2001 2002 2003 2004 2005 2006 2007

PE

RC

EN

T O

F F

INA

L S

HIP

ME

NT

S V

AL

UE

ManufacturersManufacturers’’ Cost SqueezeCost Squeeze(1(1stst Qtr 2000 Qtr 2000 –– 11stst Qtr 2006)Qtr 2006)

-6.4

-2.3

-1.2

1.6

3.6

14.3

6.1

19.5

36.4

65.4

126.4

-20 0 20 40 60 80 100 120 140

PRICES FOR EQUIPMENT

PRICES FOR CONSUMER PRODUCTS

PRICES FOR ALL FINISHED PRODUCTS

AVERAGE MANUFACTURERS' SELLING PRICE

PRICES FOR SECOND STAGE INTERMEDIATE GOODS

PRICES FOR FIRST STAGE INTERMEDIATE GOODS

PRICES FOR FOOD PRODUCTS

HOURLY LABOUR COSTS

TRANSPORTATION COSTS

COST OF RAW MATERIALS

ENERGY COSTS

PERCENT CHANGE

Breakeven TimeBreakeven Time

7:10

7:17

7:24

7:32

7:39

7:46

7:53

8:00

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Strategic ChallengesStrategic ChallengesHigher dollar – falling pricesRising business costsGlobal competition – commoditizationGlobal sourcingChanging patterns of customer demandAvailability of skilled & experienced personnelRapid pace of technological changeInvestment

Innovation & technologyAssetsPeople

Business opportunities in other countriesManaging change

Hourly Labour Compensation Hourly Labour Compensation Rates in ManufacturingRates in Manufacturing

32.53

24.7122.87 21.90 21.42

5.72

3.03 2.500.54 0.36

0

5

10

15

20

25

30

35

GERM

ANYUNIT

ED KIN

GDO

MUNIT

ED STATES

JAPAN

CANADA

HUNGARY

BRAZIL

MEXIC

O

CHINA

INDIA

US

DO

LL

AR

S

ManufacturersManufacturers’’ Excellence GapExcellence GapGROWTH IN MANUFACTURING

PRODUCTION

GROWTH IN MANUFACTURINGEXPORTS

LABOUR PRODUCTIVITYIMPROVEMENT

CHANGE IN UNIT LABOUR COSTS

INVESTMENT IN R&D

INVESTMENT IN NEW TECHNOLOGY

BEST OF G7 (100%) CANADA CHINA

How do we measure Up? How do we measure Up? G7 & China Competitiveness RankingG7 & China Competitiveness Ranking

7971

6758

49

38

194

52

0

20

40

60

80

100

120

140

160

180

200

UNIT

ED S

TATE

S

FRAN

CE

JAPAN

CAN

ADA

GER

MANY

UNIT

ED K

INGDO

M

ITALY

CHIN

A

OVER

ALL P

ER

CEN

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CO

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Manufacturing is ChangingManufacturing is ChangingOld Paradigm

Linear production systems.Domestic/North American markets & competition.Companies compete.Integrated businesses.Local sourcing.Mass production.Manual & technical skills.Stand-alone equipment.Value based on functionality.Compete on production costs.Products define market.

New ParadigmGlobal business systems.Global markets & competition.Value chains compete.Modular businesses & outsourcing.Global sourcing.Mass customization.Knowledge skills.Integrated automation systems.Value based on customer solutions/service.Compete on time & total delivered cost to customer.Customers define market.

The Business of ManufacturingThe Business of ManufacturingThe business of creating & delivering customer solutions (value)via tangible goodsManufacturing is not just about producing things – It is about capturing the value in the knowledge inherent in customer solutions (“Intellefacturing”?)It includes:

Product Research and DevelopmentMarketing, Design, EngineeringValue Chain & Logistics ManagementProduction Systems & MaintenanceInnovation, Continuous Improvement & Quality ControlInformation ManagementMarket Development, Distribution, Sales & ServiceBusiness & Customer FinancingLife Cycle Management

A system of global business networks – competing value chainsGlobal knowledge, product, service, and logistics management

Business Business Strategies Have to ChangeStrategies Have to Change

“It’s never easy to climb into the crow’s nest in the midst of a storm…”

Focus on Customer & Supplier Success

Focus on Solutions not Products

Focus on new Global Opportunities

Focus on Internal ExcellenceProcess Perfection

Elimination of Waste Everywhere

Bottom Line Results

Focus on Achieving Results through People

Threat or OpportunityThreat or Opportunity

Automobiles Growth Automobiles Growth

Source: Canada China Business Council

Growth in Iron and SteelGrowth in Iron and Steel

Source: Canada China Business Council

WorldWorld’’s Top 10 Container Ports in 2004s Top 10 Container Ports in 2004((‘‘000 TEU000 TEU’’s)s)

Hong Kong

5,000 10,000 15,000 20,000 25,000

Singapore

Shanghai

ShenzhenPushan

Kaohsiung

Rotterdam

Los Angeles

Hamburg

Antwerp BC

Rapidly Escalating Vessel SizeRapidly Escalating Vessel Size

Future Coastal Freighters

Current 7-9,000 TEU

Future 12-15,000 TEU

Picture Courtesy of Prince Rupert Port Authority

Vancouver

Seattle

Los AngelesDistance to Hong Kong (Nautical Miles) 5,286

5,777

5,7686,380

Prince Rupert

THE PRINCE RUPERT THE PRINCE RUPERT ADVANTAGEADVANTAGE

Courtesy of Prince Rupert Port Authority

Rail Connection to Rail Connection to Continental North AmericaContinental North AmericaPrince Rupert

Courtesy of Prince Rupert Port Authority

Opportunities for Western Opportunities for Western Canada Canada

Returning empty containers will telescope Prairie provinces to the Pacific coast at minimal costsForest Products, e.g. furniture, log homes, bio-fuels, doors and window framesAgri-food products, e.g. hay, grains, processed food, aquaculture, biomassOil field services equipment, auto parts, robotics assembly and petrochemicals

32

Manufacturing 20/20Manufacturing 20/20Challenges & changes affecting manufacturingFuture of manufacturing in Canada?98 meetings involving more than 3,500 manufacturers and stakeholders – 50 meetings in OntarioInput from 15 industry associationsSurvey of 942 manufacturers in 2005National Manufacturing Summit (Feb. 2005)Reports on Innovation, Workforce Capabilities, &International BusinessWeb www.cme-mec.ca

Provincial ProductivityProvincial ProductivityTable 3 Value Added Productivity by Province

66.2

56.354.1

51.8 51.3

44.141.7

0

10

20

30

40

50

60

70

Alberta Ontario Sask Quebec BC Manitoba Atlantic

$0

00

pe

r va

lue

ad

de

d j

ob

The Advanced Manufacturing The Advanced Manufacturing Initiative (AMI)Initiative (AMI)

Launched in February of 2005

To assist Manitoba’s manufacturers and exporters to achieve significant gains in productivity and organizational effectiveness

To enhance our global competitiveness

AMI Operational VisionAMI Operational VisionLeveraged Learning

Networks

Training in Lean Thinking, Lean Leadership and Lean Tools

LeadershipLean Vision and Plans

KaizenEvents

Best Practices

Positive HR Practices

LeanAwareness

EducationalLinkages

ProcessOwnership

Capable, FlexibleAvailable Equipment

StandardizedWork

ContinuousImprovement

Responsive Supply Base

Flow

‘No Blame’Environment

TeamworkLean, Stable, Agile

Supply Chain

Capable, Empowered, Motivated People

Customer Success

PromotingManufacturing

The AMIThe AMI

A “virtual centre”Working with other associations and organizations to minimize duplication of efforts and maximize the impact of programs

Providing linkages to relevant programs and information outside of our province

Linking “problems” to “solutions” within our community

Benefits of LeanBenefits of Lean

63%

63%

51%

50%

44%

42%

41%

31%

29%

27%

0% 10% 20% 30% 40% 50% 60% 70%

WASTE REDUCTION

IMPROVED PROCESS EFFICIENCY

FASTER PRODUCTION LEAD TIMES

INVENTORY TURNOVER

ON-TIME DELIVERY

REDUCTION IN PLANT SPACE

IMPROVED PRODUCT QUALITY

IMPROVED PURCHASING MANAGEMENT

IMPROVED CUSTOMER SERVICE

INCREASE IN OPERATING PROFITS

PERCENTAGE OF COMPANIES

Batch to single piece flowBatch to single piece flow

Competing & winning in 2004…Making World Class make sense

A “Before & After” Blitz Example

ManufacturingManufacturingSimulationSimulation

Measure “As Is” “Future State”

Throughput TimeWIPMax Queue before PaintSchedule Adherence

2 – 5 days26-27 parts13 parts82%

1 day9 parts3 parts100%

AMI Success StoriesAMI Success StoriesSME ExamplesSME Examples

Paint manufacturer:30% increase in productivity

Window and door parts manufacturer:79% reduction in inventory

Envelope manufacturer:125% increase in productivity

Plastic parts manufacturer:70% reduction in machine set-up time

Commercial building manufacturer:50% space reduction

AMI Success StoriesAMI Success Stories

Business - Metal FabricationFocus – Machine Set-up ReductionApproach – Kaizen BlitzTime frame – 4 days +Results:

Kaizen 142% set-up time reduction15% increased capacity

Kaizen 255% set-up time reduction$500,000 inventory reduction

Coil loading

Label Organization

AMI Success StoriesAMI Success StoriesBusiness – Fence ManufactureFocus – Waste EliminationApproach – Kaizen BlitzTimeframe – 3 days +Results:

Kaizen 186% set-up time reduction$20,000 cost saving

Kaizen 250% cycle time reduction$25,000 short-term cost saving$300,000 long-term cost saving

Slide for quick adjustment

Current state process map

AMI Success StoriesAMI Success Stories

Business – Trailer ManufactureFocus – Capacity and GrowthApproach – Kaizen BlitzTimeframe – 9 monthsResults:

50% cycle time reduction10 weeks to 5 weeks lead time$1 M work-in-progress reduction20% productivity improvement50 to 60 trailers per month

6,000 Ft Expansion

MCME AccomplishmentsMCME Accomplishments

• 50 % percent reduction in warehouse space• 50 % reduction in plant space with the same output• 70 % increase in machining productivity• On time delivery increased to 98% from 85%• Inventory turns from 4 to 18• 66% reduction in suppliers

• Year on year reduction in working capital of 5%• 75% reduction in Warranty Claims

• Reduction in casual Absenteeism 66%• 2 weeks per year of training per employee

MCCI AccomplishmentsMCCI Accomplishments

•Productivity increase of 24% •Space reduction of 30%•Products return reduction of 37%•WIP reduced from 4-6 days down to 0•Inventory reduction of 30% = $1,000,000

•5S Program resulted in $50,000/yr savings from $25,000 one-time cost •6% reduction in selling price to customer while profit stayed steady and CDN $ increased.

•Reduced scrap rate from 7-8% down to <4% -- World Class is 1%•$2,000 Energy Audit resulted in $13,000/month saving.

CMECME’’s Key initiativess Key initiatives

MSEDPAMIManufacturing Week

Manufacturing & Trade Summit (Feb 22)Manufacturers Hall of FameManitoba Export Award

ICOSMO

Strategic Partners:

Innovative Canadian Oil Sands ManufacturingOpportunities Portal Overview

Strategic Partners:

– SELLERS

Sellers : Canadian companies who wish to get involved with oil sands opportunities

• Create, source and receive Oil Sands opportunities

• Hi-lite and showcase goods and/or service offerings

• Expand and customize products/processes to meet Oil Sands industry needs

• Forge relationships and secure Oil Sands businessopportunities

Concluding Comments:Concluding Comments:

The focus must be on competitiveness, not just productivity.

The challenges need to be given priority by all stakeholders

Manitoba and Manitoba’s businesses must become globally competitive – now!

Concluding Comments:Concluding Comments:

For our Government, that means;A competitive and supportive tax environment

A competitive, progressive and business-friendly regulatory environment

A clear vision and leadership

A Call to ActionA Call to ActionManufacturersWorkers and labour groupsBusiness & Professional groupsEducation systemsResearch centers Business and financial services sectorCommunity leaders and economic development agenciesLocal, Provincial and Federal Governments

A Future for Manufacturing?A Future for Manufacturing?

ItIt’’s All About s All About Competing & Winning Competing & Winning

in the Global Marketplacein the Global Marketplace

“Where your competitor is only one mouse click away on your

customer’s computer”

Manufacturing 20/20:

www.cme-mec.ca/mfg2020/index.asp