Manufacturers face harsh realities; producing products in Alaska means freight, financing and a host of other challenges.

• Author: West, Gail
• Position: MANUFACTURING

According to the 2011 Manufacturing and Logistics Report Card, produced by Ball State University's Center for Business and Economic Research, the Alaska economy ranks dead last among the 50 states in both manufacturing and diversification. The report went on to say "manufacturing firms are not necessarily reliant on local demand for goods and are therefore footloose. Their location then depends more on local factors, such as the quality and availability of the labor force, transportation infrastructure, non-wage labor costs, access to innovative technologies and the cost of doing business."

It also said: "States which have a high proportion of manufacturing activity in a single sector typically suffer higher volatility in employment and incomes over a business cycle. Less diversified regions are also more likely to experience greater effects of structural changes to the economy which involve a single sector." Alaska's economy, with its almost total reliance on the oil and gas industry, is in a precarious position when the price and availability of product declines. The need to diversify is obvious, and one of the arenas into which the state could move is manufacturing.

"One of the biggest challenges to manufacturing in Alaska is distance," said Tom Myers, interim executive director for Alaska Manufacturing Extension Parnership Inc. It impacts manufacturers at both ends of the spectrum--obtaining any raw materials needed from the Lower 48 (or elsewhere) as well as shipping product back Outside for sale. "The distance is a detriment to competition in national and international markets," Myers said.

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Time is an additional cost to shipping raw materials to Alaska, and that time has to be calculated into the production of any goods manufactured locally.

"If it cost me $200,000 to be (in Alaska) last year and it didn't cost my competitor that, then he has $200,000 more available to him to market and to invest in his business than I have," said Brett Gibson, founder and owner of Arctic Paws LLC, maker of Alaska salmon-based dog treats Yummy Chummies. "Consequently, he can beat me, from a company perspective. The more I sell and the more I make here, the more money it costs me to stay here." Gibson summed up the challenges of manufacturing in Alaska into a very succinct nutshell.

"Take glycerin, for example," said Gibson. "It's one of the ingredients in my product that I can't source in Alaska. My lead time to get it is three weeks. If I were located in the Lower 48, I could have it in about four days.

Add that to the shipping cost--the last time I bought it, the shipping was almost as much as the product itself. Then I put it into the product and I paid to ship it back. It probably cost me three times what it might otherwise have cost.

"When you start talking about volumes--we'll probably ship about 20 truck-loads before the end of the year--it puts me behind the 8 ball," he added.

STATE INCENTIVES

Myers said he's seen several Alaska manufacturers head Outside to gain the benefit of State-sponsored incentive programs.

"They usually move to Montana, Minnesota, Washington," he said. "Those are the three primary states.

All three have programs established by their legislatures to assist in acquiring venture capital. In fact, Utah has a state-funded venture capital program with up to $6 million in...