Manufacturing.

• Position: Industryoutlook

HEALTH CARE COSTS, ENERGY PRICES, TAXES, inflation, transportation--Utah's manufacturers face a wide variety of challenges in producing quality products. From kitchen appliances to solid rocket fuel for NASA, the type of material coming though the state is as varied as any other market. In this annual discussion, manufacturing leaders discuss ways to improve the quality and quantity of goods while battling increasing costs on every front.

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PARTICIPANTS:

Carl Barton, HOLLAND & HART

Ragula Bhaskar, FATPIPE NETWORKS

David Buhaly, ATK THIOKOL

Larry Bunkall, KENNECOTT UTAH COPPER

Tom Dickson, K-TEC/BLENDTEC

Randy Hales, BACK TO BASICS PRODUCTS

Fred Lampropoulos, MERIT MEDICAL SYSTEMS

Mark May, MAY FOUNDRY & MACHINE

Doyle Mortimer, ALEXANDER'S PRINT ADVANTAGE

Brad Nielson, MITY LITE, INC.

Eric Sailsbery, FUTURA INDUSTRIES

Dave Sorensen, MANUFACTURING EXTENSION PARTNERSHIP

Norman Taylor, 4LIFE RESEARCH

Special thanks to moderator Tom Bingham, president of Utah Manufacturers Association, and series sponsor Holland & Hart.

THROUGH THE RECESSION OF THE EARLY 2000S, WE LOST ABOUT 10,000 MANUFACTURING JOBS IN THE STATE OF UTAH--MORE THAN TWO MILLION NATIONWIDE. HAS MANUFACTURING PRODUCTION TURNED A CORNER IN ITS RECOVERY FROM THE RECESSION?

NIELSON: Our furniture industry was impacted dramatically by the Internet bubble burst and September 11. The constitutional furniture industry declined 40 percent over a three year period. At a time when most of our competitors were closing down factories and laying off people, we were actually maintaining status quo from our client base. By investing in some new technology, we increased our employment base a little bit during that time period.

LAMPROPOULOS: Medical manufacturing weathered fairly well, in that people were still getting sick, still having stints.

BUNKALL: I think the unusual part of the loss in Utah was that for the last 100 years, even though there were ups and downs in the U.S. economy, Utah had always steadily grown. But for the first time, we actually saw a reduction of manufacturing jobs. It was an unusual era for us.

BINGHAM: I think history would demonstrate that if the recession is not too deep and not too long, we don't feel it so much here. But if it goes on for a little while, it takes us longer to recover than it does on the coast.

SAILSBERY: In the aerospace industry, we are in a somewhat unique position in that, given the world events since 9/11, we benefited. We are selling more defense products. The space business has been fairly stable. We are very pleased with NASA's recent announcement that they will use the space shuttle reusable solid rocket motor as the backbone of their new launch vehicles. So we are actually on a reasonable growth track right now, and we were not impacted negatively by the recession.

DID THOSE OF YOU IN THE CONSUMER MARKET FEEL A RECESSION WITH PEOPLE BEING UNEMPLOYED AND CUTTING BACK ON SPENDING?

HALES: We've been overseas for a long time, so it really didn't have an impact. We were growing right about the time that everything else was contracting, so it was a very different situation for us.

BHASKAR: The high-tech industry did see a big retracted recession between 2000 and 2003. There was a lot of excess inventory out there, and that took some time to go through the system.

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But since then, I think things have changed a lot. Companies are reinvesting in more productivity-related technologies, updating their computers and databases. So we expect to see some new growth in that business.

LAMPROPOULOS: In the medical business, the recovery has created more difficulty in our ability to attract labor. Our Utah market is different than, say, Richmond, Virginia. We started up a new business there. People heard we were in town. We were looking for 40 or 50 people. We had 1,100 applications.

While in the Salt Lake Valley, we continue to struggle with a relatively high turnover rate. So as the economy has improved, it's been more and more difficult for us. It's to the point where we feel that we need to look for a more stable environment in Utah, maybe move some manufacturing to Sanpete or Sevier County.

SOME REPORTS HAVE INDICATED THAT EVEN DURING THE TIME WE WERE LOSING JOBS NATIONALLY, THERE WEREN'T ENOUGH PEOPLE TO FILL THE HIGHLY TECHNICAL JOBS. HAS THAT BEEN YOUR EXPERIENCE?

MORTIMER: The whole print forecast nationwide is down unless you happen to be in the market we are in, which is digital print and on-demand print. But we struggle to find the lower-end, entry-wage employees at the quality that we used to be able to get readily. We are paying probably 20 percent more now than we were just a couple of years ago for those positions. And we struggle to get qualified applicants.

BINGHAM: So raising the minimum wage doesn't concern you much?

MORTIMER: No. Not when the starting wage is $10 an hour.

SAILSBERY: We experienced the same thing as far as turnover as the economy has recovered. And I think especially in technical areas--in engineering and machining--it's difficult to find, attract, hire and retain those people.

LAMPROPOULOS: We've been able to bring employees on from other closing companies, particularly in the engineering and management areas. When Kimberly Clark announced that the old Ballard Medical was closing, we hired a couple hundred people. Also, when Abbott sold out to ICU Medical, it created opportunities to bring qualified, experienced people from health care into Merit.

At the same time, however, we've had to recruit people who are making substantial salaries from out of state--technicians and engineers needed to expand our injection molding. We've had a difficult time attracting those people into the state because these other organizations--although they've announced that they are going to leave or are reducing their operations--still have to maintain their injection molding.

BUHALY: I agree. Over the last year or so we've seen the labor market tighten substantially. And we are working a lot harder to attract the people that we need.

WHAT IS THE IMPACT OF THE INCREASING COST OF ENERGY ON YOUR MANUFACTURING BUSINESS?

MAY: We've had to pass through two price increases this year just because of gas cost increases. Our electrical costs haven't been that bad. I just got an operations cost survey from the American Foundry Society taking average costs of some 120 foundries in the United States. Average utility cost for the country is 6.2 percent, and my utility costs are 3.8 percent. So comparatively ... I'm not doing an advertisement for PacifiCorp or Questar gas, but I want to make sure that we keep our costs low like they are. As far as we are concerned, that does help us, because we compete in a worldwide market and the majority of our customers are out of state.

BUHALY: The issue with natural gas and fuel costs is the rapid rate of increase. It's very difficult to keep up with it. We run on natural gas in the winter out there, and it's been a substantial cost increase to us.

LAMPROPOULOS: We have been doing a comparison with another state where we are considering building a 120,000-square-foot advanced manufacturing facility. We did an in-depth study of inventory taxes, property taxes, health care, Workman's Comp and utilities. And as we compared, we found that operational costs in Utah were 60 percent less. Healthcare: half the cost. Utilities: half the cost. It was an absolute revelation to me, because I've been complaining about Utah for a long time. But as far as the real cost to operate the business, Utah is pretty competitive.

We've shared with the governor's office that although incentives are nice to talk about, the message that we want to bring to our legislators and politicians is to keep operating costs at these levels and not raise taxes. We want to expand here because we find it to be cost competitive.

Now, the big issue for us going into this next year will be the cost of the health care. We have seen a reasonable increase of 6 to 8 percent, but we are doing self-insured programs. We are doing...