Origin of Study and Research Questions
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Origin of Study and Research Questions
Collaborative Industry Canada – Canadian Manufacturers & Exporters and McMaster University initiative to better understand evolving business strategies used by Canadian manufacturers to improve their competitiveness
Study is based on the manufacturing component of Survey Innovation and Business Strategy (SIBS) results (survey reached 4,400 manufacturers and 80% responded)
Insights drawn from interviews with Canadian Manufacturers & Exporters (CME), senior operations and supply chain executives of leading firms, and academia
Research Questions:
Is the manufacturing sector a leader in innovation in Canada?
What are drivers behind the selection of production locations of manufacturers?
Is there spill over investment in other value-added business activities from investment in production facilities?
What is Canada’s comparative advantage in attracting manufacturing investment?
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Emerging Trends in Advanced Manufacturing
Manufacturers are designing their operations to deliver a suite of capabilities for their customers and compete in fundamentally different markets against competitors from both low-cost countries and developed economies
New investment in manufacturing facilities in Canada is driven by the need to increase agility, expand mass customization capabilities, optimize prototyping and new product introductions (NPI), and capitalize market niches
To avoid supply chain interruptions and raise their level of responsiveness and dependability, manufacturers are considering multiple locations for critical operations
Organizational, process, marketing and product innovation are critical for Canadian manufacturers to compete and participate in global value chains
Successful advanced manufacturing strategies are linked to corporate leadership, innovative culture and highly skilled workforce at the operational, tactical and managerial level
Source: The Boston Consulting Group and Wharton School of Business. Rethinking Operations for a Two-Speed World, 2011McKinsey & Company. Reducing risk in your manufacturing footprint, 2009The Economist. Moving back to America - The dwindling allure of building factories offshore, May 12, 2011
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Manufacturers are utilizing a mix of strategies within a global production framework to estimate the trade-offs between opportunities
3-Tier Global production footprint framework
LocationVelocity /
AgilityLogistics network
Industrial engineering capabilities
Production cost
Distribution costs
Canada / U.S.
High High High High Low
China Low Medium-low Medium-low Low High
Mexico Medium Medium Medium-low Medium Medium
Source: The Boston Consulting Group and Wharton School of Business. Rethinking Operations for a Two-Speed World, 2011 The Economist. Moving back to America - The dwindling allure of building factories offshore, May 12, 2011 State of Advanced Manufacturing industry and academic research committee, 2011
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The majority of Canadian manufacturers face competition from multinational enterprises in their main market
Even 64% of small manufacturers are competing against multinational enterprises in their main market
In addition to reducing price (65% of firms), manufacturers responded to increased competition by adopting a new process (39%), changing marketing expenditure (39%) and introducing a new product or service (37%)
Source: Industry Canada, Foreign Affairs and International Trade Canada and Statistics Canada. Survey of Innovation and Business Strategy 2009, 2010
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Canadian manufacturers are directly and indirectly integrating into the global market
Source: Industry Canada, Foreign Affairs and International Trade Canada and Statistics Canada. Survey of Innovation and Business Strategy 2009, 2010
The majority of motor vehicle parts, primary metal, and aerospace manufacturers produce intermediate goods that are incorporated into their Canadian customers’ exported products
Across many industries, manufacturers producing intermediate goods often position themselves near their large customers to create a localized supply chain (clusters)
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Investment in production facilities in Canada, by industry (2007-2009)
0% 10% 20% 30% 40% 50% 60%
Chemical
Primary metal
Machinery
Manufacturing
Motor vehicle parts
Fabricated metal
Industrial electronics
Aerospace
Pharmaceutical
Motor vehicle
% of manufacturing firms
Opened new facility or expanded capacityObtained capacity by merger or acquisitionClosed an existing facility or decreased capacity
Manufacturing average
Overall, more than 2x as many manufacturing firms increased production capabilities (25%) between 2007 and 2009 than reduced capabilities (11%)
Source: Industry Canada, Foreign Affairs and International Trade Canada and Statistics Canada. Survey of Innovation and Business Strategy 2009, 2010
Across most manufacturing industries, more firms increased production capabilities between 2007 and 2009 than reduced capabilities
Of the large* manufacturers that closed an existing production facility or reduced capacity, 29% also opened a new production facility or expanded production capacity in Canada
Overall, manufacturers were nearly four times more likely to increase production capabilities in Canada between 2007 and 2009 than abroad
*Small (20-99 employees), medium (100-249 employees) and large (at least 250 employees)
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Many large manufacturers expand other strategic activities when expanding their production capabilities in Canada
Marketing & sales
21%
Provision of services
28%
Engineering16%
Logistics32%
R&D27%
New ProductionCapacity
Activities coinciding with an expansion of production capabilities
(% of large firms introducing other activities, 2007-2009)
Source: Industry Canada, Customized tabulation from the Survey of Innovation and Business Strategy 2009, 2010
Production activity is an anchor for investments in other value-added business activities such as R&D, logistics, and provision of services.
Location decisions for these investments often rely on proximity of supply chain partners, availability of highly qualified personnel, regulatory frameworks and collaboration opportunities with universities.
Large* manufacturers with headquarters in Canada and those with headquarters abroad increased production capabilities in Canada at a comparable rate (34% and 28% respectively).
*Small (20-99 employees), medium (100-249 employees) and large (at
least 250 employees)
9Source: Industry Canada, Foreign Affairs and International Trade Canada and Statistics Canada. Survey of Innovation and Business Strategy 2009, 2010
Over 2x as many manufacturers increased R&D capabilities in Canada between 2007 and 2009 than reduced capabilities
Investment in R&D facilities in Canada, by industry (2007-2009)
0% 5% 10% 15% 20% 25%
Motor vehicle parts
Primary metal
Manufacturing
Machinery
Fabricated metal
Industrial electronics
Aerospace
Chemical
Pharmaceutical
Motor vehicle
% of manufacturing firms
Opened new facility or expanded capacityObtained capacity by merger or acquisitionClosed an existing facility or contracted capacity
Manufacturing average
Firms of all sizes are investing in new R&D facilities in Canada
Organic R&D capacity expansion is a trend in most Canadian manufacturing industries from 2007 to 2009
Large manufacturers with head offices in Canada are more likely to invest in R&D facilities in Canada compared to manufacturers with foreign headquarters
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An emerging business model consists of outsourcing the production function to focus on other value propositions activities such as R&D, logistics and commercialisation
Source: Industry Canada, Foreign Affairs and International Trade Canada and Statistics Canada. Survey of Innovation and Business Strategy 2009, 2010
Overall, the majority of outsourcing* of production and R&D is within Canada
Outsourcing of production is often focused on non-core product groupsin areas where contract manufacturers have specific capabilities
Large manufacturers are twice as likely to outsource some production abroad than small manufacturers (21% and 10% respectively)
*Outsourcing of production consists of the contract manufacturer fulfilling the fabrication of a good based on the hiring firm’s design specifications
Outsourcing of production and R&D, by industry
0% 5% 10% 15% 20% 25% 30% 35% 40%
Chemical
Primary metal
Manufacturing
Fabricated metal
Motor vehicle parts
Industrial electronics
Machinery
Pharmaceutical
Aerospace
% of manufacturing firms
R&D - outside Canada R&D - in Canada
Production - outside Canada Production - in Canada
Manufacturing average
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The manufacturing sector outpaces all other industries in Canada* in the introduction of process, organizational, product and marketing innovation
2/3 of manufacturers that introduced process innovations between 2007 and 2009 were able to reduce the average cost of their products (average cost reduction was 11%).
In general, large manufacturers (50%) are more likely to utilize advanced production technologies than medium (43%) or small manufacturers (34%).
Introduction of the four types of innovation by Canadian firms (2007-2009)
0% 10% 20% 30% 40% 50% 60% 70%
Marketing innovation
Product innovation
Organizationalinnovation
Process innovation
% of firms
ManufacturingAll other industries*
Source: Industry Canada, Customized tabulation from the Survey of Innovation and Business Strategy 2009, 2010
*All other industries includes: Agriculture, forestry, fishing and hunting; Mining, quarrying, and oil and gas extraction; Utilities; Construction; Wholesale Trade; Retail trade; Transportation and warehousing; Information and cultural industries ; Finance and insurance; Real estate and rental and leasing; Professional, scientific, and technical services; Management of companies and enterprises; and Administrative and support, waste management and remediation services (20+ employees).
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Implementing a mix of innovation (process, product, organizational and marketing) is a key focus across a number of manufacturing industries
Overall, the introduction of the four types of innovation by manufacturers is similar by size of firm
Also, many manufacturers are implementing organizational innovation by establishing collaborative strategic partnerships with both customers and suppliers
Source: Industry Canada, Foreign Affairs and International Trade Canada and Statistics Canada. Survey of Innovation and Business Strategy 2009, 2010
Introduction of innovation in manufacturing, by industry (2007-2009)
0% 10% 20% 30% 40% 50% 60% 70% 80%
Industrial electronics
Manufacturing
Fabricated metal
Chemical
Pharmaceutical
Machinery
Primary metal
Motor vehicle parts
Aerospace
Motor vehicle
% of manufacturing firms
Process innovation - Introduced new or significantly improved methods of production
Organizational innovation - Introduced new methods of organizing work responsibilities and decision making
Product innovation - Introduced new or significantly improved good
Marketing innovation - Introduced new media or techniques for good promotion
Manufacturing average
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Many manufacturers are expanding their adoption of process innovations beyond new manufacturing methods to include other critical operations
Improved quality and supply chain agility are among the leading outcomes of process innovation that influence the marketing activities of manufacturers
Also, manufacturers that have adopted process innovation focused on green supply chain management have successfully improved their business and environmental performance on many levels
Source: Industry Canada, Foreign Affairs and International Trade Canada and Statistics Canada. Survey of Innovation and Business Strategy 2009, 2010
Industry Canada, Green Supply Chain Management: Manufacturing – A Canadian Perspective, 2009
Types of process innovations introduced by Canadian manufacturers, by industry (2007-2009)
0% 10% 20% 30% 40% 50% 60% 70% 80%
Industrial electronics
Manufacturing average
Fabricated metal
Chemical
Pharmaceutical
Machinery
Primary metal
Motor vehicle parts
Aerospace
Motor vehicle
% of manufacturing firms
Introduced new or significantly improved methods of production
Introduced new or significantly improved supporting activities for their processes
Introduced new or significantly improved logistics, delivery or distribution methods
Manufacturing average
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North American Best-in-Class* (BiC) manufacturers distinguish themselves by their implementation of process innovations and advanced technologies
Source: Aberdeen Group. Lean Manufacturing: Five Tips for Reducing Waste in the Supply Chain, 2009.
A key focus for BiC manufacturers is to optimize the order-to-delivery process and to synchronize production execution with customer demand.
The use of technology to enable the modeling of inventory targets to optimize production schedules is key for firms aiming to increase their production flexibility.
Note: Best-in-Class are defined as the top 20% of North American manufacturers benchmarked to perfect order delivery and improvement in four performance metrics: manufacturing cycle time, customer lead times, inventory carrying costs, and inventory write off. Laggards represent the bottom 30% of firms benchmarked to the same metrics.
BiC - Processes and technology adoption
0% 10% 20% 30% 40% 50% 60% 70%
Supply chain visibility (includingevent management)
Automated value streammapping
Advanced planning andscheduling
Manufacturing executionsystem
Demand planning andforecasting
Shared lean metrics betw eensupply chain and
manufacturing teams
Operational data and metricsare displayed in real-time
w here needed
Ability to manufacture productsbased on demand from thenext stage in supply chain
% of NA manufacturers
Laggards BiC
Technology
Processes
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Key Findings
Manufacturing is a vibrant, highly innovative and technology driven industry of the Canadian economy
More than twice as many manufacturers increased production (25%) and R&D (7.9%) capabilities in Canada between 2007 and 2009 than reduced capabilities (11% and 2.1% respectively)
New investment in manufacturing facilities in Canada is driven by the need to increase agility, expand mass customization capabilities, capitalize market niches and optimize prototyping and new product introductions (NPI)
The manufacturing sector outpaces all other industries in the introduction of process, organizational, product and marketing innovations in Canada
Best-in-Class manufacturers distinguish themselves by their implementation of process innovations and advanced technologies
Production flexibility, logistics network quality and industrial engineering capabilities are key competitive advantages for Canadian manufacturing; all three rely heavily on process and organizational innovation
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