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February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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Page 1: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

February 23, 2006

Maryland Manufacturing in the Global Digital Economy

Maryland Advisory Commission on Manufacturing Competitiveness

January 2007

Page 2: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

© Copyright 2006 Archstone Consulting LLC

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February 23, 2006

Table of Contents

Executive Summary

Purpose and Overview: Manufacturing in Maryland

Advanced Technology Manufacturing

Cluster Overview and Benefits

Cluster Identification, Development, and Support

Recommendations and Next Steps

Appendix Current Situation of Maryland’s Manufacturing

− Competitive Advantages

− Challenges

Cluster Background

− Cluster Classification

− Cluster Policies and Pitfalls

Page 3: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Executive Summary

Maryland manufacturing contributes significantly to the development of the knowledge economy in the global digital arena

Maryland’s manufacturing sector is being transformed throughout the state; and although it appears to have experienced a steady decline…

The traditional manufacturing workforce in 2003 was 5.9% compared to more than 9% in early 1990s

Gross State Product (GSP) related to traditional manufacturing was 7.2% in 2001 compared to approximately 10% in early 1990s

…And despite a drop in the job growth and GSP, the manufacturing sector has actually

Steadily increased the total output since 1992

Created significant earnings and jobs in other sectors

And provided a strong foundation for managing the global supply chain In addition, traditional metrics and classification schema do not fully capture the full breadth of

manufacturing and related capabilities in the state and across the globe Research and analysis into the multiplier effect across the manufacturing sector in Maryland

revealed that the following industries have traditionally provided the most economic value to the state

Food and beverage manufacturing Printing and related support activities Transportation equipment manufacturing Chemical Manufacturing Furniture and related product manufacturing

Page 4: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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Executive Summary (Continued)

To foster manufacturing growth, Maryland should continue to support targeted traditional manufacturing clusters:

Traditional: Food and Beverage Manufacturing, Printing, Aerospace and Defense, Modern Agriculture, and Distribution and Warehousing

More importantly though, Maryland should emphasize a manufacturing transition that supports the knowledge economy and the commercialization of Maryland’s core research competencies:

Strategic technology: Bio-technology, Information Technology, Nanotechnology, Miniaturization, Transportation Systems, Energy, Aerospace & Defense, Advanced Agriculture, and Craft Manufacturing

The focus should be on growing those manufacturing capabilities that leverage Maryland’s unique position in the realm of disruptive research competencies and process innovation

Maryland should follow a rigorous approach to promote the creation, development, and maintenance of clusters—especially those that leverage the global supply chain for Maryland manufacturing

Page 5: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

February 23, 2006

Purpose

Page 6: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Purpose

The State of Maryland:

Has proximity to major marketsUnparalleled access to state and national governments

A base of natural, technological, and transportation resourcesA strong history of innovative manufacturing

This suggests manufacturing should have a favorable future in Maryland

by leveraging its disruptive research competencies and manufacturing process innovation to enhance its ability

to manage the global supply chain

The purpose of this report is to provide a critical understanding of where and how the state should focus its key resources

Page 7: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

February 23, 2006

Overview: Manufacturing in Maryland

Page 8: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Manufacturing in Maryland has reached a critical inflection point

The strong role manufacturing has traditionally played in Maryland’s economy has been declining since the early 1990s

Its contribution to the state’s Gross State Product (GSP) declined from 10% to 7.2% in 2001

Employment dropped from 9.3% of Maryland’s workers to 5.9% in 2003

Though this decline appears to paint a dire picture, it is largely due to faster growth in

other sectors, process automation, and increased productivity…

…Maryland’s manufacturing output and growth rate have actually been expanding.

Manufacturing as % of Total Employment

0%2%4%6%8%

10%12%14%16%18%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Time

%

MD

US

Manufacturing as % of GSP

0%

5%

10%

15%

20%

25%

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Time%

of G

SP US

MD

Page 9: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Though Maryland’s manufacturers have seen steady growth, not all types of manufacturers have grown at the same rate

Traditional manufacturing is well established and has served Maryland well in the past, but has limited growth potential and does not capture new industries nor leverage many of Maryland’s strengths

Advanced technology manufacturing involves more risk but offers more growth potential as it supports and aligns with industry throughout the global knowledge-based economy

Traditional Growth Rate Advanced Technologies Growth Rate

Tobacco 1.21% Aerospace and Defense 8.47%

Chemical manufacturing 2.04% Transportation systems 8.94%

Printing and related support activities 2.92% Energy 11.57%

Transportation equipment manufacturing 7.58% Information Technology 12.59%

Food and Beverage 7.75% Bio-technology 19.46%

Furniture and related product manufacturing 11.32% Nanotechnology 25.00%

Miniaturization 34.00%

In addition to offering strong rates of growth, research shows advanced technology manufacturing provides an additional benefit to the State

economy through strong multiplier effects…

(Source: Stern School of Business, NYU, January 2005)

Manufacturing can be broken into the following groups:

Page 10: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Advanced technology’s higher growth rates and stronger multiplier effects can significantly increase economic activity in Maryland

Traditional Benefits to MD* Jobs** GrowthTobacco $1.92 2.0 Low

Food and Beverage $1.92 2.0 Medium

Printing $1.94 1.1 Low

Transportation Systems $2.01 2.13 Medium

Information Technology $2.06 1.42 High

Biotechnology $1.96 N/A High

The State’s existing base of traditional manufacturers is relatively established and slow growing

* Benefits to MD: each $1 activity in the industry generates X amount of activity in other industries.** Jobs: based on the direct-effect multiplier of employment, each job added in that industry adds an additional number of jobs in the area.

Advanced Tech. Benefits to MD* Jobs** Growth

Example Multiplier Effects

Supporting the development of higher-growth industries will allow Maryland to increase its economic base without disturbing traditional manufacturing

businesses

Time

Emerging Industries

Traditional Industries

Eco

no

mic

A

ctiv

ity

Higher Growth Potential

Page 11: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

While Maryland has much to offer high-growth advanced technology manufacturers, challenges remain to be addressed…

Strengths

• Proximity to the Federal Government provides opportunities to enhance lobbying efforts

• Access to 92 million consumer base within 500 mile radius provides opportunities to be close to wide range of customers

• Access to the port of Baltimore, one of the busiest ports in the US offers assembly opportunities at the dock before exporting

• Intensity in R&D demonstrates commitment to innovation and process improvement

• Vibrant economy that has ample access to venture capital and the value generated by IPOs

• Highly educated workforce provides a skilled workforce base

• Manufacturing assistance programs focused on enhancing manufacturing through tax incentives, sharing of technology and resources

Challenges

• Manufacturing image suffers an outdated reputation and fails to communicate modern aspects of the manufacturing environment

• Significant drop in the manufacturing workforce does not bode well with the manufacturing businesses

• Gap in education of the manufacturing workforce results in lacking in basic skills and higher training costs

• Infrastructure issues such as traffic congestion and high cost of housing makes it difficult to attract employees

• Taxes and Government regulations lead to a high cost of doing business

• Low export dollar per capita and lack of significant FDI indicates a lack of openness to globalization and makes economies less competitive

Page 12: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

By addressing the evolution of traditional manufacturing into world class competencies and emphasizing the emerging knowledge economy, Maryland can improve manufacturing’s image

Messaging should be directed at customers, service providers, and the perception of the general public

The approach will necessitate aligning and connecting customers to resources, as well as sharing results throughout the manufacturing industry and with the public

Focus on Public PerceptionIdentify Key Audiences

Develop successful approaches for changing perceptionsDevelop advocates for industry’s public perception

Assess Impact Communicate Results

Focus on CompaniesEstablish meaningful relationships with manufacturer

Connect Appropriate SolutionsFocus on Business Competitiveness and growth (Supply Chain)

Assess ImpactCommunicate Results

Focus on Service ProvidersIdentify Key Service ProvidersCoordinate Among Providers

Align Various Programs of value to the IndustryMake it a customer friendly systemReduce costs through cooperation

Assess ImpactCommunicate Results

To emphasize the role of the emerging knowledge economy and traditional manufacturing, one must address the manufacturing image

Page 13: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

The Pappas Commission Report has identified near-term actions Maryland should take to support the growth of advanced technology

The report’s recommendations are intended to:

1. Make Maryland more competitive in attracting and growing

technology companies

2. Increase the commercialization of research and development

(R&D) being created by the many government laboratories

and universities within Maryland’s borders

3. More effectively market Maryland as a center of valuable R&D

and as a home to many leading technology companies

The following pages provide specific recommendations to enhance Maryland’s ability to attract high-growth manufacturers

Page 14: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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To make Maryland more competitive in attracting and growing technology companies…

1. Increase state pension funds investment in private equity

2. Raise investment by Maryland banks in Small Business Investment Companies

3. Restore and increase funding for investment financing programs

4. Encourage foundations in Maryland to invest in technology companies

5. Use State tax incentives to affirm that Maryland welcomes and encourages advanced technology investments

a. Promote investment in advanced technology equipment and construction materials

b. Align Maryland’s tax policy for capital gains on technology investments to be similar to Federal tax policy

c. Increase research and development credits for businesses

d. Provide investment tax credits for early stage investors

6. Survey CEOs on regulatory processes

7. Invest in the Business/Technology Case Management Program

…Maryland should:

Page 15: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

To increase the commercialization of R&D being created by the laboratories and universities within Maryland’s borders…

1. Establish a permanent State Chief Technology Officer

2. Increase utilization and effectiveness of Maryland Technology Councils

3. Encourage entrepreneurial initiatives and technology transfer

4. Support the State’s incubator network with capital and operating funds for best practices

5. Allow State higher education institutions greater leeway under State personnel and procurement rules for activities that are not directly supported by State General Funds

6. Increase state funding for academic research

7. Encourage Maryland research consortia to compete for large federal funding opportunities

8. Create alternative financing vehicles to create more laboratory space at Maryland’s Universities

9. Promote increased coordination at University and college technology transfer offices

…Maryland should:

Page 16: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

To more effectively market Maryland as a center of valuable R&D, and as a home to many leading technology companies…

1. Increase state pension funds investment in private equity

2. Leverage the Office of the Governor to encourage and sustain Maryland’s advanced technology enterprises

3. Develop a comprehensive marketing strategy to “brand” Maryland as a leading home for technology business and innovation

4. Create a central database of Maryland academic and federal laboratory technology resources

5. Pursue targeted international investment in Maryland

6. Create an Executive Job Corps

7. Create a Governor’s Science Advisory Board

To effectively capitalize on its manufacturing strengths and overcome existing weaknesses, Maryland must focus its limited resources on strategically supporting key manufacturers.

The following section provides a model for identifying these opportunities and optimizing use of the State’s resources.

… Maryland should:

Page 17: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

To this end, Maryland should marshal its manufacturing resources from around the state and across the globe to reinforce this transformation

The approach outlined herein is intended to:

1. Make Maryland more competitive in attracting and growing

manufacturing companies that emphasize disruptive

innovation and research

2. Increase the emphasis that Maryland places on

manufacturers who provide creative advances in processes

3. Encourage manufacturers who aggressively engage

customers beyond the current customer set, particularly in

terms of leveraging the global supply chain

The following pages provide specific recommendations to enhance Maryland’s ability to attract high-growth manufacturers in the new IT – “Innovation and

Transformation”

Page 18: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

February 23, 2006

Cluster Overview and Benefits

Page 19: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Promoting industry clusters is an effective means for a state to foster economic growth

Core companies form the basis for the cluster and the impetus for the value from the cluster

Supporting companies and institutions (e.g., universities) provide crucial support to the core and may include customers, suppliers and partners to the core companies

Related businesses provide a more indirect support to the core by enabling supportive companies or providing services to the core companies

Impacted businesses are affected by the cluster but do not directly relate to the activities of the cluster, such as restaurants or real estate support

A Cluster and its Levels of Interdependency

Clusters are geographically related networks of businesses that promote efficiency with varying degrees of interdependency

Core

Supporting

Related

Impacted

Page 20: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Clusters provide economic advantages to business, which in turn drive benefits to the state

Higher EmploymentRetention of existing companies and jobs

through high switching costsCreation of new jobs in growing industriesCreation of new jobs through spillover and

multiplier effects

Higher IncomesIncreased demand for laborHigher average skill level

Increased Tax RevenueHigher personal incomesHigher corporate incomesIncreased economic activity (sales tax,

gasoline tax, telecom tax, per capita tax, property tax, etc.)

State BenefitsBusiness Benefits

More Efficient Access to Inputs:Raw materialsIndustry-specific suppliersSkilled labor

More Efficient Processing:Fast diffusion of knowledge, innovations,

benchmarking, etc.Economies of scope and scale Industry-specific services (e.g., legal,

finance)

More Efficient Access to End Markets:Existing customersNew customers

Page 21: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Success Factors Value to Clusters Example

Skilled Labor Force Most important determinant for a cluster’s success

Knowledge of the industry supplemented by formal education drives the cluster and attracts new members

Specialized skills were vital to the development of the semiconductor in the Silicon Valley

R&D Capability Availability and accessibility of research centers and expert individual researchers to provide cutting-edge research and solve pressing problems

Specialized optics and imaging institutes and active professional associations provided channels for developing an optics and imaging cluster in Rochester, NY

Proximity of Suppliers

Proximity of suppliers assist in reduced inventory carrying costs, innovation, and delivery time

Quick dissemination of information between cluster members and knowledge sharing reduces product development and R&D costs

Hosiery cluster in North Carolina also encompasses yarn, needle, dyestuff and packaging materials suppliers

Proximity assists the cluster in organizing events for exchange of knowledge

Access to Specialized Services

Specialized services provide functions tailored to industry and are integral to cluster’s success

The Industrial Technology Institute in Ann Arbor, MI was established to support the modernization of the auto industry

Entrepreneurial Energy

Small firms rely on research institutions, associations or other special services in order to remain competitive

Entrepreneurs highlight benefits of the cluster and will attract new members

Entrepreneurial energy was one of the key reasons for the success and expansion of the Silicon Valley

Shared Vision and Leadership

Increases competitiveness and profitability of its member firms

North Carolina, hosiery industry strengthened the buying power against major customers such as Wal-Mart by negotiating collectively

Having a skilled labor force is one of the key factors for the success of clusters

Page 22: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

February 23, 2006

Cluster Identification, Development and Support

Page 23: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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Clusters can be classified in six main groupings…

Competitive Clusters with scale, such as Hollywood, Silicon Valley, or Detroit

Strategic Clusters with high growth rates, such as biotech

Emerging Clusters which are small but vital to region’s interests

PotentialClusters with some core competency that might be developed, such as environmental technology

Mature Clusters with low or no employment growth

StabilizingClusters which add diversity to economy, such as tourism or business services

While there is no set criteria by which to classify clusters, there is value in assessing them to determine which have the potential to add the most value to the state economy

Using the taxonomy discussed above, emerging clusters should receive first attention followed by strategic and potential, as these are most likely to promote manufacturing growth

Page 24: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Maryland should focus on developing strategic clusters which are well-positioned for strong growth

Manufacturing can be broken-down in into two main groups: Traditional Including mature, competitive and stabilizing clusters Advanced Technology Including emerging, strategic and potential clusters

Traditional Manufacturing

• Food and beverage • Tobacco• Printing and related support activities• Transportation equipment manufacturing• Chemical Manufacturing• Furniture and related product manufacturing

Advanced Technology Manufacturing

• Bio-technology• Information Technology• Nanotechnology• Miniaturization• Transportation systems• Energy• Aerospace and Defense• Advance Agriculture• Craft Manufacturing

If Maryland can establish itself as a leader in advanced technology manufacturing, it will be well-positioned for future prosperity

Traditional manufacturing is well established and has served Maryland well in the past, but needs to find way to grow and remain profitable

Advanced technology manufacturing has risk but much more growth potential because it supports new technology and industry throughout the global knowledge-based economy

Page 25: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

• Highly educated workforce provides a skilled source of labor

• Intensity in R&D demonstrates commitment to innovation and process improvement

• Vibrant economy that has ample access to venture capital and the value generated by IPOs

• Proximity to the Federal Government provides opportunities to enhance lobbying efforts

• Access to 92 million consumer base within 500 mile radius provides opportunities to be close to wide range of customer

• Access to the port of Baltimore, one of the busiest ports in the US offers assembly opportunities at the dock before exporting

• Manufacturing assistance programs focused on enhancing manufacturing through tax incentives, sharing of technology and resources

Maryland has multiple characteristics that make it attractive to strategic technology manufacturing

Industries such as Bio-technology,

Information Technology and

Aerospace & Defense require a

highly educated workface

A strength in R&D is also critical in

emerging industries such as

Nanotechnology and

Miniaturization

Venture capital is critical to

developing new technologies,

products and industries

Maryland Strengths

These strengths will also help support the transition of Maryland’s existing manufacturing base to benefit from the global knowledge-based economy

Page 26: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Maryland should not solely focus on advanced technology to the detriment of the traditional manufacturing base

• Both traditional and advanced manufacturing clusters can be cataloged and characterized

• One valuable analysis tool assesses traditional and advanced manufacturing based on importance to Maryland and potential industry growth

High

Low

Low

High

Va

lue

to

MD

Ec

on

om

y

Growth Potential

Advanced Traditional

• Clusters beyond the “Investment Threshold” are prioritized for support and development

• Clusters near or below the “Investment Threshold” can be developed to transition to higher value

High Value

Medium

Low ValueMedium

Investment Threshold

Value Threshold Chart

Page 27: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

With proper support, traditional clusters can transition to advanced technology clusters or high value clusters

Company Strategy

Operational Advantage™ Program

4Program Management 2Operational

Objectives

1Strategic Objectives

3Improvement Initiatives

Company Strategy

Operational Advantage™ Program

4Program Management 2Operational

Objectives

1Strategic Objectives

3Improvement Initiatives

Driven by company strategy and goals

Structured root cause analysis turns problems into projects

Knowledge is captured into the program

Complete set of training materials

Comprehensive project definition and planning process

Chooses tools based on the problem to be solved

Embedded project management requirements

Results sustained through ongoing iterative program

Project status monitoring and reporting

Incentive compensation program

Job descriptionsMetrics and goal

setting

The Operational AdvantageTM framework can be used to identify and execute operational process improvement initiatives based on their alignment with

corporate objectives

Page 28: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

The Operational AdvantageTM Program features a comprehensive, easy to use toolkit

© Copyright 2004 Archstone Consulting LLC

Confidential1

Guide for Choosing Improvement Initiatives

Improve Customer Service

Shareholder Value

Performance Expectations Strategic Objectives

Improve ProductQuality

Develop New

Products & Tech.

Reduce Cost

Enter New Markets

Profitability Growth

StrategicObjective

Participants identify the company strategy

1

© Copyright 2004 Archstone Consulting LLC

Confidential2

Reduce Cost

Operational Objective

Improve Sales, General &

Administrative Processes

Improve Engineering Processes

Improve Scheduling

& Production Control

Processes

Improve Sourcing

Processes

Improve Production Processes

Improve Dispatch &

Transportation Processes

Improve Field

Service Processes

Reduce Cost

Through High

Quality

Improve Inventory

Management Processes

Improve Maintenance Processes

Improve Accounts

Receivable Processes

Improve Asset

Management Processes

Improve Safety

Processes

BackReduce

Cost Operational AdvantageTM processes guide the selection of the highest priority Operational Objectives and Improvement Initiatives

2

© Copyright 2004 Archstone Consulting LLC

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Process CostProcess TimeProcess Quality

Improve Engineering Processes

Improvement Initiatives

Improve Engineering Processes

Improve Accuracy of Engineering & Drawings

Reduce Cost of

Engineering Processes

Reduce Engineering Cycle Time

Improve Producibility of Designs

Back

Comprehensive diagnostics drive to the identification of the root causes of performance issues

3 All necessary analytical tools link directly from the diagnostics

4

© Copyright 2004 Archstone Consulting LLC

Confidential1

Process Design Tool

Allows the company to ensure that a project is on task, will be completed on time, and solve problems as they arise

Benefits

A team of people who have an understanding of all aspects of the business that will be effected

People, who have experience with Continuous Improvement and many of the tools and concepts

Cross-functional team members, to provide a variety of perspectives

Also known as, DMADV, it is an advanced process for continuous improvement.

5 step data driven process for designing processes

Eliminates unnecessary steps

Often focuses on new measurements

Utilizes many of the current tools

DMADV is an acronym for the phases:

1. Define (the business objective)

2. Measure (develop measurement criteria)

3. Analyze (the process design options)

4. Design (develop new process)

5. Verify (test new process)

In this document, each of these phases will be addressed on separate tabs.

Note: You may have to revisit a phase if you do not have enough information. An example of this would be while in the Analyze phase you are reviewing the data and you find that you do not have enough to isolate the root cause. In this case you would need to go back to the Measure phase to gather more data.

This tool differs from Process Improvement in that this tool is about designing, not making incremental improvements to an existing process

People to InvolveDescription

A process is not in existence at your company and one needs to be developed, or

The existing process has been optimized but still doesn't meet customer specification levels

Applicable Situations

Process DesignToolOpportunity

Implementation & Benefit Tracking

Process StepProcess which is not meeting

customer expectationsChallenge

© Copyright 2004 Archstone Consulting LLC

Confidential2

Define Phase

Deliverables

Project Charter

Project Plan

Organizational Change Plan

Risk Management Plan

Review presentation and Storyboard presentation

Steps

1. Develop the charter

2. Develop the project plans

3. Develop the organizational change plan

4. Identify the risks

5. Hold a review

Main Activities

Validate/Identify Business Opportunity

Validate/Develop Team Charter

Develop Team Guideline & Ground Rules

Questions

What are the strategic drivers for the project?

What is the problem or opportunity we are trying to address?

Why is process improvement (DMAIC) not adequate?

What is the scope of the project?

What is the project timeline and completion date?

What team resources are needed?

What are the major risks associated with the project? When and how will we address those risks?

How can we make sure the organization embraces and supports the changes resulting from the design?

ToolsProject Charter tool Pareto Chart toolBarrier Analysis tool Project Plan toolWBS tool Statistical Process Control toolCustomer Focus tool

Tips

At the top level, the goals will be the organization's strategicobjectives, such as higher return on investment or market share

At the operations level, the goal might be to increase the throughput of the engineering department

At the project level, goal might be to redesign the project management process

Definition: Define the goals of the design activity. What is being designed? Why? Note: make sure that the goals are consistent with customer requirements and business strategy

Objective: To identify and/or validate the process design opportunity, develop the business process, define critical customer requirements, and prepare to be an effective project team.

Processes, diagnostics and tools are simple to understand and use and contain numerous examples so employees with little familiarity can successfully participate

Page 29: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

The Operational Advantage TM Program has defined five major strategy-level improvement objectives focused on profitability and growth

Improve Quality

Develop New Products &

Services

Improve Customer Service

Reduce Costs

Enter New

Markets

Strategic Objectives are tied to critical business metrics, providing the initial

links in the accountability chain

Grow Revenue

Increase Gross Margin

ReduceWorkingCapital

IncreaseOperatingEarnings

ImproveReturn on

Assets

Profitability

Growth

Page 30: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Each Strategic Objective is further decomposed into Operational Objectives that focus on a company’s specific transitional needs

Profitability Growth

Op

era

tio

na

l O

bje

cti

ve

Str

ate

gic

Ob

jec

tiv

e

Reduce Cost/Low-CostProvider

Improve Prod.Quality/

High QualityProvider

Improve Cust.Service/

High ServiceProvider

ImproveSG&A

ImproveEngineeringProcesses

ImproveInventory

ManagementProcesses

ImproveSourcing

Processes

ImproveProductionProcesses

ImproveScheduling

& ProductionControl

Processes

ImproveMaintenanceProcesses

ImproveAccounts

Receivable

ImproveAsset

ManagementProcesses

ImproveSafety

ImproveQuality of

Engineering

ImproveQuality ofProduction

ImproveQuality

Processes

ImproveOn-TimeDelivery

ImproveCustomerService

Processes

Develop NewProducts &Technology

Enter NewMarkets

ImproveMfg.

Flexibility

ImproveProduct/

TechnologyDevelopment

& Launch

ImproveSales

PipelineProcesses

ImproveMarketing

Capabilities

ImproveField ServiceProcesses

Reduce Costthrough

High Quality

ImproveDispatch &Transport.Processes

Page 31: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Identifying and developing clusters requires a similar systematic and disciplined approach

• Identify major companies in the area

• Conduct survey with select companies

• Identify trends across major industries

• Develop selection criteria

- Promising Technology

- Economic Benefit

- Competitive Advantage

• Identify impact on strategic technology manufacturing sector

• Develop cluster strategy for each of the clusters

• Prioritize clusters

• Identify gaps in the clusters

• Allocate resources, funds and efforts based on prioritization

• Develop minimum requirements to qualify for state sponsorship

• Conduct quantitative and qualitative evaluation

• Develop a committee of government and private sector

• Take measures to formalize cluster communications

• Organize committee for each cluster

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

• Carefully plan

and manage processes designed to diversify a culture

• Develop detailed execution plan

• Attributes of the execution plan

- Project management team

- Project timelines

- Communication plans

- Legal documents

• Develop Communication Plan

- Improve manufacturing image

- Facilitate manufacturing education initiative

- Facilitate risk taking for entrepreneurs

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Maryland has ample data available to identify traditional and emerging advanced technology manufacturing clusters

Maryland’s manufacturing sector has experienced steady decline Workforce in 2003 was 5.9% compared to more than 9% in early 1990s Gross State Product (GSP) was 7.2% in 2001 compared to approximately 10% in early

1990s

Despite a drop in the job growth and GSP, the manufacturing sector has Steadily increased the total output since 1992 Created significant earnings and jobs in other sectors

Research and analysis into the multiplier effect across the manufacturing sector in Maryland revealed that the following industries provided the most economic value to the state*

Food, beverage and tobacco manufacturing Printing and related support activities Transportation equipment manufacturing Chemical Manufacturing Furniture and related product manufacturing

However, advanced technology manufacturing offers significant opportunity for Maryland to invest in the future

* The multiplier effect accounts for the total impact of the manufacturing sector on Maryland’s output, employment and earnings, indicating that it is larger than the direct manufacturing measures indicates

Profile Manufacturing Industry

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

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February 23, 2006

Promising technology and economic benefits are key criteria for developing clusters

Qualitative Criteria

• Promising Technology

• Environmentally Friendly

• Legal Requirements

• Resources Requirements

• Location and Area Requirements

Quantitative Criteria

• Economic Value to the State

• Size of the industry

• Growth Potential

• Funding Requirements

• Tax incentives

• Impact on Other Industries

• Tax Revenues

Institutionalizing an unbiased evaluation process for developing clusters depends on both qualitative and quantitative criteria

Classify Mfg Industry into Clusters

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

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February 23, 2006

Cluster classification assists in focusing resource and fund allocations

Clusters can be classified into one of the six categories:

Competitive Those that have scale, such as Hollywood, Silicon Valley or Detroit

Strategic Small but vital to region’s interest

Emerging Those with high growth rates, such as bio-tech

Potential Those with core competencies that might be developed, such as environmental tech.

Mature Those with low or no employment growth

Stabilizing Those that add diversity to economy, such as tourism or business services

The table below classifies major Maryland’s industries into clusters based on jobs and GSP growth information

Classify Mfg Industry into Clusters

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Industry Cluster Type Companies Within the Cluster

Leather and Leather Products Strategic Cluster Fila, Clemco

Textile Mill Products Strategic Cluster Krenik Manufacturing Company, Offray, Gore, MD Screen Printers, Inc.

Lumber and Wood Products Strategic ClusterLarge variety of companies that use wood as an intermediate product during the manufacturing process and others that produce finished wood products. i.e. American Woodmark

Fabricated Metal Products Emerging ClusterFabricators Steel and Manufacturing Corp., Industrial Knife Company, Stromberg Sheet Metal, Swales and Associates, Master-Halco, DynCorp, MaTech, Thermoform, East Alcoa

Chemicals and Allied Products Competitive ClusterMillenium Inorganic Chemicals, WL Gore, FMC Corp., Alpharma, Proctor and Gamble Cosmetics, WR Grace, Qiagen, Unilever, Medimmune

Food and Beverage Products Competitive ClusterGiant Food, Nafco, Dreyer’s, Marktek Biosciences Corporation, Faidley’s Seafood, Clipper City Brewing Company, Solo Cup, McCormick, BD Biosciences, Phillips Seafood, Breyers, Perdue Chicken

Industrial Machinery and Equipment Mature Cluster Micros Corp., BP Solar, Mack Trucks, Black and Decker, GM Powertrain, National Jet

Printing and Publishing Mature Cluster Harland Company, Custom Direct LLC, Moore Wallace BCS, Cadmus

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February 23, 2006

Traditional manufacturing industries add value to other sectors in areas such as product development, environment and transportation

Classify Mfg Industry into Clusters

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Food and

Beverage

Manufacturing

PrintingAerospace and

Defense

Modern

Agriculture

Distribution and

Warehouse

Bio-Technology Environmental Friendly, Product Development

Product Development

Information Technology Print Management Software

Miniaturization, Product Development

Nanotechnology Genetic ModificationsPrinting Material

DevelopmentMiniaturization, Product

Development, R&DGenetic Modifications

Miniaturization RFID, Product Development

Miniaturization, Product Development

Bio-intensive GrowthRFID, Product Development

Transportation System Transportation Solution Development

Transportation Solution Development

Intelligent Transportation System Solutions

Development, Product Development

Transportation Solution Development

Energy (hydrogen, fuel

cell, alternative energy)Environmental Friendly Environmental Friendly Environmental Friendly

Aerospace and DefenseNext generation sensors

for process control, Defense, Security

Advanced Agriculture Genetic Modifications, Environmental Friendly

Product Development, Genetic Modifications, Environmental Friendly

Craft Manufacturing

IndustriesEnvironmental Friendly Transportation

Traditional Manufacturing Industries

Em

erg

ing

Man

ufa

ctu

rin

g In

du

stri

es

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February 23, 2006

Security Defense MiniaturizationEnvironmental

Friendly

Next Generation Sensors for

Process Control

Protecting Intellectual Property

Transportation

Product Development

(Commercializing Technology)

Traditional Manufacturing

Industries

Food and Beverage Manufacturing X     X     X  

Printing X     X     X  

Aerospace X X X X   X X X

Modern Agriculture X     X     X X

Distribution and Warehouse X           X  

Strategic technology

Manufacturing Industries

Bio-Technology X   X X   X   X

IT X   X     X   X

Nanotechnology X   X     X   X

Miniaturization (actuators with computing

technology), RFIDX   X     X   X

Transportation X         X X X

Energy (hydrogen, fuel cell, alternative energy) X     X        

Aerospace X X     X X   X

Advanced Agriculture X     X   X   X

Craft Manufacturing X     X     X  

Cross cluster themes that support multiple industries will also enhance Maryland’s strategic ability to focus critical manufacturing resources

Cross Cluster ThemesIndustries

Classify Mfg Industry into Clusters

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

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February 23, 2006

Maryland should develop a strategy specific to each of the target clusters

3 Allocate Resources1 Prioritize Clusters 2 Identify Gaps

Qualitative Criteria

Quantitative Criteria

Tier 1

Tier 2

Tier 3

Prioritization

Core

Supporting

Related

Impacted

Core

Supporting

Related

Impacted

Required businesses/institutions

Develop Cluster Specific Strategy

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

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February 23, 2006

The state should then determine the policies that will best foster the targeted clusters…

Increase Cluster Networking and

Learning

Increase Cluster Networking and

Learning

Reestablish or recognize cluster associations and alliances Facilitate external connections Encourage inter-cluster communications

Efficiently OrganizeAnd Deliver

Services

Efficiently OrganizeAnd Deliver

Services

Aggregate and publish information by cluster Form cross-agency quick response teams

State Policy Levers*,**

Make Targeted Investments

Make Targeted Investments

Invest in cluster R&D Establish cluster-specific technology centers or parks Support cluster-based entrepreneurial activity

Improve WorkforceImprove Workforce Develop a more skilled and specialized labor force Establish cluster skills centers Qualify people for employment

* From “A Governor’s Guide to Cluster-Based Economic Development”** These recommendations should be planned and executed conjunction with the recommendations of the Pappas Commission

Develop Policy and Communications

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

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February 23, 2006

...formalize cluster communication targeted and tailored for specific constituencies…

educationbusiness

Education initiatives University outreach

Trade shows Business journals Newsletters Trade associations

Mass media advertising

Community out-reach

Develop Policy and Communications

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

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…recruit companies by approaching a broad set and then progressively narrowing the field until the best remain…

Negotiation

OpportunityDevelopment Initial

Communication OpportunityAssessment Follow-up

CommunicationProposal

PresentationPotentialCompanies

PotentialCompanies

ClusterCompany

Recruit Companies to Fill Gaps

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

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February 23, 2006

…develop a rigorous implementation plan to execute the strategy…

Activities

Project Milestones

Week

1 2 3 4 5 6 7 8 9 10 11 …

Initiative Kick-Off

Tier 1 Plan

• Define project management team

• Finalize approach

• Craft communication plans

• Integrate cluster companies

• Draft legal documents

Tier 1 Plan

• Define project management team

• Finalize approach

• Craft communication plans

• Integrate cluster companies

• Draft legal documents

Tier 1 Plan

• Define project management team

• Finalize approach

• Craft communication plans

• Integrate cluster companies

• Draft legal documents

Develop Execution and Communication Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

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February 23, 2006

…and implement a comprehensive communication strategy that builds on success to create more and better clusters

PublicizeWins

ShareLearnings

ImproveImage

Attract MoreCompanies

DocumentSuccesses

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Profile Manufacturing

Industry

Classify Manufacturing Industry into

Clusters

Develop a Cluster Specific Strategy

Establish Policy for State

Sponsorship

Formalize Cluster

Communication

Recruit Companies to

Fill Gaps in Cluster

Develop an Execution

Plan

Develop Communication

Plan

Page 43: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

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February 23, 2006

Recommendations

Maryland should pursue multiple activities to promote manufacturing:

1. Follow a rigorous approach to identify, create, promote, develop, and maintain new and existing manufacturing clusters

2. Develop and promote a pro-manufacturing image for Maryland

3. More effectively market Maryland as a center of valuable R&D, and as a home to many leading technology companies

4. Purse policy measures to attract technology companies to Maryland

5. Support the operational improvement of existing tradition manufacturing capabilities within the state

If Maryland follows the above recommendations it will be well positioned to thrive well into the future

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1. Establish a permanent State Chief Manufacturing Officer

2. Increase utilization and effectiveness of Maryland Manufacturing and Business development Councils

3. Encourage entrepreneurial initiatives and technology transfer, especially for those Maryland companies who can leverage manufacturing and the global supply chain

4. Support the State’s targeted manufacturing clusters with capital and operating funds for best practices and operational excellence

5. Allow State higher education institutions greater leeway under State personnel and procurement rules for activities that are not directly supported by State General Funds

6. Increase state funding for academic research related to the broader view of the Extended Enterprise represented by manufacturing

7. Encourage Maryland research consortia to compete for large federal funding opportunities supporting the emphasis on Advanced Technology Manufacturing

8. Create alternative financing vehicles to create more laboratory space for applied research and commercialization opportunities at Maryland’s Universities

9. Promote increased coordination at University and college technology transfer, applied research, and advanced manufacturing offices

To increase the manufacturing commercialization of R&D being created by the laboratories and universities within its borders, Maryland should:

Recommendations

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Next Steps

Apply lessons learned from Maryland biotechnology and education (Career Clusters) efforts to other traditional and strategic technology clusters

Build a commission-based role to coordinate cluster activities across the state’s multiple constituencies (including business, academia, government, and advisory services)

Further develop cluster concentrations to determine ways to marshal resources and develop implementation plans for proposed manufacturing clusters

Pursue ways to consolidate/coordinate multiple constituencies interested in supporting manufacturing across the state

Use academia’s unique position to optimize competing government (federal and state) and business interests and gain consensus

Identify the most effective “levers” to pull in support of manufacturing clusters

Institutionalize the Maryland Manufacturing Strategy Process to build on the momentum generated by coordinating activities across business, government, academia, and industry advisors

Assess Progress Continually Revaluate Initiatives and Clusters

Continue to emphasize those efforts to support the relationship between disruptive research, innovation, and manufacturing competencies that lead to new products, processes, customers and markets.

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February 23, 2006

Appendix

Page 47: February 23, 2006 Maryland Manufacturing in the Global Digital Economy Maryland Advisory Commission on Manufacturing Competitiveness January 2007

February 23, 2006

Current Situation

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The manufacturing sector has steadily increased output as well as assisted other sectors in increasing earnings and job growth

Maryland’s manufacturing sector has experienced steady decline in the last decade

Workforce in 2003 was 5.9% compared to more than 9% in early 1990s

Gross State Product (GSP) was 7.2% in 2001 compared to approximately 10% in early 1990s

Despite a drop in the job growth and GSP, the manufacturing sector has

Steadily increased the total output since 1992

Created significant earnings and jobs in other sectors

Research and analysis into the multiplier effect across the manufacturing sector in Maryland revealed that the following industries provided the most economic value to the state

Food and beverage manufacturing

Printing and related support activities

Transportation equipment manufacturing

Chemical Manufacturing

Furniture and related product manufacturing

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Category MetricUS

RankMaryland Current Situation

Current Manufacturing Sector

Total Mfg Employment

Mfg Output/GSP

43

46

148K jobs in the manufacturing sector represents only 5.9% of Maryland’s workforce

Manufacturing sector is suffering from a poor image among the students

Quality of the Work Force

Workforce Education

Manufacturing Education

1

32

Despite the highest ranking in overall education, Maryland’s manufacturing workforce lacks basic skills

16.5% workforce represented by unions

Taxes, Government and Policy

Budget Deficit/Stability

Taxes

AAA Bond

43

Despite having AAA Bond rating and a low budget deficit, environmental and government regulations coupled with high taxes were hurting the businesses

Proximity to the Federal Government is a big plus

Infrastructure Rental Cost for two bedroom apartment

Travel Time to Work

Household with internet access

39

49

6

Second longest commute time and comparatively high cost of living don’t favor well with the businesses

Maryland has access to 92 million consumers within 500 mile radius and one of the busiest ports in the US

58% of households have access to the internet

Proximity to the federal government, access to 92 million consumers, a vibrant economy and fiscal stability entices businesses…

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Category MetricUS

RankMaryland Current Situation

Economic Dynamism Venture Capital

Initial Public Offering (IPO)

5

7

Maryland has a vibrant economy and is ranked high in both venture capital dollars and number of IPO

Technology R&D Intensity 4 4.6% of GSP spent on R&D compared to national average of 2.66%

Quality of Life Most Livable State 14 Maryland ranks fairly high as a state to live in, despite high number of crimes and second worst homicide rate

Openness Exports Per Capita

Foreign Direct Investment (FDI)

44

26

Maryland’s $926 export-dollar per capita is well below the US average of $1900 per capita

…despite a decline in manufacturing jobs, low export-dollar per capita, and high representation of labor union

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Leveraging manufacturing strengths and working on overcoming major challenges will be the key to attracting companies

Strengths

• Proximity to the Federal Government provides opportunities to enhance lobbying efforts

• Access to 92 million consumer base within 500 mile radius provides opportunities to be close to wide range of customer

• Access to the port of Baltimore, one of the busiest ports in the US offers assembly opportunities at the dock before exporting

• Intensity in R&D demonstrates commitment to innovation and process improvement

• Vibrant economy that has ample access to venture capital and the value generated by IPOs

• Highly educated workforce provides a skilled workforce base

• Manufacturing assistance programs focused on enhancing manufacturing through tax incentives, sharing of technology and resources

Challenges

• Manufacturing image suffers an outdated reputation and fails to communicate modern aspects of the manufacturing environment

• Significant drop in the manufacturing workforce does not bode well with the manufacturing businesses

• Gap in education of the manufacturing workforce results in lacking in basic skills and higher training costs

• Infrastructure issues such as traffic congestion and high cost of housing makes it difficult to attract employees

• Taxes and Government regulations lead to a high cost of doing business

• Low export dollar per capita and lack of significant FDI indicates a lack of openness to globalization and makes economies less competitive

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Category Metric MD % of Total RANKUS Avg or

Total% of Total

Total Mfg Employment (in 000s) 148 5.9% 43 14,525 11.18%# of Mfg Companies 4,519 1.2% 13 386,863 N/AMfg Output/GSP 7.2% N/A 46 14% N/A

Unemployment Rate 4.0% N/A 10 5.6% N/AAvg Annual Mfg Wage $48,568 N/A 5 $44,097 N/A% of Labor Force Represented by Unions 16.5% N/A 38 14.3% N/AWork Force Education 60.9 N/A 1 49.2 N/AEducation Level of Manufacturing Force 0.95 N/A 32 1 N/AInformation Technology Jobs 2.40% 5 1.70%Managerial, Professional and Tech Jobs 33.30% 2 29.10%

State Corporate Taxes 7.0% N/A 25 6.72%Budget Deficit as % of GSP 1.9% N/A 21 2.10%Average benefit per First Payment, for Unemployed $2,879 N/A 30 $2,830 N/AState Bond Rating AAA N/A N/A

Electricity cost, Avg. revenue/KWH $0.039 N/A 9 $0.053 N/AHouseholds with Computers % 64.1% N/A 8 N/AHouseholds with Internet Access % 57.8% N/A 6 N/ATravel Time to Work 30 min. N/A 49 22 min. N/ARental Cost 2 Bedroom Apartment (Land Cost) $865 N/A 39 $720 N/A

Venture Capital Per Capita 1,226$ N/A 5 N/AEmployer Firm Births p/ 100,000 Inhabitants 377 N/A 10 N/AEmployer Firm Terminations p/100,000 Inhabitants 383.4 N/A 16 N/AInitial Public Offerings 6.5% N/A 7 5.0% N/A

R&D Intensity 4.6% 4 2.7%Numbet of Patents 467 1.7% 19 27,017 Science and Engineering per 100,000 Inhabitants 237.7 2.3% 14 206Scientists and Engineers as % of Labor Force 12.6% N/A 6 8.6 N/AOnline Manufacturers 81.7% N/A 39 84.5% N/A

Reported Crime per 100,000 habitants 4,747 2.4% 40 3,900 % Change in Crime Index -3.4% N/A 23 -330.0% N/AMurders per 100,000 Habitants 9.4 4.1% 49 4.6 N/A% of People w/o Health Insurance 12.0% N/A 23 14.7% N/AMost Livable State 28.7% N/A 14 N/A N/A

Exports per Capita 926 0.97% 44 1,900 FDI 4.1% 26 4.7%

Economic Dynamism

Technology

Quality of life

Openness

Work Force

Current Manufacturing Sector

Taxes, Government and Policy

Infrastructure

State of Maryland Ranked in Selected Metrics

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February 23, 2006

Maryland Manufacturing

•Manufacturing remains an important part of Maryland’s economy, accounting for 7.2% of the gross state product

•The total output of the manufacturing sector grew steadily from 1992 to 2001

•The multiplier effect magnifies the importance of manufacturing across the state

Declining Manufacturing

BaseGovernment Industry

Academia

IndustryAdvisers

Maryland Manufacturing

Strategy

ManufacturingStrategy

Development

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February 23, 2006

Gain Consensus

Academia is uniquely positioned to optimize competing government (federal and state) and business interests and gain consensus.

Business Interests

Government Interests

• Low taxes• Skilled employees• Low regulation• etc.

• Tax revenue• Full employment• Environment• etc.

Core

Supporting

Related

Impacted

Core

Supporting

Related

Impacted

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February 23, 2006

A few of the states have successfully implemented cluster policy include

Arizona – The Greater Tucson Economic Council has adopted cluster policies as “framework for the overall direction of the economic development activities and allocation of limited resources

Connecticut – The state has embarked on a cluster-based strategy built around the idea that nurturing the state’s key industries improves the competitiveness of businesses within these industries

Minnesota – The University of Minnesota, in association with state and local policy programs, are examining rural knowledge clusters as a model for innovative, dynamic rural economies

Maryland has successfully implemented cluster policy for secondary and post-secondary education

Additional examples of cluster policies implemented by other states are listed belowState Organization Description of Activities

Kentucky Center for Urban and Regional Studies at UNC, Chapel Hill

Used a sophisticated benchmarking technique to identify clusters in Kentucky.

Maine Maine Science and Technology Foundation Commissioned a report to promote economic development through the application of science and technology. The report outlined eight clusters that exist in the New England area.

New York Empire State Development Identified 12 industry clusters in the state to help guide development strategies.

North Dakota Greater North Dakota Association The association's New Economy Initiative uses a cluster approach to build relationships between businesses in each cluster area.

Oregon Oregon Department of Community and Economic Development

Developed cluster groups with firms and associations in key productive industries between 1990 and 1996.

Wisconsin Wisconsin Department of Commerce The Department of Commerce has made the cluster approach a focus of its economic development strategy.

Arizona, Connecticut and Minnesota have successfully implemented cluster-based policies

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One of the key goals of cluster-based policies is to direct funds to the most productive industry channels

Cluster-based economic development policies contain important “spillover” effects that extend their influence beyond the specific business that are targeted for support

Cluster-based policies reinforce two linkages that help to perpetuate a skilled and educated workforce

Providing residents with more jobs in growing industries Forging a healthy collaboration between industry and educational institutions

Cluster policies improve the scope of community involvement in the corporate sector

Coordination efforts between communities and cluster leaders can lead to development of child care services, transportation improvements, and home ownership programs

Industry clusters make it easier and more effective for town planning commissions to target potential businesses seeking to locate in the area

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February 23, 2006

Public policy makers should know when to pursue them and when to push them aside for cluster-based policies to be successful

Policy makers should avoid following pitfalls while developing cluster-based policies:

Cluster-based policies are not the same as industrial policies – cluster-based policy initiatives must promote the competitive advantages of an interlinked group of related industries

Cluster creation is best left to the market – policy makers should refrain from the temptation to create new clusters and leave cluster formation to the market mechanism

Let research, not politics, drive the facilitation of clusters – policy makers must not bow to the pressures of political lobbyists pulling for certain industries, unless it is supported by specific research indicating tangible benefits

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Cluster Pitfalls

Cluster-based policies are not the same as industrial policies

Cluster creation is best left to markets

Let research, not politics, drive the facilitation of clusters

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Success Factors Value to Clusters Example

Skilled Labor Force Most important determinant for a cluster’s success

Knowledge of the industry supplemented by formal education drives the cluster and attracts new members

Specialized skills were vital to the development of the semiconductor in the Silicon Valley

R&D Capability Availability and accessibility of research centers and expert individual researchers to provide cutting-edge research and solve pressing problems

Specialized optics and imaging institutes and active professional associations provided channels for developing an optics and imaging cluster in Rochester, N.Y.

Proximity of Suppliers Proximity of suppliers assist in reduced inventory carrying costs, innovation, and delivery time

Quick dissemination of information between cluster members and knowledge sharing reduces product development and R&D costs

Hosiery cluster in North Carolina also encompasses yarn, needle, dyestuff and packaging materials suppliers

Proximity assists the cluster in organizing events for exchange of knowledge

Access to Specialized Services

Specialized services provide functions tailored to industry and are integral to cluster’s success

The Industrial Technology Institute in Ann Arbor, Mich., was established to support the modernization of the auto industry

Entrepreneurial Energy Small firms rely on research institutions, associations or other special services in order to remain competitive

Entrepreneurs highlight benefits of the cluster and will attract new members

Entrepreneurial energy was one of the key reasons for the success and expansion of the Silicon Valley

Shared Vision and Leadership

Increases competitiveness and profitability of its member firms

North Carolina hosiery industry strengthened the buying power against major customers such as Wal-Mart by negotiating collectively

Having a skilled labor force is one of the key factors for the success of clusters

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Focus communication plans to improve the image of manufacturing industry and facilitate manufacturing education initiative

Universities

Trade Schools

Primary Schools

Management Workforce

Coordination & Feedback

Training & Education

• Literacy• Basic PC Skills• Skilled Trades

• Managerial Skills• Engineering Abilities

Educating the workforce and managers will be key to the success of the cluster strategy.

Engineering Business