Catalent’s embrace of top technology makes it something of an outlier in Indiana, by some measures the nation’s top manufacturing state. Productivity in Indiana’s most advanced industries — including agricultural chemicals, medical equipment and adhesives production — has lagged behind the national average for the past 10 years and the gap is widening, according to a new Brookings Institution study. A key reason is that Indiana’s manufacturers and other companies are moving too slowly to adopt a host of digital technologies.
“The issues they’re dealing with are typical of U.S. manufacturing,” said Mark Muro, the principal author of the Brookings study. “They have pretty big competitiveness problems.”
As President Biden promises to spur domestic production through a Buy America initiative and massive investments in infrastructure and clean energy, Indiana could struggle to capitalize. Its technology and labor shortcomings illustrate broader concerns about U.S. competitiveness and national security that are drawing attention from lawmakers in both parties.
Between 2007 and 2019, in the most advanced industries, Indiana’s annual output per worker barely grew, rising to $298,300 from $285,100. Meanwhile, the national average soared to $375,000, according to the Brookings study.
“Our absence of a comparative advantage in that sector risks a long-term economic decline,” said Michael Hicks, director of the Center for Business and Economic Research at Ball State University. “We are still relatively productive in our older sectors, but those jobs and production are at heightened risk of disappearing.”
In Washington, Sen. Todd C. Young (R-Ind.) worries about the links between industrial innovation, global competition and national security. He introduced legislation last year that would provide $100 billion over five years to spur fundamental research into technologies such as artificial intelligence, robotics and advanced manufacturing to prevent the United States from losing its innovative zeal.
An additional $10 billion would be earmarked for regional tech hubs that could spawn new companies in heartland states such as Indiana that often are overlooked by venture capitalists, Young said.
“We have seen nationally an erosion in our manufacturing capacity,” he said in an interview. “… We need to make sure the U.S. can out-compete, out-innovate and outgun Communist China.”
Indiana boasts several world-class manufacturers in the automotive, aerospace and pharmaceutical industries, including Cummins, an engine maker, and drug giant Eli Lilly. Overall, the state’s economy has rebounded from the pandemic recession better than most, regaining almost nine out of every 10 jobs lost last year.
But the past four years were a struggle for manufacturers in Indiana and the rest of the nation. President Donald Trump vowed in his inaugural address to revive “rusted-out factories, scattered like tombstones across the landscape of our nation” by using tariffs to draw work back to the United States, but he had little lasting impact.
Mirroring the national trend, factory employment in Indiana rose for the first two years of his term, but then flatlined. About 503,000 Hoosiers work in factories today, 25,000 fewer than when Trump assumed office and about the same as in 2014, according to the Bureau of Labor Statistics.
Likewise, despite Trump’s pledge to eliminate the merchandise trade deficit, it topped $904 billion last year, up almost 19 percent on his watch.
“There’s a lot of upside to manufacturing right now. The only direction it can go is up,” said Scott Paul, president of the Alliance for American Manufacturing. “Our global position worsened significantly over the past three years.”
Manufacturers have not suffered as much from the pandemic as have service industries such as restaurants and hotels. When governors began issuing stay-at-home orders last year, many factories producing medical gear, food and industrial components were deemed essential and allowed to keep operating.
Still, even the best performers took a hit. Cummins earlier this month reported revenue of $19.8 billion, 16 percent below the previous year. Profits fell by one-quarter to $1.8 billion, with CEO Tom Linebarger blaming “the severe global impact of the covid-19 pandemic.”
In January, the manufacturing sector expanded for the eighth-straight month, according to the Institute for Supply Management. Factories in many cases have been reorganized for socially distanced production, “but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers” are crimping output, the group said.
“Optimism is rising in the sector,” said Aric Newhouse, senior vice president of policy and government relations for the National Association of Manufacturers. “We believe we’re on a path to recovery, but not as quick a path as anyone would like it to be.”
The coronavirus crisis has spurred some companies to introduce technology as they retool to operate amid the pandemic. Aisin USA, an automotive industry supplier in Seymour, installed an infrared camera system to quickly take the temperatures of more than 2,000 employees as they entered the plant, according to a study last year by Conexus, an Indianapolis-based nonprofit organization.
Catalent acquired its Bloomington plant — once the world’s largest television factory — in 2017 by purchasing a small biologics manufacturing company called Cook Pharmica. The pandemic caused New Jersey-based Catalent to accelerate the installation of the new high-speed lines for filling vials and syringes.
Catalent’s coronavirus vaccine contracts have contributed to a roughly 100 percent gain in the company’s share price since April. Even as it has bet on machines, the company over the past two years has added more than 1,000 employees, doubling its Bloomington workforce, and plans to hire hundreds more this year, said Bernie Clark, Catalent’s vice president of marketing and strategy.
“The real story is the digital. The pandemic has increased the adoption of it,” said Bobby Bono, leader of the U.S. industrial manufacturing practice for the professional services firm PwC in Tampa. “The companies that do it quickly and do it well are really going to differentiate themselves.”
But Indiana has a long way to go to catch the leaders in Internet-based production technologies known as Industrial Revolution 4.0. In an August survey of 380 advanced manufacturing and logistics companies, Conexus found that only 12 percent said machines do most of their production work with some assistance from humans, while 45 percent said humans were bearing the heaviest load.
“Most Hoosier manufacturers have yet to start a journey toward leveraging automation, which could ultimately put all of their employees at risk should their business’ competitiveness erode,” the report concluded.
Indiana ranks 37th among states in the amount of information technology investment per worker, with its advanced industry companies spending just $12,287 — about one-quarter of what similar employers in top-ranked Washington state spend, according to the Brookings report.
Of course, there’s no point in buying sophisticated technology unless a company can marry it with the right workers. Hicks said investment is lagging behind because the state’s education system is not producing enough workers with the technical training required to operate cutting-edge gear. Little more than a quarter of the state’s residents have earned a bachelor’s degree or higher, according to the Census Bureau. Nationally, the figure is 36 percent.
“It’s really the quality of the labor force. Indiana has lagged the nation on all levels of school completion,” he said.
The Brookings report recommends that Indiana add a “digital skills” provision to its college degree requirements. But producing trained workers takes time.
In the interim, state officials are trying to help manufacturers navigate the pandemic by providing $4 million in modernization grants.
In October, Barber Manufacturing, a 127-year-old maker of furniture springs, got $100,000 to retrofit its 80-year-old production equipment with improved sensors and drives.
TBK America in Richmond, a producer of oil pumps and water pumps, is putting $89,444 in state money toward the purchase of a cloud-based warehouse management system.
And at Decatur Mold, Tool and Engineering in North Vernon, Rhonda Hoerle, the company president, plans to use $65,000 in state funds to buy a robotics system to automate metal fabrication work. The programmable unit will eliminate the need to halt production to change tools, which should make the business more competitive and bring in more revenue, she said.
“It’ll run lights out, through the night,” Hoerle said.