Interview: industry vets on the future of Canadian manufacturing

Manufacturing is vital to Canada, adding close to $170 billion to our GDP and supplying 1.7 million jobs. But this sector also struggles to keep pace with the rest of the economy. Manufacturing GDP declined by 14% between 2000 and 2013, while the economy grew by 37% overall, according to a recent study by the Lawrence National Centre for Policy and Management. What must Canada do to become competitive in the global marketplace? What role do manufacturers, government and the education system have to play? Canadian Business, in partnership with Siemens Canada, convened a panel of leaders to determine what the industry’s future might look like. Here are some selected excerpts of their conversation with Canadian Business editor-in-chief James Cowan.

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James Cowan: Before we talk about the future, let’s discuss the current situation. What are the top concerns for Canadian manufacturers today?

Michael Sinnaeve, global vice-president, operational improvement and quality, Magna International: One of the biggest challenges is competing with low-cost jurisdictions. A lot of the product we have is labour-intensive for the manufacturers. But the majority of the products we make in the auto industry are actually large vehicle components, so you have to be within a certain distance of the assembly plants. The challenge is finding low-cost ways to ship these products and convince the manufacturers we can do it. We’ve actually lost opportunities where we were awarded a product in Canada, but our plant was considered too far away, even though it would still be low cost. The company wanted us to build a divisional plant within a certain distance of their assembly plant.

Joris Myny, senior vice president, process industries and drives division, digital factory division, Siemens Canada: When you talk to people who are in manufacturing, most are worried that the products they are designing and planning will actually sell as expected. “Are we designing the right products?” The production life cycle of a product is shorter and shorter. New products are coming faster to the market, and the Internet now allows for a higher degree of customization of products that makes the products much more complex to manufacture quickly.

Paul Boothe, professor and director, Lawrence National Centre for Policy and Management, Ivey Business School of Western University: I would take things in a bit of a different direction. When I look at what’s happened to Canadian manufacturing over the past five, 10 years, I would say a big concern is the fact that the average manufacturer has one big customer—the United States—and it hasn’t been doing very well. If you look ahead, even as the U.S. recovers, they’re going to be relatively slow compared with emerging economies in Asia and Latin America.

Tony Elias, senior vice-president, operations, Valiant Corp.: Right now, the concern is finding skilled workers that want to pursue a career in the tooling industry. When we talk about mechanical engineers, electrical engineers, mechatronics engineers, it’s very difficult for us to find those folks graduating out of universities. And the ones that do graduate tend to end up going to the U.S. because they’re paying more. There’s a pretty high demand in the U.S. for engineers; they have shortages.

Cowan: So how do you address that skills shortage?

Eric Kiisel, senior vice-president, energy and consumer, ATS Automation Tooling Systems: One of the things I think we need to strengthen in Canada is how our companies work with universities and colleges. If you look at Germany—and even Britain—the educational programs involve businesses and companies in defining what’s required. I’d like to see more emphasis on trades and apprenticeships. We’re looking at making hires in skilled trades—toolmakers, electricians—trained and skilled people who can work on complex systems and improve the efficiency of manufacturing processes and methods. Over the years, our company has had a relationship with local colleges and universities, where we’ve provided them with funds at times, but we’ve also given them the time of some of our people, to meet with their educators and define curricula. So I think that would be a big game changer.

Sinnaeve: Right now, we’ve identified a bunch of universities, many of them in the U.S. and Canada, and we’re working with them, actually going and trying to promote why the auto sector is sexy—why it’s exciting. We put a presentation on for the students to get them to realize it’s not just about metal bashing. If the car is not appealing—no matter what the technology we have and the innovative things inside—it doesn’t catch the consumer.

Cowan: Moving beyond the education system, what could government do to drive innovation in the manufacturing sector?

Myny: If you look at what the factory of the future looks like, you’re really talking about a smart factory. It becomes part of the Internet of things, where a network links every component in the plant and even the products being manufactured can communicate. You can have virtual production systems, where even as the product is being designed, the manufacturing system is being designed at the same time. But you need the bright minds that are being produced by our universities and most are currently going elsewhere. To keep them, there needs to be a “wow” factor to manufacturing in Canada. You could create, with government funding, a manufacturing centre of excellence. With an investment from the government, you could create a place where bright, young minds can get in touch with state-of-the-art technology. We could create a breeding ground for them to hang around and bring their dreams.

Elias: I think tax credits can also be a good thing. It’s really important for a company to be able to stay current, and sometimes the cost of technology, of innovating, could be a bit prohibitive if they don’t get a little help. The cost of developing new lightweight material boarding technologies can be extremely high, and businesses aren’t interested in losing money. But once you’ve developed them once, they help us grow a Canadian company around the clock. But you cannot make the tax credit so complex that people will shy away from it.

Cowan: I’d like to pivot the conversation to emerging markets. Are they competition for Canadian manufacturers, or are they potential customers?

Elias: I think that’s a clear misconception that companies go overseas because of lower labour. We have to be where the customers have operations; global customers expect global support. We have to be there because our customers are taking us there. It’s not because we want to manufacture stuff in India and send it to Canada.

Sinnaeve: The catch is that we develop talent here and then we start a new plant overseas, so we have workers that we have to ship over. It’s often a short period for them of one to five years, where part of their mandate is to train their local replacements. But we manufacture smaller parts, like latches, at our plant in Newmarket, Ontario. And they’re easier to ship anywhere in the world. It costs less to make them here than at our plant in China, because of the way their wages are going up so fast. You can be competitive in Canada.

Cowan: Lastly, let’s talk about some success stories. Where have you seen companies preparing for the future, through innovation or improvement?

Myny: Where I see an opportunity is that with a smart factory, technology allows you to have the networking of sales, products and components. That creates a paradigm shift.

Elias: Innovation today is not limited to product, it can be seen in processes. Five years ago, when you were planning a new factory, you’d go into a plant and measure certain dimensions with a tape measure. Then you’d create a layout, and then you’d try to go and assemble the machinery. And that’s when you’d say, “Gee, you know, I forgot this column.” Today we do it with laser scanning. In a matter of an hour I get the complete plan already scanned, and then I use software to lay it out.

Boothe: When I first started to visit car plants, designers would be carving designs out of clay to put into a wind tunnel to see what their resistance was. Now, the computer is the wind tunnel. I visited a plant in Germany where they were designing valves, and they had a computer like the one in Minority Report. They could adjust the design with their hands and study the flow of the liquid. So that not only speeds things up and reduces risk and takes out cost, but because they’re the smartest at this, it is also a source of competitive advantage for them. Nobody can be quite as good at producing these things without that ability to visualize it.

MORE ABOUT THE FUTURE OF CANADIAN MANUFACTURING:

• What the 2015 Federal Budget means for Canada’s manufacturing sector
• How Clearpath Robotics is helping machines think for themselves
• Linda Hasenfratz’s bet on auto manufacturing is paying off—big time
• Corporate Canada increasingly outsourcing innovation to universities
• How we can save the Canadian auto industry