Mark Green: The Kentucky Association of Manufacturers advocates on behalf of members to 138 legislators and 435 congressmen. How many members does KAM have nowadays?
Lee Lingo: As of yesterday, 412. We get members joining all the time, so that was the most recent number. There are 4,500 organizations labeled as manufacturing-related; that’s per the state. We are always looking to grow our reach, and the public policy piece for a trade association is the foundation you stand on.
MG: How do you assess Kentucky in terms of being a manufacturing-friendly state?
LL: In many ways, we’re very manufacturing-friendly. This pandemic has created opportunities for all of us who run state manufacturing associations to look into each other’s windows. We have a call every Friday and we talk about issues that are affecting us, so you get an idea of what other states’ challenges are. We are very fortunate in the types and number of challenges we’ve had to face because of the pandemic and politics compared to some other states. Some states are very politically contentious. Kentucky may seem like that, but it’s minor compared to what some of my peers deal with.
MG: What are the areas in which we have a leg up on them?
LL: We were able to effectively advocate for all manufacturers to self-select to be considered “essential” and “critical” operations and not close in the pandemic shutdown. That was key. Early on, we were seeing governors respond in different ways. I don’t know that it was “blue/red” (differences) as it was just gut reaction and who their advisers were at the time. Some states just shut everything down and then they sorted it out. You can’t do it. You can’t stop the economic engine that fuels your state and the livelihood of the people who are your constituents, whether they voted for you or not. We were very fortunate we didn’t have that situation.
Anybody who works in an association or trade group was getting flooded with calls during that period. Certainty is what makes the economy move. Uncertainty is what throws it into turmoil. Understanding what the rules and guidelines are enables my industry in particular to move forward.
We were getting calls from folks who were really concerned about, “Am I ‘essential’?” We were very clear that it is not our role (at KAM) to designate. We want everyone to be able to self-designate, because the continuity of that supply chain is really critical.
For example, I got a call from a company in Bardstown that was very concerned. It makes ink and one of their biggest customers was Clorox. When we’re talking about germs in a global pandemic, Clorox is the highest demand, and that bottle has to tell you its ingredients, its safety issues; that’s all on there with ink. If that ink’s going to a newspaper or a magazine or direct mail, that may not be essential. But it was a Clorox bottle.
It illustrates how important (the “essential” designation) was. If you’re an elected official or an admin person and you’re just trying to look at NAICS (North American Industry Classification System) codes to determine if somebody’s essential, you can’t do that in that way because you don’t know what that product goes into.
For us it was really important that government stay out of the way and let you self-select. There were folks who clearly knew they weren’t essential. If they knew they made something that was not essential and the employees are scared and they were scared and there was a way to not be operating, the companies did that.
MG: What are the economic impact figures for manufacturing in Kentucky?
LL: According to the Bureau of Labor Statistics (BLS), Kentucky had 233,000 manufacturing jobs in June, and that’s down from 250,000 in December 2019 prior to the pandemic hitting. According to the Bureau of Economic Analysis (BEA), manufacturing contributed $38.259 billion to Kentucky’s GDP. We are by far the largest contributor to the bottom line of this state. The next couple barely make up what we do as No. 1.
That’s important. If we don’t make stuff, you don’t have stuff. Everything you interact with from the minute you wake up until you go to bed at night is something that we had a hand in. Unless you pick it off the field and eat it raw or you harvest an animal, it’s been processed. It’s not understood as much as it needs to be about the importance of manufacturing to modern life.
Kentucky is the fifth highest density state per capita for manufacturing. Several of our peer manufacturing states are also high in that measure: Indiana, Alabama, Arkansas. Tennessee doesn’t rank in the top 10, but they’re also considered a superior manufacturing state because the automotive industry is strong there. Average salaries for construction operations in Kentucky were $39,700 with a median of $36,857, according to BLS. That same database showed 189,000 production occupation employees in the state. And total payroll in manufacturing is a little over $7.5 billion in Kentucky.
MG: Are these peer states the ones we compare ourselves to?
LL: Not really. We don’t focus on trying to outdo each other so much. Your state’s job is to get as much as it can of the pie. But many of our bigger populated areas border a different state: Northern Kentucky, Louisville, Bowling Green, Owensboro, Paducah, Henderson, Ashland. There’s bleed over constantly, and employers pull from both sides of an arbitrary state line. It has a geopolitical divide, but it really has nothing to do with affecting the economy, the flow of dollars.
MG: We know Kentucky is a major auto manufacturing state. What are other significant categories that most Kentucky residents maybe aren’t aware of?
LL: Aerospace is one some have heard a lot about the past few years. The Lane Report did a special edition on aerospace. That’s continuing to grow as manufacturing has migrated from elsewhere in the United States to the Southeast because of lower costs of living, lower land costs, lower taxes, cheaper labor. GE Aviation, based in Evendale, Ohio, outside of Cincinnati, has operations all around.
A significant amount of flooring and other types of wood-based products are made here.
Ag and manufacturing really go hand in hand. We’ve had a series with the Department of Ag for four years now, looking at the intersection of agriculture and manufacturing and all the similarities; we need the same kind of worker. One of the things Toyota loved about Kentucky is that farmers could fix anything with their creativity and some chewing gum and baling wire. They were problem-solvers, and that’s what they needed for their production. Toyota relishes the skill set provided by the labor market. It was an unexpected benefit, and now you realize a lot of things that are produced or that are processed are ag-based.
I take a broad view of manufacturing. I don’t just include gears and oil and metal. Anything taken in one form and changed into another form or added to or processed, it’s manufactured, it’s created. Bourbon is created, energy is created. Lots of cars are created. Chickens are turned into lots of edible delicacies. We’re the No. 1 beef-producing state east of the Mississippi.
The ag stats are interesting because a lot of people have no clue. Agriculture Commissioner Ryan Quarles talks about how if you ever had a biscuit at McDonalds, (the flour) came from here, and the same for Cracker Barrel’s sausage patties. If you have an iPhone or a high-end Samsung phone, the glass came from (Corning Inc.’s plant in Harrodsburg). We create a kind of glass that in many cases doesn’t break and cannot scratch. Who would have even thought of that to start with? That’s a different kind of manufacturing, and it’s pretty special that Kentucky has areas like that we can lay claim to.
MG: What areas present top opportunities for the state to attract and grow manufacturing operations and jobs?
LL: Additive manufacturing (3D printing) and nanotechnology are areas that we are particularly strong thanks to our research institutions. We’ve been working for several months with UK and UofL putting together our annual AutoVision conference, and we are focusing on additive manufacturing and some on nanotechnology. Additive manufacturing is going to have a strong effect. It’s printing parts, and it’s far more in depth than that. You can buy a printer to print various types of medium now for very little money; many schools have these. A benefit of being able to print parts is you can consolidate the manufacturing process and print something as a unit instead of pieces and then assembling it. Think about the efficiencies of that. Take a car that’s got 4,000 parts. What if the number of parts could be reduced to 1,500 because you could print them together? The complexity is reduced, and imagine the efficiencies and how that plays out in cost to the producer versus sale price and the consumer.
Kentucky is one of the leading states in the Northern Hemisphere for additive manufacturing. The automotive industry, the aerospace industry, the racing industries, all come to these folks at UK and UofL looking to solve problems. We are the leaders, and this is only going to grow. We’ve got a speaker coming to AutoVision to talk about how General Motors is pushing for additive manufacturing to be integrated deeply into the supply chain. Right now it’s a fledgling industry, but if you imagine a company the size of General Motors, or any of the OEMs (original equipment manufacturers)—where they go the world goes. If they’re pushing this and it’s that important to their long-term strategy, imagine what that will mean to all sorts of businesses that are producing parts. They’re going to have to figure out how to integrate that into what they do. It will take some opportunities away; it will create other opportunities. It’s going to change the kind of skill sets some of our workforce needs. But that’s something Kentucky leads in, and most people don’t even know about it.
MG: What are some of the supports the state could do to improve this position that we have?
LL: For the three years that I’ve been at KAM the state has done a good job of talking about our research institutions and what their capabilities and availabilities are. Where we can do a better job—and we started working on this last year—is connecting public policy and support from the state with the private side. One area we specifically explored is that research institutions come up with all sorts of ideas all the time, and they’re not always rooted in commercial applications; you find those out later. Military research is a great example. You develop something for this, but later you find it has applications elsewhere. Medication is another example.
We can find ways to work together as private industry, the education system and government to promote areas that we can excel in and get the word out to companies in need of that, or that are looking to learn about it, or to purchase intellectual property from research institutions to do that, or to train with them. If we can focus on those things, we’ll be able to better pick and choose the kinds of companies that we want to work and operate here.
And when you do that you’re changing the game, because you’re developing the workforce for specific things. You never want to be overinvested in one thing; if you’re too heavy in one industry and it has a hard time…. But if you have the ability to choose between 20 jobs, 20 kinds of companies and the kind of work they do, aren’t you going to go after the ones that are the most profitable and have the most tax base and pay their employees the best?
MG: How did Kentucky end up as a leader in nanotech and additive?
LL: We are fortunate to have researchers and folks who’ve been in that field for many years. Through the research they’ve done and the work they’ve published, word starts to trickle out. Nanotech is interesting because it’s putting smarts into smaller and smaller things. The radar and lidar in cars for parking sensors and automatic cruise control and things of that nature used to be huge and cost thousands of dollars. Now those (small) modules cost $10. We’re constantly shrinking things down, and cars are becoming less of a mechanical device and more of a computer these days.
We demand bigger TV screens and more “infotainment” and we want to be able to do stuff that’s all controlled with technology and circuits. How can that be applied to not just a car but production in aerospace or ag manufacturing? How can you create efficiencies in harvesting and wood products, get the most out of your timber? All those require smarts and sensors.
Another great example of that is AppHarvest (near Morehead). That’s sensor-driven agriculture. It’s not up and running yet, but it’s 60 acres under roof. It’s incredible. And as an ag concern, they’re using sensors to determine exactly how much water and sunlight and nutrients each of these products and crops that they’re focusing on need. It’s primarily going to be tomatoes to start with. What’s great about that is we’re not a tomato-producing state.
Producers are bringing tomatoes back from south of the border because they grow better in heat. But if we figure out how to do that under glass, we can create a crop here that we didn’t have in the past. And that’s available through technology and sensors. Those things are so pervasive in our lives, but we take it for granted. Somebody had to develop that; Kentucky happens to be fortunate in that.
MG: Are there other opportunity clusters Kentucky can grow?
LL: Some other answers to that question would be automation. Amazon is so efficient. UPS (Worldport and Centennial Ground Operations Hub) would be another great example. You watch how everything moves; it’s incredible that somebody mapped that out and things get where they need to go so quickly. It is as efficient a system as you’ll find. With that particular crown jewel from Louisville as a logistics hub, what can we do to integrate that into the economy? What can be produced on-site and near-site and put into that system and delivered right away?
Another advantage that we have to focus on is that workforce always wins the day when you’re trying to get a customer. It beats incentives in the long run because workforce is renewable; incentives oftentimes aren’t. When the building is a certain age and the incentives run out and you’re looking at what you’re claiming on your taxes, it might be better to just move on. But if you have a good, well-trained, renewable, continuing workforce that has worked hand-in-hand with you as your needs have changed, it’s hard to walk away from that.
When you look at the Academies of Louisville or SCK Launch in Bowling Green, where they’re integrating business practices and industry opportunities into the education system and students are getting exposure to careers, we have an opportunity to start tailor-making our educational piece within certain communities toward the industry that’s there. And then that becomes good leverage.
If you’re the state out a big expo showcasing what we do and you get the question, “Tell me something Kentucky does…”
Well, we’re really good at sensors, and let me show you all the cool stuff we’re doing with sensors: We’re growing plants, raising animals more efficiently, putting them in cars, sending up drones, the military uses them. Others don’t know that. Then we say, “What’s really great is, we have these researchers who that’s all they do; they’re world-renowned for this. And if you want your sensor to do something unique, there’s a good chance they can help you figure that out and then train your people.” The prospect then might be interested in coming to Kentucky.
MG: Does KAM play an active role in state or local economic development efforts, recruiting, growth?
LL: No. We talk with the Cabinet for Economic Development and do not want to get in the way. Those talks are very sensitive. But we feel we are a significant piece of the overall package you’re presenting to a company looking at places to set up shop. If you’re from another country looking at a foreign direct investment, those companies need to know there is an organizational structure looking out for their well-being, and that’s what KAM provides. It’s not something government can provide. Government provides certain things but isn’t going to get crossways with its own regulations, right? The government has to do what it thinks is best, and our job, if we disagree or have evidence to the contrary, is to defend those companies and the practices that need to be defended.
We play a significant role in that (economic development) conversation in that if you’re looking to come to Kentucky from wherever, not only do we have good workforce and educational opportunities to train your workforce, we’ve got incentives, we’ve got various parts of the state with terrain or location or airports, railways, riverways; and we also have an organization that is 108 years old, one of the oldest trade associations in our state, and they fight for and defend the biggest piece of GDP in the state. Companies want to know somebody has their back, and that’s what a trade association does.
MG: We always hear Kentucky’s electric power rates are an advantage, but how significant are electric power supply and rates to the manufacturing sector?
LL: We’re the biggest user of power. The reason residents have such a low power cost for their house is because our industry pays the lion’s share of it. There’s a tiered rate system based on how much you use; the more power you use, you pay more. That’s why people try to keep their usage within certain bands. There are different rates. A resident is way down at the bottom. Some manufacturers use significantly more power because the things they produce require that, so power cost is very important as an economic development tool. Kentucky still ranks very favorably. We have great power providers in our state. Many of them are members of KAM, because they “make” power. They’re good partners; they work very hard and hand-in-hand with economic development to find the right solutions for their customers. Of course, they are regulated, so they can do only what they can do.
MG: You referenced automation a few minutes ago. Are Kentucky manufacturing jobs in danger of being automated out of existence?
LL: No. The jobs being automated are the jobs we can’t find people to do. They’re the lowest of the low-hanging fruit, the lowest skill-level jobs. What you see in manufacturing is not different than in any other industry if you can’t find people. If you’ve got 10 jobs and you’ve got seven people, are you going to put your seven people at the 1-7 slot or are you going to put them at the 4-10 slot at the bottom? That’s where automation tends to find its niche—if we can’t find those last three workers, what can we automate or mechanize or create efficiencies for so that those jobs still get done?
There is a continual reskilling and upskilling. The kinds of manufacturing jobs we do today —nanotechnology and additive manufacturing—are very different than they were 50 or 60 years ago. The skills you need change, and we just don’t have enough people.
MG: What skills are most in demand for manufacturing today? What is the trend for skill demand?
LL: Welding, tool-and-die makers, machining, industrial maintenance, electrical, CDL (holders of commercial drivers licenses) drivers who support manufacturing are all very high demand. Those are being driven largely by the fact that specialized skills, trade jobs in particular, are shrinking. Those were more common careers because folks coming out of World War II and Vietnam did those jobs. Those jobs are still in demand even as things are changing, but finding (new) people to do these jobs as those people are retiring is becoming very difficult.
There’s talk of robotic trucks and cars and things like that. We’re not there yet; we’re decades away from that. We still need people to drive. We used to have long-haul drivers, but the workforce today wants to be home at night; it changed the dynamic of the logistics industry. They don’t want to do long hauls, so they do a bunch of short hauls. They’re point to point to point to point, so that has changed how you distribute things.
Millennials still like to do that kind of work, and it’s in demand, but they’re not wanting to be away for seven or eight days. So much of this is changing but we still have the need for those particular kinds of skills, and that’s a very difficult kind of thing to backfill as quickly as it’s being retired out.
MG: Does KAM have much direct interaction with the education system that is training the people manufacturing needs?
LL: Yes, we’ve had a very strong partnership with education for a long time. We work very closely with the Kentucky Community and Technical College System on programs to promote manufacturing. FAME (Kentucky Federation for Advanced Manufacturing Education) is something that we’ve supported since the beginning, and last year we started a Going Pro “signing day” with all 16 KCTCS campuses. It’s the biggest one I’ve found in the country. I don’t have stats that say it was No. 1, but 402 companies hired the students that were graduating into manufacturing-related careers.
KCTCS is providing training in the right bite-sizes needed in today’s world. Many of our companies need somebody who’s got three or six months of training, and they’ll train everything else they need on the job. You don’t necessarily need a four-year degree or a more-year degree for many of the middle to lower manufacturing jobs. There’s no more efficient system, if we’re talking about efficiencies, than KCTCS and the community technical college system. We work with higher ed also. We’re pretty integrated, but we’re trying to be more integrated.
MG: Some analysis says the pandemic revealed weakness in global supply chains and that the result will be a major U.S. re-industrialization, which would benefit a manufacturing state like Kentucky. What is your view on this suggestion?
LL: We’re seeing it, but it’s not going to be as significant as some people would like because globalization is too fully integrated. It’s not just where your workers are—it’s where your supplies are, where your raw materials are, a lot of different things. We’ve been an integrated supply chain across multiple states and national borders for decades now.
You’ve seen some companies move out of certain hotspots, certain countries. They’ve found more favorable places to be, based on whatever their criteria are. But you can’t just shut the doors and move like moving to a new house. If you have a factory, you’ve got to move your equipment or buy new equipment. You’ve got to find the land, get the incentives, get the workers. The downtime is very significant, so it’s not easy. You can’t be hyper-reactive to winds that change very quickly. What we’re seeing more of is, are there things that could be mass-produced in more places, and is there a way to do that?
MG: What are the most direct impacts of the pandemic on manufacturing, and will these be permanent?
LL: I don’t know that we can answer the permanency question. One of the most difficult things has been, how do you deal with the challenges your workers are facing, so that you can deal with the challenge you as a business face? The world sort of retreated to their homes. Manufacturing cannot be done in a home. You can send your back-office support there, but for things that need to be made, you still need people there to mind it. And for those people to be able to mind it, what are the challenges they face? Among the most significant are education and child care. We closed schools, we closed child care centers. If your kids are of a certain age, what do you do? You can’t work if your kids can’t be somewhere else, and you were told your kids can’t be somewhere else—it’s a mandate. What do you do in that situation? That problem then becomes the employer’s problem.
We haven’t seen a solution. Companies like Toyota and Ford and others of a certain size and resource scale have been doing an amazing job of tackling that question. But for a smaller company, what do they do? It is not encouraged to bring your kids to work, because you’re bringing opportunity for sickness. When we reduce travel, and companies don’t want anybody going anywhere, and the governor doesn’t want anybody going anywhere, where does everybody go? How do they do the things that they need to do? That became very difficult. The child care and education is the hardest, and we’re grappling with that now with schools. What do we do? We’re going to work, we’re going to do remote learning, and then we’ll maybe do a hybrid. If the numbers spike, we’re going to change it again. That’s very difficult, because the employees’ problem becomes the employer problem. I don’t know what that solution looks like.
The other piece I would mention is supply chain. It’s trying to go more local with your supply chain when you can. We touched on globalization, but if you are overdependent on a supply source that is too narrow and something happens to that supply source, it can be very detrimental to how you put out your product. If you only have one supplier, you probably need three or four, and you’re seeing more of that happen. Local economic developers are trying to figure out the map of where their companies get their supplies and find suppliers that are more local so they have options.
MG: What do KAM members tell you are their top concerns right now?
LL: Workforce is very consistent. The issues in workforce change, (but) it’s still that we do not have enough skilled workers; our pipeline is dry. The certainty versus uncertainty question is a concern, whether regulations are changing and how quickly can we be informed and have time to adapt to those? Those and supply chain are the things people are talking about now.
MG: Does Kentucky indeed have lots of unfilled manufacturing jobs?
LL: We do. Prior to the pandemic it was 13,000. We need critical thinkers. We need dreamers, we need creators. That’s one of the top sets of mental skills that we need. It’s more than just going in and doing something that a robot can do. It’s doing something that a robot can’t do. It’s solving a problem, it’s creating a new variation on something.
Manufacturing is one of the most important industries that any country, any state, has. It pays well, it’s interesting. It makes the world go ’round. It’s not only essential, but you can be proud of what you make. Three of the most ubiquitous vehicles in North America that anybody can identify by sight—Toyota Camry, a Ford F Series and a Corvette—are all made here. The reason many planes stop at the end of the runway is because the brakes are made here. The reason jets stay in the air is because the (engine) fins and veins are made in Kentucky. My goal is for people to understand more about how important manufacturing is, how it is part of their everyday life, and makes your life simpler, easier, more enjoyable. ■
Mark Green is editorial director of The Lane Report. He can be reached at [email protected].
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