The Supply Chain Advantage
June 2, 2017|
By embracing supply chain management within West Virginia’s manufacturing industry, the state will not only benefit from industry and revenue growth but will be better able to accomplish the economic diversification it so strongly needs.
By Javier Reyes, Ph.D.
There is no question that West Virginia should have a sense of urgency in diversifying its economy. There is also no question that the state is well acquainted with the industries that can help achieve that diversification. Among those industries is manufacturing and, in turn, supply chain management.
Decades ago, the state was well known for its manufacturing capabilities, from chemicals and wood products to glass, iron and aluminum. Now, as West Virginia looks to expand its capabilities beyond extractive industries, manufacturing and supply chain opportunities have presented themselves in the form of major companies locating within the state, as well as the development of advanced technology and knowledge. Technology has helped make supply chain an essential component of efficiently transporting goods and services to where there is demand for them as quickly as possible. All of these elements combined can spark a major manufacturing renaissance in the state.
Mountain State Advantages
According to Dr. John Deskins, director of the West Virginia University (WVU) Bureau of Business and Economic Research, it is critical to create investment and policy that make West Virginia attractive to the manufacturing industry. “Manufacturing and supply chain represent opportunities to bring money into the state’s economy and provide good jobs that entice residents to stay in West Virginia and encourage others to move here,” he says.
What benefits does West Virginia offer? Human capital. Geographic location. Knowledge. Natural gas abundance. These are all advantages with which the manufacturing and supply chain industries can flourish.
West Virginia’s workforce has a reputation for its work ethic. A willing and available workforce is a major strength in the manufacturing and supply chain industries and can easily engage former participants in the extractive industries through renewed enthusiasm and by encouraging retraining. Geography is a two-fold advantage, as West Virginia sits within a day’s drive of two-thirds of the U.S. population and rests atop two of the largest gas shales in the world. Knowledge and expertise surrounding manufacturing and supply chain, retraining and other industry components are readily available from sources such as higher education institutions, the West Virginia Manufacturers Association and manufacturers who have made a home in West Virginia.
Manufacturers are a critical engine for economic development and prosperity, stimulating innovation and generating high-paying jobs. According to Dr. Ednilson Bernardes, associate professor of global supply chain management at the WVU College of Business and Economics, combining supply chain expertise with a burgeoning manufacturing sector can make West Virginia even more attractive to the global marketplace.
“In recent decades, manufacturers have generally shifted from in-house production to more distributed production in networks of suppliers,” says Bernardes. “For any given large manufacturer, there is a dense network of suppliers—typically smaller manufacturers—supporting the process of taking a product from concept to market.”
For example, Aurora Flight Sciences in Bridgeport, WV, is one of many smaller suppliers providing high-value-added composite airframe parts to aerospace manufacturer Bell Helicopters for its new high-capacity commercial craft. Aurora Flight Sciences has its own network of suppliers, smaller and larger, both inside and outside the state.
In West Virginia, the average salary in manufacturing is approximately 20 percent higher than the overall average salary in the state. The new Procter & Gamble (P&G) facility in Tabler Station near Martinsburg, WV, illustrates the impact that manufacturing can have on the economic prosperity of the state. It looks to eventually fill 700 new, full-time positions and will stimulate local entrepreneurship activity through the creation of small businesses, an indirect effect of the new plant.
Bernardes, whose current research interest addresses innovation, coordination and competitive dynamics on supply network systems, says, “The P&G facility will be able to supply products to 80 percent of the East Coast within one day, which will bring supply chain development and innovation to the region. P&G investment in the state also signals to other manufacturers that West Virginia is competitively positioned to become part of their value chain network.”
Invigorating the Workforce
Today’s advanced manufacturing sector is now highly technical, innovative and networked, employing workers at all skill and educational levels because of increasing manufacturing and supply chain demands. This is of great benefit to West Virginia, as it invigorates the workforce and presents tremendous new job opportunities for college graduates, slowing the out-migration of young people from the state.
Manufacturing and supply chain and logistics management are also major factors in one of the most important and fastest growing industries in West Virginia: health care. West Virginia health care conditions reflect, to a great extent, those of the national landscape. Deficiencies in providing access to primary care and inefficiencies in the overall health care system can be detrimental to broader regional development. Thus, an efficient health care system can support a strong and competitive manufacturing system.
“In health care delivery, a well-designed and managed supply chain and logistics will ensure health care facilities have available the right items in the right quantities with the highest standards of quality whenever and wherever needed while simultaneously diminishing costs,” says Bernardes. “As such, effective supply chain processes can significantly reduce health care costs while significantly contributing to patient care. In health care manufacturing, the production and distribution of complex medicines require a highly effective coordination and alignment of raw material procurement management, inventory and supply chain planning, quality management systems, transportation management, logistics security and ethical and environmental compliance.”
However, state policymakers and business leadership must join companies to forge the investment necessary to establish a statewide innovation ecosystem that connects people, resources, policies and organizations to productively translate new developments into commercialized products and services. This is because it is estimated that over the next decade, 2 million domestic manufacturing positions may go unfilled due to a lack of skilled workers, as manufacturers increasingly focus on developing and integrating advanced capabilities, artificial intelligence, machine learning, sensors, advanced robotics and automation.
According to Bernardes, this sector also raises the need for additional education and access to best practices. Digitization is increasingly transforming logistics, procurement and other supply chain functions. Automation in manufacturing plants, production planning and control, fulfillment centers and procurement, among others, are eliminating jobs while creating new ones that require hard-to-find talent.
The Key to Competitiveness
The arrival of new entrants in the state, such as startup US Methanol, can make chemical manufacturing even more competitive in West Virginia. A key driver of competitiveness for the state is to provide an efficient infrastructure to minimize transportation costs, including additional investment in multimodal transportation infrastructure.
US Methanol can also further stimulate the development of manufacturing clusters in West Virginia with its facilities consuming approximately 70 million cubic feet of gas per day. The facilities will be closer to downstream manufacturers in the state, creating efficiencies in the chemical supply chain and potentially attracting other manufacturers further downstream that rely on an abundant source of natural gas nearby. This could contribute to the revitalization and expansion of chemical manufacturing.
All in all, manufacturing and supply chain management represent great opportunities for West Virginia. Continuing to develop policies not only creates a positive environment to attract larger manufacturers but also stimulates the entrepreneurial development of smaller manufacturers that can produce basic components. For example, the success of automotive companies such as Toyota Motor Manufacturing West Virginia and NGK Spark Plugs USA has encouraged even more businesses within the industry to invest in the state.
“Manufacturing has lost a lot of jobs over the last decade,” says Deskins. “But that tide is definitely turning, and there is so much potential.”