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HomeMy WebLinkAboutCity Council Meeting - Council Workshop - Agenda - 04/18/2006 KENT aa SUMMARY AGENDA ' a 7 ayor Suzette Cooke Councilmembers Deborah Ranniger, President; Tim Clark, Ron Harmon, Bob O'Brien, Debbie Raplee, Les Thomas, Elizabeth Watson 0"a1Z1;Ld_ a�tl APPAL 18,2006 ******************************************************************************************************** COUNCIL WORKSHOP AGENDA 5:30 P.M. Item Description Speaker Time 1 Center for Advanced Manufacturing NathanTorgelson 60 min RECEPTION FOR YOUNG ARTISTS PRIOR TO COUNCIL MEETING ******************************************************************************************************** COUNCIL MEETING AGENDA 7:00 P.M. 1. CALL TO ORDER/FLAG SALUTE 2. ROLL CALL 3. CHANGES TO AGENDA A. FROM COUNCIL,ADMINISTRATION, OR STAFF B. FROM THE PUBLIC—Citizens may request that an item be added to the agenda at this time. Please stand or raise your hand to be recognized by the Mayor. 4. PUBLIC COMMUNICATIONS A. Public Recognition B. Community Events C. Young Artists International Arts Awards Recognition D. Economic Development Report E. Certificate of Achievement for Excellence in Financial Reporting F. Introduction of Appointee 5. PUBLIC HEARINGS None 6. CONSENT CALENDAR A. Minutes of Previous Meeting—Approve B. Payment of Bills—None C. LID 351 Segregation Resolution—Adopt D. S. 228th Street Widening Project Condemnation Ordinance—Adopt E. Clearwire Lease Agreement 3.5 MG Reservoir Site—Authorize F. Burrows Final Re-plat—Accept (QUASI-JUDICIAL) G. Kent Station Final Plat—Accept (QUASI-JUDICIAL) H. Clark Lake Estates Division II Final Plat—Accept (QUASI-JUDICIAL) I. Excused Absence for Council Member Raplee—Approve J. Kent Bicycle Advisory Board Appointments—Confirm 7. OTHER BUSINESS A. Center for Advanced Manufacturing Resolution—Adopt a� u <. r) D n � 70 � w n w n CD m �. o w Hebb Q n' n -riCD �� CD ° n C p C Q CD voaM. 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Recently popular prophets have proclaimed that increasing outsourcing to foreign low-cost producers will result in the loss of national and local manufacturing sectors. While there is undeniable evidence that these are real threats, there is also compelling evidence that innovation, both in the manufacturing processes and in new products, holds the same promise as it did a century ago. As with all research, the findings presented in this summary and throughout the full report are as comprehensive as possible, given the requirements specified for the analysis and the resources available. The objectives posed by the City of Kent and the Kent Chamber of Commerce have been vigorously explored by the research team. While this report offers many recommendations for the design and establishment of a Center for Advanced Manufacturing, it is clear that there remains far more to discover and learn about how such a Center could best meet the needs of the area. Manufacturer Survey & Focus Group Findings (Chapters 2 & 3) A series of 6 focus groups and a survey of 601 executives of Puget Sound businesses classified as manufacturing or R&D/lab/testing firms were conducted. The purpose of the focus groups was to assess the needs and interests of a broad range of manufacturing firms within the specified study area and to begin developing potential questions and areas for investigation for the survey. The survey, focus groups, and follow-up interviews provide the foundation of the feasibility assessment. Salient findings include. Puget Sound manufacturers have been growing but they worry about how to sustain this growth in the face of global competition, shortages of qualified workers and what they describe as an unfriendly business environment that is becoming increasingly hostile to manufacturing. More than 60 percent will add jobs in the coming year and over the last 3 years coming out of the recession period the average percentage growth rate in sales was 11.2%. However, in the focus groups there was a consensus that unless conditions change many of the manufacturers will not be in business in 10-20 years. Given the current business environment and support systems, manufacturers in general were only moderately confident that the Puget Sound region can become or remain globally competitive (5.64 avg. on 0-10 scale). They were more confident, however, about prospects for their own firm becoming globally competitive (6.33 avg.), and those with a strong interest in the Center had much higher agreement with this happening (8.22 avg.). * Local manufacturers typically compete based on quality (35.4% of firms), superior customer service (25.4%) and innovation (13.3%) rather than price (6.6%). The small segment that does compete on price alone was much less likely to use the proposed Center for Advanced Manufacturing. Service-focused firms were more likely to have an interest in the Center Executive Summary i Feasibility Study for a Kent Center for Advanced Manufacturing concept. One of the trends seen in the research is that local firms offer good service by partnering with major clients rather than being "just a vendor," and help meet their specific needs for products, training, shipping and turnaround times. Quality products require good designs, well-trained staff, effective systems and adequate equipment—all of which are possible for manufacturers in the Puget Sound region with the help of the Center but are not all available to lower-cost international competitors. ■ A fundamental interest in innovation (innovative products or processes) characterized 82.2% of manufacturers with a strong interest in the Center, compared to just over half of all manufacturing firms (57.8%). Overall, 24.5% of revenues was reported to be from new or improved products in the last 2 years, compared to 30% among firms with an interest in the Center concept. ■ While 7 out of 10 manufacturers received some form of assistance in the last 2 years, nearly half relied on internal company networks and another one-quarter used "informal networks." Around 20 percent used industry associations such as Chambers of Commerce and 6.1% used consulting, accounting or engineering firms. Less than 2 percent used Washington Manufacturing Services and the local community/technical colleges and universities. The assistance was typically given in the form of technical or consulting help on projects, access to information, networking or business development, or training for workers. Satisfaction ratings with services received were generally moderate with some room for improvement. In the focus groups and key person interviews it was apparent that a lack of awareness was a major barrier to usage of the college programs and resources — both for the higher level or advanced training at the University of Washington as well as the day-to-day or "shop floor" training offered at the technical colleges. A central forum is needed that acts as a hub to connect potential users to the breadth of resources available. The Center for Advanced Manufacturing can provide this function. Washington Manufacturing Services appeared to be better known and used among the larger firms sampled, and because it charges for extensive and custom training and consulting for firms its target market starts where the proposed Center's demand begins to wane: at 100 or more employees. ■ Overall, thirty-five percent (34.8%) of manufacturers gave a high rating for their overall interest in the Center concept. Those giving high ratings indicated they would appreciate and use the resource, and mentioned how it would help bring a positive change in the region and that the apprenticeship program would be appealing. The interest was broad-based across the region and did not vary strictly on the basis of distance. Downtown Seattle had the highest average, followed by the South Valley (Kent/Auburn) area. Central and South Snohomish County ranked in the middle of the areas and the Eastside, which is geographically close, ranked last. Interest was strong in the under 20 employee group, as well as 50-99 employee segment, but then declined significantly with firms above 100 employees. Differences by industry were small enough to not be statistically significant. Executive Summary ii Feasibility Study for a Kent Center for Advanced Manufacturing ■ After testing annual membership dues at $500, $2,000 and $5,000, the optimal range of membership dues was found to be $350 to $2,000 based on company employment. The percentage of firms highly likely to pay this fee declined from 27.6% at $500 to only 3.9% at $5,000. Demand for paying the fees was shown to be maximized when the fee was between $20 and $50 per employee. A simulation of demand at a sliding scale of fees showed apotential for over$300,000 in annual revenue from membership dues. ■ Lack of qualified personnel was the number one challenge named in the survey to finding solutions to product and systems improvement issues facing firms, and it rose to the top as far as interest in the list of potential Center services. It was also named as the top problem in the focus groups that"keeps manufacturers up at night." Company executives worry about finding qualified workers, training them once they start and keeping them employed over the long-term. The company workforces of typical small to midsize firms are often characterized by older experienced workers, but there is a need to recruit and include the younger generation. There was a lot of discussion in the focus groups of the problems motivating, managing and training the Gen Y generation of young people. Improvements in the K-12 educational system were stressed to help attract more young adults to consider a manufacturing career and to encourage internships where these skills can be developed with on-the-job training. Not surprisingly, the overall number one and number three top- ranked services that the Center can provide were a high school apprenticeship program and "promoting manufacturing as a career in the public schools." ■ Advocacy was revealed as a major area of need alongside qualified employees in the survey, and was supported by the focus group discussions. This interest included a lobbying function, for helping secure better funding for workforce programs, and an advocate in the legislature to help with unreasonable environmental and worker regulations, L&I rates and health care costs. Generally, manufacturers feel very isolated and detached from the representative political system. Larger regional employers such as Boeing and Microsoft can afford lobbyists and lawyers, but small to midsize manufacturers are saying, "we don't have the lobbying or lawyers to fight for our needs." Changes in L&I rates and health care costs have major economic impacts and in some cases are driving manufacturers out of business. There was also mention of a general anti-manufacturing sentiment among government, that can be explained by the fact that during major economic downturns at Boeing and manufacturing layoffs a lot of political negativity is released, which affects the appeal of manufacturing as a "good," "reliable" industry in the eyes of policymakers and elected officials. Manufacturers currently don't have any industry specific association lobbying on their behalf or representing their interests within the statewide political system. ■ Assistance with lending was another top-rated problem area for the Center to consider, and it scored at the top of the middle tier in terms of interest. It was apparent that most manufacturers have a limited understanding of finance and many suffer from a lack of credit. There was also ample evidence that manufacturing is one of the industrial categories of least interest to lenders because of perceptions of instability and unpredictability. Many Executive Summary I iii Feasibility Study for a Kent Center for Advanced Manufacturing manufacturers are asked to use their personal assets for collateral rather than those of their business. The Center could help with a preferred group of lenders and by establishing a separate fund that could be used to provide down payments for loans. ■ Other services highly rated in interest by the broad base of manufacturers include the following: o Training-Related Services: Environmental and health/safety issues, better energy use, marketing assistance, lean manufacturing and technical skill development all involve training and expertise provided to manufacturers to help them manage confusing and changing state regulations, how to save money on resources, how to increase effectiveness of marketing efforts, how to increase productivity and reduce costs and how to increase levels of competency among production staff. These types of training services are typically provided (or made available through 3rd party providers) by a manufacturing extension program. o Business development and matchmaking/brokering, which would connect the buying needs of large locally headquartered firms with local suppliers, was a popular concept and was further supported by input from the focus groups. o The information clearinghouse service was in the top 10 services in terms of overall interest and showed strong demand within the focus group discussions. ■ Within the second highest rated group of services were a number of training and expertise services as well as innovation-related services, finance and networking. o A preferred group of local lenders that understand manufacturing o Training and expertise services that were in this list included computer systems, business strategy, basic employee skills, management skills, quality improvement, better shop layout and workflow, and material failure issues. o Innovation services that were of interest were product development and design, technology transfer to license other research discoveries and access to lab space. o Networking opportunities were lower in ranking among the second tier of services. The lower ranking of this item can be explained by the fact that business development aspects were not mentioned. In testing additional services that would be offered for user fees, networking and "business matchmaking" events had strong demand. ■ Services that are highest in demand among those giving high ratings of overall interest in the center include (in order): apprenticeship program for high school students, promote manufacturing as a career in K-12, advocacy and lobbying, information clearinghouse, Executive Summary iv Feasibility Study for a Kent Center for Advanced Manufacturing preferred lender group, marketing/niche marketing/parker planning, lean manufacturing and technical skills. ■ Discriminant analysis demonstrated that the services that are most strongly related to being willing to pay annual membership fees include lean manufacturing, marketing, information clearinghouse, technical skills, business development, promoting manufacturing as a career and access to lab space. ■ Manufacturing firms indicated being willing to use a range of optional services that would cost additional user fees. These services have the potential of generating over $4 million in annual revenue. The following specific services were tested: o Networking and business matchmaking events (33.4% would use) o Educational seminars and workshops (32.6%) o Specialized expertise and help (31.8%) o Conferences and other events (20.2%) o Roundtable discussion groups (17.2%) o Access to lab space in a separate area (12.7%) Trends & Industry Segments Analysis (Chapter 4) This chapter assesses major trends, economic foundations, and key industry segments relevant to the proposed Center. • Trends - Two important themes emerge from looking at the broader global, national, and regional trends affecting the competitiveness of area manufacturers: innovation and linkages. Linkages are critical for manufacturers in terms of being able to manage and take advantage of increasingly dispersed production chains. Linking into supply chains, the need to become systems integrators, networking among smaller manufacturers and between suppliers and major area firms and retailers will all be keys to success. Similarly, a manufacturer's ability to innovate—to quickly develop new products and services to meet customer needs, to stay abreast of technological developments, and to develop more advanced, proprietary products—is one of the only long-term ways to respond to global competitive cost pressures and the increasing pace of technological catch-up among lower cost countries. These are critical, forward-looking themes for Kent area manufacturers. ■ Manufacturing Economic Foundations—The ability of companies to compete effectively depends on how well their region provides them with the resources that they need to excel. While the Puget Sound region has considerable economic foundations on which to build, several factors hold area manufacturers back. In particular, a lack of high-quality trained Executive Summary I v Feasibility Study for a Kent Center for Advanced Manufacturing personnel, strained transportation infrastructure, and what can be a business-burdensome tax and regulatory system. Of particular relevance to the design of the proposed Center for Advanced Manufacturing, the area has capable research institutions and an emerging support system for high-technology companies. The Washington Manufacturing Services, a Manufacturing Extension Partnership center also operates in the area, and serves manufacturers. • Industry Segment/Cluster Assessment - Although aerospace dominates, the Puget Sound region has a diversified manufacturing base and many strengths on which to build. Three manufacturing clusters stand out for their growth potential, linkages with broader regional clusters, importance in terms of employment and higher-than-average wages, and fit with a potential Center for Advanced Manufacturing: IT Products, Life Sciences and Health Products, and Aerospace. The diversity among area manufacturing suggests the need for a broad-based Center rather than one that is targeted at a few industry segments. Case Studies (Chapter 5) The study team undertook a case study analysis to collect contextual, operational, and performance information for manufacturing-related organizations around the country. Manufacturing-related organizations take a number of different forms and address very different issues. Three overall models of centers were assessed, along with five specific case-studies. (It is important to note that these models are not exclusive—most organizations play multiple roles at the same time.) ■ Competitiveness & Advocacy institutions organize manufacturers to take collective action to address barriers and opportunities facing the industry. These organizations are perhaps the most prevalent type of industrial institution and include industry associations, chambers of commerce, advocacy groups, and cluster competitiveness organizations. Case Study: The Right Place, Inc. is a regional public-private economic development organization, serves as a Manufacturing Extension Partnership (MEP) center, and runs the Manufacturers Council which fosters peer-learning and group action to address common problems. This case study highlights the value of client-driven group activities among manufacturers that display sufficient trust and a shared vision. Such activities can be delivered at low-cost and are highly valued. • Innovation Centers are designed to help move new technologies and know-how from businesses, universities, not-for-profit, or federal laboratories into the marketplace. Innovation is widely recognized as one of the best sources for sustained competitive advantage, and innovation centers focus on the stage of the innovation process between invention (creation) and adoption of new technologies. Case Studies of the National Center for Manufacturing Sciences (NCMS) and the Center for Advanced FiberOptic Applications (CAFA) highlight some of the challenges of conducting joint R&D efforts, IPR issues, and of a narrow industry and regional focus. Executive Summary vi Feasibility Study for a Kent Center for Advanced Manufacturing ■ Extension organizations promote the diffusion and deployment of available technologies and improved business practices. Manufacturing extension centers exist around the country and provide broad business assistance to clients, most often through tailored training and technical assistance projects. Case Study: The Cleveland Advanced Manufacturing Program (CAMP) is often cited as one of the best manufacturing extension centers in the country. Particular factors for its success include its strong leadership, long history in the community, comprehensive service offerings, and ability to leverage resources from outside the organization. Additionally, CAMP's deeply rooted technical expertise in manufacturing has enabled it to gain the trust of area firms and to be respected by them as a valued partner. Feasibility Assessment (Chapter 6) The study team assessed the feasibility of a Kent-based Center for Advanced Manufacturing achieving area stakeholder's goal of having an important economic development impact on the area by"serving as a catalyst for world-class manufacturing."Three broad questions must be answered to ensure that the necessary conditions are met for a successful center. These are summarized in the table below along with the study team's findings. Key Questions Assessment Findings • There are 3,013 manufacturers in the Puget Sound area Interest—Would manufacturers use and would • A high proportion of area manufacturers,28%or 857 firms,are area stakeholders support a Center? expected to be highly interested in the Center and its services. ■ These firms represent nearly 20,000 jobs • Will a sufficient number of manufacturers use the center? • What is the level of interest of other economic development stakeholders? ■ Though they face many challenges,the region has strong and Economic&Innovation Impact—What are the emerging manufacturing clusters(including aerospace, IT and ultimate impacts of the Center likely to be? electronics,life sciences and health products,and food processing) that are supported by healthy economic foundations. • Are there viable manufacturing clusters in the ■ There are important gaps between services currently being offered area? and needs of manufacturers. Particularly in value-added areas of ■ Are there gaps in the manufacturing support innovation and supply-chain linkages. system which the Center can address? ■ There is a significant interest and commitment to innovation among • Are a large number of firms capable of taking area firms,although there is a low current use of outside advantage of the Center? assistance. ■ What are the overall economic benefits of M Barriers to innovation and product development are largely financial creating the Center?(e.g.,jobs, innovation- and a lack of qualified personnel,though information and expertise based upgrading,new products, etc.,among are also often cited. area firms) • Order of magnitude likely economic impacts of a Kent-based center over five years include:an increase of$129 million in sales,cost savings of$21 million,new investments of$27 million,and 366 jobs created and 878 jobs retained,and a$68-165 million increase in value-added the Kent area. Executive Summary vii Feasibility Study for a Kent Center for Advanced Manufacturing Viability—Are sufficient resources available to ■ Approximately$3 million annually will be required for the Center. establish the Center and make it sustainable? Stable,patient funding will be important at early stages. • Industry and state and local public sources can be reasonably ■ What are the potential startup and operating expected to generate over$4 million annually. costs of the Center? • Significant Federal funding is unlikely to be available to help • Who are potential sponsors of the Center establish a Center.However,funding could be available for specific and what resources might be reasonably projects and services. available? • Though it will be a challenge,sufficient resources will be available ■ Are sufficient resources available to cover for sustaining a Center. costs? • Are there strategic partners willing to help the Center achieve its goals? A Kent-based Center for Advanced Manufacturing would face several hurdles including the need to identify and secure a patient, long-term source of funds to establish the Center, overcoming potential apprehension among area firms who are not used to working with outside assistance providers, and the inherent risks of dealing with transformative, value-added problems. The study team believes the Puget Sound region possesses the assets to meet these challenges and that a Center for Advanced Manufacturing is feasible and can have significant economic impacts on the competitiveness of area manufacturers. Recommendations (Chapter 7) The study team believes that plans for a Kent-based Center should move forward with a focus on "value-added" issues of innovation and linkages facing manufacturers. This would provide important new services to area firms that are not being offered by existing organizations. The following graphic summarizes the recommended business model for the Center. At its heart, the Center would provide a set of services in the areas of innovation and supply chain issues including access to specialized expertise, an information clearinghouse, conferences and educational seminars or workshops, and networking and business matchmaking events. These services would be delivered through a combination broker/ in-house model where the Center specializes in its core offerings, and provides other services in partnership with existing organizations, or simply refers clients to those organizations. Executive Summary viii Feasibility Study for a Kent Center for Advanced Manufacturing Business ModelNision of the Center MANAGEMENT Center Center Board TARGET Management of Directors BARRIERS MARKET OBJECTIVES SERVICE MIX • Qualified •3,000 Improved fk, STAFF — Personnel Manufacturers competitiveness EXPERTISE Technologyin Kent Region through Diffusion •Lack of innovation and Funds/High linkages OPERATI Supply Chain costs PARTNERSHIPS Linkages •Lack of Information Information clearinghouse Rapid Prot.typi.g • Difficulty Finding REFERRALS Expertise Marketing • Unfamiliarity with FUNDING Private Local Public Federal Technologies Industry Sources Grants In the pursuit of its mission, the Center would undertake a number of activities to serve manufacturers in the region. As illustrated throughout the report, there are a wide variety of manufacturers in the region. First and foremost, the Center should aim to work with companies that are committed to innovation, linkages, and growth in the region. These are the core competencies that will be important for future success. As our survey shows, these companies can be found in all manufacturing industry segments, among large and small firms alike, and in all parts of the region. Despite our recommendation that a Center offer services relevant to a wide range of industry segments and different sized firms, it is important for strategic planning, marketing, and program development purposes to have a core target market in mind. Innovation and new product development mean very different things in different industries and for different sized firms. This core focus is not meant to be exclusionary, but reflects the reality that to be effective, the Center will have to focus its resources. Firm Size While there is broad interest among all sized firms in a Center, there appears to be slightly more interest among smaller firms (under 20 employees). Experience elsewhere suggests that it is extremely costly and difficult to serve very small manufacturers. These typically do not have the resources to fully take advantage of outside assistance, and are not often able to pay for services. Moreover, a Center would have to reach a very large number of them in order to have much of an impact in the region. There are an estimated 700 firms with less than 50 employees who would be highly interested in a Center. These employ around 7,500 people. Meanwhile, there are about 140 firms with 50 or more employees who would be highly interested in a Center, and these firms employ over 12,000 people. In order to have a measurable impact on the region, we recommend that the Center place more emphasis on serving the somewhat larger firms that have at least 20 employees. A total of 265 firms of this size have an interest in the concept, representing 15,817 total jobs. Executive Summary ix Feasibility Study for a Kent Center for Advanced Manufacturing The Center should not ignore smaller firms, and indeed could develop a line of activities specifically tailored for small firms. But significantly more energy and attention should be directed at those firms with the scale and resources to have a bigger impact on the regional economy. One option for attending smaller firms is to see smaller firms as incubator clients and to deliver subsidized services to a small group that has been selected for their potential for growth and other characteristics. This would enable the Center to target its efforts on high- impact clients with at least 20 workers. Industry Segment The Center should have a broad manufacturing industry base, while concentrating in aerospace, IT, and life sciences and health products. First of all, although aerospace dominates the region, the area's manufacturing base is broadly diversified. Second, the manufacturer survey found fairly broad-based interest in the Center across manufacturing segments. Third, the case studies have highlighted the difficulty in concentrating too much on tightly defined industries. For these reasons, the study team recommends that the Center work broadly across all manufacturing segments. However, it is important for planning, marketing, and program development purposes to begin with a few core industry segments in mind. Here, the clusters of IT Products, Life Sciences and Health Products, and Aerospace stand out for their growth potential, linkages with broader regional clusters, importance in terms of employment and higher-than-average wages, and fit with a potential Center for Advanced Manufacturing. Services The Center would focus on new, value-added services that do not duplicate existing service offerings. At the core, this would include: ■ New product design and development services and efforts to stimulate the development and adoption of emerging technologies and practices. • Supply chain efforts to help match buyers and suppliers. • Efforts to promote local networking and collaborative learning. These services are not currently being provided by the network of institutions assisting manufacturers. While the WTC does offer R&D and technology assistance, it is aimed primarily at high-technology segments. Similarly, while the WMS provides extension services, its focus is on traditional lean manufacturing, quality, and environmental, health and safety issues. Meanwhile, industry associations do not appear to be attending to the supply chain or networking needs of area manufacturers. In particular, a Center would offer the following services: Executive Summary x Feasibility Study for a Kent Center for Advanced Manufacturing • Specialized expertise and help — New product design and development assistance, marketing assistance, expertise in supply chain. • Information clearinghouse —An on-line resource of best practices, technologies, relevant industry research, hiring and retention strategies, regulations, etc. • Conferences, educational seminars, workshops and roundtable discussions— consciousness raising activities to build demand and consciousness of the importance of innovation and supply chain issues. • Networking and business matchmaking events — Events and services designed to help companies meet requirements and get contracts with large OEMs and their major suppliers. Over time, a Center should also explore acquiring sufficient space and resources to provide lab or development space for area firms, and could consider establishing a manufacturing-specific business incubator. However, these activities are not of highest priority. Executive Summary xi Chapter 7 Recommendations Feasibility Study for a Kent Center for Advanced Manufacturing I. Summary The study team believes that a Kent-based Center should focus on "value-added" issues of innovation and linkages facing manufacturers; it should provide important, new services to area firms, while partnering or linking with existing service providers. Below is a preliminary recommended mission for the Center: To help area manufacturers succeed through innovation and supply chain linkages. The graphic below summarizes the recommended business model for the Center. At its heart, the Center would provide a set of services in the areas of innovation and supply chain issues including access to specialized expertise, an information clearinghouse, conferences and educational seminars or workshops, and networking and business matchmaking events. These services would be delivered through a combination broker/ in-house model where the Center specializes in its core offerings, and provides other services in partnership with existing organizations, or simply refers clients to those organizations. For example, training programs could be developed with area community colleges and universities, and applied R&D projects could be referred to the Washington Technology Center's grant program. The Center could start as an entity within the existing Kent Chamber of Commerce, but should have a separate budget and board of directors. Once critical mass and funding thresholds are met, the organization could spin-off. Business ModelNision of the Center MANAGEMENT Center Center Board TARGET Management of Directors BARRIERS MARKET OBJECTIVES SERVICE MIX •Qualified •3.000 Improved STAFF Personnel Manufacturers competitiveness EXPERTISE Technology in Kent Region through �I, Diffusion • Lack of innovation and Funds/High linkages OPERATI PARTNERSHIPS 1upply Chain costs Li nkages •Lack of Information Information Clearinghouse • Difficulty Finding REFERRALS Expertise Unfamiliarity with Local Public Federal Technologies FUNDING P;�Industry Sources Grants Figure adapted from NAPM Recommendations 205 Feasibility Study for a Kent Center for Advanced Manufacturing 11. Guiding Principles The study team's research and broader experience with manufacturing centers around the country suggest several guiding principles that should be kept in mind for the design of a Kent- based Center for Advanced Manufacturing: 1. Manufacturers in the Kent area have many strengths, but also face severe challenges. Manufacturing is a core industry in the local and regional economy, paying higher than average wages and representing nearly 30% of employment in identified existing and emerging industry clusters.' Area firms are supported by strong economic foundations including major manufacturing-relevant R&D centers, a highly educated workforce, a robust financial system, low-cost energy, and a high quality of life. Moreover, firms enjoy a strategic geographic position as a"gateway to the Pacific," a convenient base between Asian and North American markets. Nevertheless, manufacturing faces significant challenges. Over the past 15 years, the region lost around 20% of its manufacturing jobs (roughly on par with the decline in U.S. manufacturing as a whole). Globalization, outsourcing, the increasing pace of innovation, and other trends are all placing new demands and constraints on area firms. Meanwhile, operating costs (e.g., land, buildings, workers, and regulatory and tax burdens) are relatively high in the broader Puget Sound region.2 Local manufacturing companies are facing stiff competition from lower cost locations (e.g. China, Mexico, and India) and, as an industry, have not been able to respond. 2. Two themes are critically important to the future of manufacturers in the Kent area— innovation and linkages. Manufacturers have been hurting around the country for many years. As a response, analysts and leaders have authored a host of major national and regional studies to encourage policy and other responses to the threats. These studies include efforts by the Department of Commerce, the National Association of Manufacturers, and others.3 All have of these studies pinpoint the crucial roles that innovation and ability to manage and work within complex supply chain networks will have to the future competitiveness of manufacturers. ' The Prosperity Partnership initiative identified 15 regional clusters in the Puget Sound economy, representing existing and emerging clusters that are crucial sources of wealth generation and prosperity. Of these, nearly 30%of their employment is manufacturing-based. (Economic Competitiveness Group and Global Insight,2005) 2 It should be noted that costs for manufacturing in the South King County area are relatively more competitive than those of other counties and areas in the state. 3 See,for example: Department of Commerce, (2004) Manufacturing in America. A Comprehensive Strategy to Address the Challenges of US Manufacturing; Northeast-Midwest Institute(2005)Advancing U.S. Manufacturing: Challenges Facing Small Manufacturers; Council on Competitiveness(2005), Innovate America: Thriving in a World of Challenge and Change; National Association of Manufacturing (2005), Report from the National Summit on Competitiveness—Investing in Innovation. Recommendations 206 Feasibility Study for a Kent Center for Advanced Manufacturing Moreover, stakeholders and manufacturers in the Puget Sound recognize these realities. In focus groups, participants mentioned having implemented lean manufacturing methods to reduce costs, but they generally acknowledged that this alone was not enough to remain competitive. In order to survive, local manufacturers believe they must find additional ways to increase their value to the customer. Puget Sound companies will need to innovate and transform their processes and products. Innovation and know-how can be an effective competitive advantage vis-a-vis lower cost offshore manufacturing locations. Similarly, manufacturers in the area report being increasingly asked to be product assemblers or "integrators" of dispersed supply chains. This role as integrators could be an emerging competitive niche for Kent manufacturers within the global supply chain system. However, this new "supply chain integrator" role requires new sets of skills including supply chain management, logistics, and production planning with both customers and suppliers. The importance of innovation for Puget Sound manufacturers is not merely an academic idea, nor is it simply a trendy business perception. Area firms who indicate that "innovative new products or technologies" is their dominant strategy for competing on the market place saw their sales grow by an average of 22.7% over the last three years. As illustrated in the figure below, this was significantly faster than growth among firms with other competitive strategies. Moreover, firms with at least 50% of their sales from new or significantly improved products introduced over the last two years had their revenues grow by 16% compared with 4% among firms who did not introduce any new or significantly improved products. It is clear that an orientation towards innovation overall, and success at new product development in particular, are key factors in the performance of Kent area manufacturers. Recommendations 207 Feasibility Study for a Kent Center for Advanced Manufacturing Revenue Growth and Dominant Competitive Strategy (Average percent sales growth in last 3 years and firm"dominant strategy for competing in the marketplace") Customer service 8 Adapting products to customer 9 needs Quick delivery/turnaround 7 Innovative new products or 23 technologies I High quality 14 Low price 10 5 10 115 20 25 3. Area manufacturers feel isolated and are not effectively reached by existing providers of assistance. Puget Sound companies know they need to create more value for their customers - they just don't know how to do it or where to get help. The vast majority of manufacturers do not use the available manufacturing assistance programs offered through the community colleges, universities and through WMS or WTC. In the focus groups, manufacturers were generally disappointed in the training programs at the technical and community colleges. Most had not heard of programs at the WTC or WMS, and all noted there was a lack of any local or regional association representing their interests. During the focus groups, some manufacturers mentioned feeling that existing providers didn't understand their business and what their problems were. There is an important gap between the services currently being offered on the marketplace and the interests and demands of manufacturers, particularly in the "value-added" areas of innovation and supply chain linkages. 4. Successful transformative work is risky and requires trust, which must be built and established over time. Transformative work requires an ability to bring about fundamental or strategic change within a company, as opposed to more routine or day-to-day assistance or bringing about legislative victories that improve the external business environment. The types of organizations that have been identified as having significant, sustainable, long-term impacts on a region and industry competitiveness tended to focus on more risky, transformative projects. Organizations that focus mostly on short-term success such as Recommendations 208 Feasibility Study for a Kent Center for Advanced Manufacturing attracting investment, providing training or seeing increased funding in the state legislature were not often associated with improving long-term industry prospects and competitive advantages. Similarly, many traditional manufacturing extension programs provide short- term services or training that are most in demand by firms. While this provides valuable services to clients, it is not often associated with transforming the competitive outlook of companies. Transformative work tends to involve higher level firm participation at the CEO and senior executive level. Case studies of both CAMP and the Right Place cite high-level buy-in as a central factor in their ability to affect change among clients. Working at this level on strategic long-term problems requires considerable trust between a Center and its clients. CAMP executives suggested it took them nearly 10 years of lower-level work before they were able to engage clients at the transformative level. S. A Center should focus on doing a few things well, and not try to be all things to all people. While most centers offer a wide range of services, they typically concentrate on 2-3 main "core competencies". In other words, it is rare to see a center that excels at both advocacy and delivering basic manufacturing extension services (i.e. helping a manufacturer implement a quality control program). In interviews with existing center staff during the case study research, leaders often mentioned the need to focus on a few core deliverables that are essential to success, especially in the early years. Area stakeholders support this view. As one focus group participant put it, a Center should not "Try to do a little of everything," or try to be "all things to all people." 6. A Center should not duplicate scarce manufacturing assistance efforts already provided by other organizations within the region. Area stakeholders have suggested and experience reinforces the idea that duplicating efforts can be wasteful. A variety of institutions operate in the Puget Sound area and aim to attend to the needs of area manufacturers. This existing support network is summarized in the table below. These institutions attempt to attend to the high-technology needs of area manufacturers (WTC), basic extension services (WMS), advocacy (industry associations), workforce development needs (community colleges), and the needs of start-up firms (incubators). As has already been mentioned, to a large extent, this system as a whole is failing small to midsize area manufacturers. Nevertheless, it is useful to keep it in mind when designing a Kent-based Center. In particular, it appears that an important gap in services exists in this network for the provision of value-added innovation and linkages services and possibly to serve as a focal point for this network of providers who are not effectively reaching area firms. While the WMS does not appear to have moved beyond basic extension services of lean manufacturing, quality, and environmental, health and safety, the WTC's services are concentrated in so-called "high-tech" areas such as funding joint R&D and providing access to a micro-fabrication laboratory. These are all important services, but largely miss the majority of area firms. Recommendations 209 Feasibility Study for a Kent Center for Advanced Manufacturing Services and Core Focus of Area Manufacturing Support Network WMS WTC Area Community Area Industry Area Incubators Colleges Associations Services Training • Technical assistance • O O (specificprojects) Information O Clearinghouse Access to Space& • O Physical Equipment Incubation Services O • Applied R&D • O Financing Networking O Advocacy O Recommendations 210 Feasibility Study for a Kent Center for Advanced Manufacturing III. Recommended Mission Kent area stakeholders laid out a bold strategic vision for the proposed Kent Center for Advanced Manufacturing. (See box below.) This rightly paints a high level, long-term scenario of what the Center would accomplish and its role with area firms (a partner) and strategic relations with other public and private resources. Original Vision for Kent Center for The ideal mission statement would translate Advanced Manufacturing this broad vision, based on the above guidelines, into a succinct guide for the Kent's Centerfor Advanced Manufacturing is Center. It should provide a sense of the the catalyst for a world-class manufacturing objectives of the organization and its .rector in the Pacific Northwest. Through innovation, niche and specialized approach. The study team feels that the manufacturing, and partnerships; South Puget existing vision for the Center has much to Sound is the lender in highly efficient commend it, including its boldness and all- manufacturing companies supported by a skilled encompassing nature, and the fact that it was workforce, leading edge processes and developed by area stakeholders. However, at innovative solutions. the same time, it may be too bold and too all- By partnering with the Center, small and mid- encompassing. Some of the issues raised in market manufacturers in South King and East the vision may not be completely addressable Pierce counties have made the radical change by a Center (world-class manufacturing relies from being low-cost prodttcers to becoming on much more than a Center). At the same high-vahce innovators.Because the Center understands manufacturer's challenges and time, orienting the Center around "world- opportunities, it is a widely recognized, class" would imply the Center should leave a respected and trusted resource. large portion of area firms out. The Center's strategic alliances with public and The study team believes that a Kent-based private resources have demonstrably helped Center should focus on value-added issues manufacturers succeed in creating new business models, materials,processes and products for of innovation and linkages facing greater profitability. The Center's widespread manufacturers. Furthermore, it should provide reputation is for helping manufacturers to be on important, new services to area firms, while leading edge of the life cycle and accomplishing partnering or linking with existing service speed to market on a global scale. providers. We recommend the following mission: To help area manufacturers succeed through innovation and supply chain linkages. This mission, while perhaps not as bold as it could be; focuses on achievable objectives for a Center based in Kent serving the Puget Sound region. One important issue to keep in mind is that innovation should not be taken to be limiting the center to R&D or so-called "high-tech' industries. It is relevant to all firms in all industry segments. Recommendations 211 Feasibility Study for a Kent Center for Advanced Manufacturing IV. Operations A. Target Audience In the pursuit of its mission, the Center would undertake a number of activities to serve manufacturers in the region. As illustrated throughout this report, there are a wide variety of manufacturers in the region. First and foremost, the Center should aim to work with companies that are committed to innovation, linkages, and growth in the region. These are the core competencies that will be important for future success. As our survey shows, these companies can be found in all manufacturing industry segments, among large and small firms alike, and in all parts of the region. Despite our recommendation that a Center offer services relevant to a wide range of industry segments and different sized firms, it is important for strategic planning, marketing, and program development purposes to have a core target market in mind. Innovation and new product development mean very different things in different industries and for different sized firms. This core focus is not meant to be exclusionary, but reflects the reality that to be effective, the Center will have to focus its resources. Firm Size While there is broad interest among all sized firms in a Center, there appears to be slightly more interest among smaller firms (under 20 employees). Experience elsewhere suggests that it is extremely costly and difficult to serve very small manufacturers. These typically do not have the resources to fully take advantage of outside assistance, and are not often able to pay for services. Moreover, as the following table illustrates, a Center would have to reach a very large number of them in order to have much of an impact in the region. There are an estimated 700 firms with less than 50 employees who would be highly interested in a Center. These employ around 7,500 people. Meanwhile, there are about 140 firms with 50 or more employees who would be highly interested in a Center, and these firms employ over 12,000 people. Total Estimated Employment of Tar et Market Firms Status Under 5 5-9 10-19 20-49 50-99 100+ TOTAL Manufacturing firms 1,084 585 396 511 234 203 3,013 At least 5 empl. or interest in innovation 453 585 396 511 234 203 2,382 Target Market (highly interested in concept) 220 222 150 124 92 49 857 Avg. Jobs 2.57 6.15 12.88 27.48 61.41 139.29 23.0 Target Market Jobs 566 1,367 1,937 3,400 5,626 6,791 19,687 Recommendations 212 Feasibility Study for a Kent Center for Advanced Manufacturing In order to have a measurable impact on the region, we recommend that the Center place more emphasis on serving the somewhat larger firms that have at least 20 employees. A total of 265 firms of this size have an interest in the concept, representing 15,817 total jobs. The Center Should not ignore smaller firms, and indeed could develop a line of activities specifically tailored for the small firms. But significantly more energy and attention should be directed at those firms with the scale and resources to have a bigger impact on the regional economy. One option for attending to smaller firms is to see them as incubator clients and to deliver subsidized services to a small group that has been selected for their potential for growth and other characteristics. This would enable the Center to target its efforts on high-impact clients. Industry Segment The Center should have a broad manufacturing industry base, while concentrating in aerospace, IT, and life sciences and health products. First of all, although aerospace dominates the region, the area's manufacturing base is broadly diversified. Second, the manufacturer survey found fairly broad-based interest in the Center across manufacturing segments. Third, the case studies have highlighted the difficulty in concentrating too much on tightly defined industries. For these reasons, the study team recommends that the Center work broadly across all manufacturing segments. However, it is important for planning, marketing, and program development purposes to begin with a few core industry segments in mind. Here, the clusters of IT Products, Life Sciences and Health Products, and Aerospace stand out for their growth potential, linkages with broader regional clusters, importance in terms of employment and higher-than-average wages, and fit with a potential Center for Advanced Manufacturing. S. Services As described above, the Center would focus on new, value-added services that do not duplicate existing service offerings. At the core, this would include: • New product design and development services and efforts to stimulate the development and adoption of emerging technologies and practices. ■ Supply chain efforts to help match buyers and suppliers. • Efforts to promote local networking and collaborative learning. These services are not currently being provided by the network of institutions assisting manufacturers. While the WTC does offer R&D and technology assistance, it is aimed primarily at high-technology segments. Similarly, while the WMS provides extension services, its focus is on traditional lean, quality, and environmental, health and safety issues. Meanwhile, industry Recommendations 213 Feasibility Study for a Kent Center for Advanced Manufacturing associations do not appear to be attending to the supply chain or networking needs of area manufacturers. In particular, a Center would offer the following services: ■ Specialized expertise and help— New product design and development assistance, marketing assistance, expertise in supply chain. ■ Information clearinghouse —An on-line resource of best practices, technologies, relevant industry research, hiring and retention strategies, regulations, etc. ■ Conferences, educational seminars, workshops and roundtable discussions — Consciousness raising activities to build demand and consciousness of the importance of innovation and supply chain issues. • Networking and business matchmaking events— Events and services designed to help companies meet requirements and get contracts with large OEMs and their major suppliers. Over time, a Center should also explore acquiring sufficient space and resources to provide lab or development space for area firms, and could consider establishing a manufacturing-specific business incubator. However, these activities are not of highest priority. C. Delivery Model The case studies presented in Chapter 5 present a breadth of models that different centers use to deliver services to clients. These can be classified as falling somewhere along a continuum between a broker model and a full in-house model. Under a broker model, center staff would work with clients to assess needs and put together packages of assistance (direct engagements, workshop sessions, or even grouped-engagements). The actual assistance, however, is delivered by someone or some institution outside the Center. At the other extreme are Centers that deliver all of their services in-house using their own staff. Most centers do not go to these extremes, but there is always a careful balance that must be struck between the broker and in-house model. The broker model is useful when there is already a strong network of service providers (public and/or private) and firms simply suffer from information and/or trust issues in identifying and working with them. The model implies relatively lean overheads, as the Center does not need to maintain considerable expertise on the payroll. It is relatively quick to establish and set-up. Among the case studies, The Right Place uses a broker model to deliver extension services. An in-house delivery model can take longer to develop and can be more costly as the Center must carry the costs of staff down-time on its payroll. As trust and reputation are so essential for a Center to be able to work with area companies on transformative issues, some degree of in- house service provision will be required. The importance of trust implies substantial in-house Recommendations 214 Feasibility Study for a Kent Center for Advanced Manufacturing ability so that clients do not feel that they are just being "passed through" to outside service providers. We recommend that the Center utilize a combination broker/in-house model from the beginning. The strategy would be to build up early offerings in key areas such as innovation, speed to market, and supply chain management using high quality outside consultants and trainers and some in-house capacity and expertise. Focusing on this core of issues, the Center could develop its in-house abilities in these areas. As the Center will undoubtedly be requested to attend to many other needs, it should meanwhile develop a policy of partnering and/or referring certain activities to other institutions. For example, if a manufacturer came to the Kent Center expressing a desire to explore a lean manufacturing project, the Center could refer that manufacturer to WMS which has an established set of lean services. Recommendations 215 Feasibility Study for a Kent Center for Advanced Manufacturing V. Funding & Management Organization: Start as a division of the existing Kent Chamber, but with separate budget and Board of Directors. When a critical mass is reached it will need to spin off since its mission and focus is different from that of the Kent Chamber of Commerce. Legal structure: 501 (c) (3) Location: Locate the Center in Kent. A Kent location was broadly supported based on the input of the focus groups, survey, and key person interviews. Even though the demand for this center was clearly regional, stretching between Tacoma and Everett, manufacturing executives accepted that a single location was needed and agreed that Kent was a logical place. There were several reasons for this. Kent is universally recognized as a center for manufacturing in the region because of its large concentration of manufacturers, secondary industry clusters of wholesale and transportation and physical infrastructure of roads and rail. Kent also has a supportive political system, with favorable policies and cost structures that allow manufacturing to be competitive. Local public officials and stakeholders support manufacturing because more than most cities, manufacturing is a major driver of the local Kent economy. One cannot find such political support within other larger cities in King County such as Seattle and Bellevue. The preference for Kent can also be explained statistically in the pattern of interest in the Center by location. If Kent was not seen as a good location for the vast majority of firms, there would have been much greater differences between the geographic areas and the Center's draw area would have been more localized (i.e. confined to South King County and Pierce County). In the verbatim responses about why firms gave their ratings of overall interest, only a few comments were made about distance and location. Staffing: Start small (professional core staff of 5-10 and grow incrementally and organically in line with demand for services - up to a possible full-scale operation of around 20 staff over the longer term). Focus group participants highlighted the need for the center to have highly qualified, experienced staff. Manufacturers do not want to call and speak with entry-level workers that don't understand their industries and challenges. The consensus of the focus groups was that the center should consider hiring a small group of experienced managers that are assigned to work with a number of manufacturers and leverage their industry experience together with project management ability, creativity and knowledge of the available resources at the Center and elsewhere. These individuals should have a solid manufacturing background and understand key supply chain issues and product development issues. They should be supported by group of researchers and engineers who would be able to carry out market research and product development projects in partnership with specialized area consultants and other organizations. Recommendations 216 Feasibility Study for a Kent Center for Advanced Manufacturing Budget & Funding: Start small, around $1 million and build up Vvith membership dues, user fees and donations and grants to about$3 million over 2-4 years. In the Center's early years, as it is establishing its reputation among area manufacturers, it will be particularly important to identify public and private grant funding sources. This would enable the Center to develop without having to rely immediately on industry fees and dues. All potential sources of revenues, including federal, state and local public sources should be thoroughly explored. A core of stable funding for the first 5-years could go a long way to ensuring the Center is able to get off the ground and focus on long-term critical issues. The analysis presented earlier in Chapter 3 suggests that membership fees have the potential to generate revenues of around $317,918 per year. To optimize membership fee revenue, a sliding scale could be used based on firm's employment size, with four price points: Less than 5 employees—$350; between 5 and 50 employees—$500; between 50 and 100 employees— $1,000; over 100 employees —$2,000. However, these multiple fee points can be confusing and, at the lower end of the scale, it can cost more to provide the services behind the membership than is generated through the fee. Therefore, we recommend a more simplified membership fee structure of: ■ Less than 50 employees: $500 ■ 50-100 employees: $1,000 ■ Over 100 employees: $2,000 These membership fees should provide access to various services which would vary with the member "level." At a minimum, they should provide access to the information clearinghouse, and probably free or reduced cost admissions to workshops and/or seminar events. In order to encourage participation of very small, developing firms, the Center should consider offering a limited number of free memberships on a selective basis through some sort of qualification process. The Center should provide services to members and non-members alike, and user fees are likely to be a more significant source of income than membership dues. Based on the survey described in Chapter III, the Center could potentially generate over $4 million per year in revenues from user fees. For these, fee levels should be set at levels that allow the Center to cover its costs of providing the service. For example, some seminar or workshop events could be developed at low-cost working with existing expertise in the region (i.e. University of Washington professors, etc.). These could be offered at nominal fees of $25-$50 per attendee to cover the costs of the meeting space. Other activities such as a product development project or a niche marketing assessment would be much more costly. Recommendations 217 t Feasibility Study for a Kent Center for Advanced Manufacturing VI . Recommendation to Proceed Based on the results of the feasibility research, the study team recommends that the City of Kent and Kent Chamber of Commerce conduct the Phase II work on a detailed business plan and move forward with the proposal to create a Center for Advanced Manufacturing in Kent that would have the recommended services, format, focus, funding and features. One of the first criteria in making this recommendation was demand. Sufficient demand was demonstrated for the concept in the 6 focus groups and random survey of manufacturers. Area firms express a strong interest in participating in a range of activities and services and are willing to pay dues and user fees to support these efforts. A Kent-based Center has broad- based appeal across the Puget Sound region, across industry categories and among both small and midsize firms. Another criteria for evaluating the feasibility of the Center is whether there is a gap among existing support services that the center could fill. The research clearly showed that there is a need for a single point of contact and trusted resource for Puget Sound manufacturers, who are isolated and lack information about which local resources to use. The recommended service model calls for the Center to leverage the training, lab and R&D resources of existing facilities and refer clients to these programs. The analysis also showed there is a gap between the services currently being offered on the marketplace and the interests and demands of manufacturers, particularly in the "value-added" areas of innovation and supply chain linkages. The Center can fill this gap with a range of new services that are not provided by other institutions. The Center was shown to be financially viable. The study team expects that over $4 million per year could be generated through membership and user fees and raised through local public sources and community donations. This is sufficient to cover the approximately$3 million annually required to operate a Center. Another consideration was the prospective economic impact of this Center on its service area. The Center could generate, over a 5-year period, approximate impacts of$129 million in sales, cost savings of$21 million, new client investments of $27 million, 366 new jobs and 878 jobs retained. These impacts would be substantially in excess of the investments required to create and maintain the Center. The recommended focus and business model of the Center was validated by case studies of other regional centers, research into national and local trends and data on existing local industry clusters and support infrastructure. The Puget Sound region was shown to be comparable with other regions nationwide that have developed successful centers. Recommendations 218 Feasibility Study for a Kent Center for Advanced Manufacturing Finally, the need for the Center was confirmed through key person interviews of major corporate leaders in the region and executives of the institutions providing manufacturing assistance programs and resources. Rather than finding resistance, fear of competition or indifference, the study team found a genuine Allingness among regional stakeholders to lend support and assist in the development of the Center. Recommendations 219 U � o W _ C0 0 Ur y J m Z :. O c m C. CL = 00 O or 3 .F+ o ° O ++ N }, LL cm — N o d N i O >+ LL D O O x a, LLI o Q y N L. r (a i .i U c O _ O cCZ - � a � c o O 0 o C •-)� i. Cn c c O }, O a) = s m - 0) CU) CZ i to > '> CL O O Qcz a •— U c _= V _� - Q L LL. E c Ucm a 3 � o o 70 o cz ANN — U Q� j N (� 0 _0 \ Q C C o � � 0 O cn O CZ M •Z. 5E W = Q O = O � Q v