Colorado has received a D grade — again — on Ball State University’s annual Manufacturing and Logistics Report Card. But local manufacturers and industry groups are working to strengthen the industry in novel ways.
The state was graded D for manufacturing, D for global position, C+ for human capital, C for tax climate, C for diversification and C- for expected fiscal liabilities gap, with better grades for benefits cost (B-) and productivity and innovation (B).
Colorado’s grades have been largely consistent over the 10 years Ball State’s Center for Business and Economic Research has been preparing the report, although this year its logistics grade improved slightly from D to D+.
The report shows how each state ranks among its peers in several areas of the economy that underpin the success of manufacturing and logistics, according to Ball State.
Ball State’s Michael Hicks, director of the Center and author of the report, said while “Ds are bad, that is for sure,” the grades reflect the fact that only a small share of Colorado’s economy is in manufacturing and logistics.
Colorado has not leveraged growth in manufacturing or logistics over the past decade despite “fairly strong growth nationwide,” he said.
“The C grades aren’t necessarily the problem, except that they tend to happen across the board, with the exception of productivity and innovation,” Hicks said in an email.
“… It is a bit disappointing for Coloradans that more manufacturing firms haven’t moved or expanded to Colorado. You have great quality of life, superb universities and should be a hub of technically advanced manufacturing.”
Hicks suggested part of the problem lies with the perception that the state isn’t really prepared to accept manufacturing firms.
“I think that is a mistake, since you would have a large available labor force for modern manufacturing,” he said.
Christopher Fagnant, president at Springs-based Qualtek Manufacturing Inc. and a third-generation manufacturer, said the report was “disappointing to see,” but it made sense given the criteria.
“A report card like that doesn’t really worry me,” he said. “There’s a lot of work to be had out there, and it’s really a matter of people going out and getting it.”
Qualtek is tackling that challenge by teaming with other local manufacturers to deliver on large OEM — “original equipment manufacturer” — jobs.
OEMs include large corporations like Boeing, Airbus and Lockheed Martin.
Qualtek, which specializes in metal finishing, heat treating and stamping, recently secured a major order by coordinating with local machining suppliers to produce a range of tools for an OEM.
“We were able to utilize three different machine shops for a single order, and it all flows back through Qualtek because we … do the last process,” Fagnant said. “Collaboratively we can connect the different capabilities of small businesses and allow Colorado Springs to compete on these jobs with big OEMs that we would never be able to do on our own.”
The keys to success: Springs businesses are able to move parts from shop to shop rapidly, and manufacturers are willing to share information.
“There’s a changing of the guard right now. … My dad’s generation and the generation before him held all their intellectual property close to the vest and did not really collaborate with other businesses,” Fagnant said. “My generation is saying, ‘I can’t be an expert in all these things, so I need to work with these people.’”
Creating a connected manufacturing supply chain through collaboration spells huge growth potential for Springs manufacturers.
“I know this particular customer alone has $80 million of these tools … in their pipeline at any given point, every year. For us as a company it could be $3 million worth of business — that would grow our business by 35 percent — with one customer,” Fagnant said.
He estimated 50 percent of that revenue stream through Qualtek is passed on to other small Colorado Springs machine shops.
“The amount of money that’s out there in the contract manufacturing world is staggering,” he said. “Companies are working together — it’s slow, but it’s happening.”
Hannah Parsons, chief economic development officer for the Colorado Springs Chamber & EDC, addressed Colorado’s grades and the challenges facing manufacturing.
Some are geographical, she said. Mountain ranges make east-west transportation and logistics difficult, and being landlocked limits Colorado’s global reach.
“You can’t really look at Colorado or any states on a mountain range and compare them apples to apples [with states that don’t have mountain ranges],” she said.
And logistics and transportation hubs increasingly have access to ports as well as roads and rail, allowing containers to move seamlessly from ship to train to truck.
“We are a dry state; we have no access to water,” Parsons said. “That’s going to be one [aspect] Colorado will never be competitive on.”
She said the Chamber & EDC is working with the city of Fountain, El Paso County and other partners to create a rail-served industrial park to address that disadvantage — “but we’ll never have water.”
Other challenges Parsons is working on: infrastructure spending and tax climate. She said with partners statewide, the Chamber & EDC is prioritizing increased transportation funding — beyond the expansion of Interstate 25.
“The state of Colorado does not pay for transportation in a general sense, so one of our No. 1 legislative agenda items is to increase statewide transportation funding …[and] increase transportation funding in the general fund to show ongoing transportation and infrastructure investment is a priority for the state of Colorado,” she said.
The tax climate suffers because Colorado charges a business personal property tax, where many states targeting manufacturing do not. Colorado Springs and El Paso County waive the tax, but its existence at the state level is a hurdle.
“The state as a whole tends to incentivize more intellectual capital for job growth instead of capital investment,” Parsons said.
Still, Parsons expects to see more manufacturers moving in.
“We feel the outlook is strong … and we’re starting to see an uptick in interest from manufacturing companies despite the logistics challenges,” she said.
“I think it’s largely because we have a highly skilled workforce. … With the increase in advanced manufacturing [opportunities], that type of talent is increasingly important.”