Georgia’s manufacturing sector remains a vibrant and profitable part of the state’s economy, with more companies incorporating strategies such as smart manufacturing to remain competitive.

But as the industry is integrating more innovative practices, it is not as focused on cybersecurity vulnerabilities and faces an additional challenge of finding enough skilled workers for its emerging needs, according to the findings of the 2016 Georgia Manufacturing Survey.

“One of the biggest takeaways is the industry’s use of smart manufacturing, which was a new focus for this year’s survey,” said Jan Youtie, principal research associate at the Enterprise Innovation Institute, the Georgia Institute of Technology’s chief economic development arm. The concept refers to the use of data and information to improve product design and development, enhance manufacturing processes, and foster responsiveness to customers and suppliers.

“Nearly all the companies are using smart manufacturing technologies, but fewer of them are paying attention to cybersecurity issues,” Youtie said.

Georgia Tech researchers conducted the survey of 526 manufacturers with 10 or more employees. Georgia Tech produced the survey in collaboration with Kennesaw State University, the Georgia Department of Labor, and Habif, Arogeti & Wynne, an Atlanta-based accounting and business advisory firm.

“Manufacturing is one of the most important sectors in Georgia,” Youtie said, noting there are more than 9,000 manufacturers in the state and collectively they employ more than 360,000 workers and account for 11 percent of Georgia’s gross state product. “We wanted to look at how manufacturers are changing, as well as how they are using technology and the kinds of challenges they face in response to changes in the broader economy.”

Georgia manufacturers are increasingly focused on incorporating new technologies into their operations, such as automated customer ordering and computer-aided design. But the survey findings suggest that while the industry is embracing new technologies, it is not focusing enough on cybersecurity risks.

“They’re focused on the technology and implementing it, but not thinking about the human aspect or the workers who utilize the technology,” said Karen Fite, director of the Georgia Manufacturing Extension Partnership, a federally funded EI² economic development program that works with the industry to help companies grow and remain competitive.

“There is a lot of talk about cybersecurity and everybody recognizes it as an issue, but most manufacturers haven’t realized that they have a lot of data that could be at risk,” Fite said, adding the findings reflect a broader trend that Manufacturing Extension Partnership programs in several states have found. “Manufacturers still see cybersecurity measures as very cumbersome to implement, so it’s not immediately at the forefront of the issues they are working to resolve. We have to help them think about some of the solutions they can utilize.”

Not surprisingly, larger manufacturers — those with at least 250 employees — have a higher degree of focus on cybersecurity issues. Nearly two-thirds of the large companies surveyed reported that cybersecurity is a focus.

“We kind of expect that, but it is surprising that one-third of larger companies are not as focused on this issue and we hope that smaller companies would pay attention,” said survey co-director Philip Shapira, a professor in Georgia Tech’s School of Public Policy and a professor of innovation, management, and policy at the Alliance Manchester Business School in the United Kingdom. “It’s not just about secrecy; it’s about protecting manufacturing systems, which are increasingly connected to the Internet. These systems are interdependent, so it’s protecting against viruses and downtime and other potential issues that might come up if you don’t pay attention to cybersecurity.”

Another area of focus for industry — a trend underscored by previous surveys — is workforce skills. Survey respondents cited the Georgia workforce’s technical and basic skills as being among the top concerns. More than 34 percent of respondents raised the need for workers with more technical skills as a concern, an increase of more than 7 percent from 2014.

Manufacturers also reported a growing need for workers with basic skills. More than 28 percent of respondents reported that as a concern, up nearly 7 percent from 2014.

“Historically, this has been an issue that’s been close to the top, but it’s really jumped in terms of the need to have a skilled workforce,” Fite said. “And that’s critical as companies adopt more smart manufacturing practices because it’s about new technologies and it’s going to require new and different skill sets, such as data-driven skills that the current workforce doesn’t have.”

And while manufacturers cited workforce skill among their top needs, it’s not something the industry is devoting a lot of resources to address, Shapira said, explaining companies spend roughly the equivalent of 1 percent to 2 percent of payroll on training.

“I think there is a role for policymakers to try to find ways to work with existing companies,” Shapira said. “And that’s where something like the GaMEP can help. If companies knew where to invest in training and have some guidance, they might be more willing to invest in that.”

Georgia manufacturers may be more willing to make those investments given that the industry is enjoying more profitability. As measured, profitability jumped 13 percent in the 2016 survey results, compared with 2014.

“This is the second survey in a row where we’ve seen profitability go up for manufacturers in spite of a hesitancy to invest in new technology and techniques,” Fite said.

Part of what’s fueling that trend is that more companies are focused on incorporating innovation as a differentiator as opposed to competing on price. It’s a marked change from prior years.

“In 2014, there was so much growth in manufacturing that the companies competing on low prices almost had the same returns as companies competing on innovation,” Youtie said, explaining the survey began tracking that difference in 2000. “But this year, we’re back to seeing that companies that are competing on innovation having higher returns than companies that are competing on low cost.”

In addition, companies that compete on innovation tend to pay higher wages to their employees, Fite said.

That focus on innovation could also help explain why outsourcing and insourcing trends seem to have stabilized. Outsourcing in particular has long been a concern as Georgia and the nation as a whole shed jobs to lower-cost countries.

“When we first started, we saw that 18 percent of manufacturers were outsourcing and only 11 percent were insourcing,” Youtie said. As Georgia manufacturers – particularly those in the apparel and textiles sector – moved jobs overseas in the 2000s, the outsourcing trend was expected to continue. “But the outsourcing percentage is steadily going down where this year it’s leveled off to around just under 12 percent, ”Youtie said.

In contrast, insourcing has steadily increased to its current 12 percent, where it has leveled off.  “We have 10 years of experience with this trend, and the industry realizes there is a big cost with outsourcing,” she said.

“So if you bring that business back, you have quicker delivery and lowered business risks. If you look at the total cost and also the percentage of labor in manufacturing, these indicators are not as high as they were in 2005, so it’s harder to view outsourcing as being so economically sensible for industry.”