March 2008 Edition

THE LAST WORD

Manufacturing Evolution is No Theory

"Change or die," could be the motto of U.S. industry. Changes are taking place to increase efficiency, but we must also look at changing laws that hamstring industry.

There's a misperception about U.S. manufacturing: Our manufacturing base is dying because of manufacturing moving offshore.

To clear that up, let's first look at the facts: 72 percent of the U.S. manufacturing jobs lost during the past five years are the result of productivity improvements; also in that same five years, nine of the 10 largest industrialized economies in the world, including China, have lost manufacturing jobs.

U.S. manufacturing is not dying. In reality, it is, by far, the largest manufacturing economy in the world.

It is increasingly mechanized and automated. Change within it is accelerating. Machine tool purchases for the U.S. and Germany, during the last six years, was about $30 billion. In comparison, China has acquired $50 billion in machine tools for that same period.

First Commodities, Now Durable Goods

Today, U.S. manufacturing is more focused on durable goods. The commodity business went offshore years ago. With durable goods, production follows demand. In 2003 we reached a significant inflection point; for the first time we imported more durable goods than we manufactured.

The automotive industry is a prime example. About 40 percent of the global machine tool demand is consumed by the motor vehicle industry. For the U.S. automotive industry, import is four times that of exports.

With some countries, such as China, exports of a durable good such as an automobile are minimal since the Chinese are making automobiles to sell in China, not the U.S. Not so with the large deficits with Japan and the European Union. Why is it that we can't compete with Japan and with the EU?

There is no magic answer. We've got to look at our manufacturing economy and how we can improve it.

Challenges and Strengths

Between 1950 and 1980, for every dollar of manufactured product there was $1.71 of inventory. With computerization, Lean Production, MRP, ERP, and other systems, that's down to $1.18. We have taken about $71 billion out of the manufacturing supply chain. Now, the question is: What is it going to take to compete in the supply chain of tomorrow?

Lead time is critical. The days of being able to quote in weeks and months are gone. Quotes now must be in days and hours, and customers hold manufacturers to those quotes.

Technology is essential. Customers expect the thousandth part to be identical to the first.

The real strengths of U.S. manufacturing are productivity and low inflation.

At AMT we look at productivity in decade increments. Productivity has grown in the U.S. in every decade.

In the late 1990s, global transformation was the driver. With the advent of the Internet and 21st Century communications, it's almost as easy to place a purchase order in Beijing as it is to place it two blocks down the street.

As a result, there is less focus on national economies. This has driven U.S. industry to raise productivity to unprecedented levels. That is the only way U.S. manufacturers can remain competitive.

Transformation

What's next? I think the focus will change from individual islands of manufacturing to manufacturing as a global concept.

The U.S. industrial base is transforming. Evidence can be seen in consolidations such as within the automotive and aircraft industries; migration of manufacturing down to Tier One and Tier Two suppliers; continuing outsourcing of low-skilled jobs offshore; and geographic migration of manufacturing facilities within the U.S.

There also has been a change in the makeup of the labor force. Almost 50 percent of people going into manufacturing today have attended college, and 25 percent have a college degree. Manufacturing is evolving, but in some areas the U.S. still lags.

When the National Association of Manufacturers and the Manufacturers Alliance/MAPI did a study in 2006, they found that U.S. manufacturers are at a 31.7 percent competitive disadvantage in taxes, benefits, and legal costs when compared to our nine largest trading partners.

These disadvantages are caused by the laws enacted by our state, local, and federal governments, not by the Chinese government, or the EU. We're the only ones who can change those laws.

John Byrd has been AMT President since October 2003. During his 34-year career in industry he served as a manufacturing engineer, financial analyst, plant manager, chief operating officer, and in other positions.

What do you think?
Will the information in this article increase efficiency or save time, money, or effort? Let us know by e-mail from our website at www.ModernApplicationsNews.com or e-mail the editor at pnofel@nelsonpub.com.