Manufacturers' Biggest Challenge? More Revenue

American manufacturing has done pretty well in terms of cost reduction, productivity and internal efficiencies in the last 30 years. In the eighties when the Japanese began penetrating our markets with superior quality products American responded with Deming Statistics, TQM, and ISO-9000 and eventually America could compete with anybody in terms of quality.

About the same time computer software evolved into MRP, MRPII, and eventually ERP to control workflow and inventories. Then the Toyota Production System was revealed and programs like JIT, Six Sigma, and Lean Manufacturing became very popular. All of these initiatives have kept the United States in the global game of manufacturing.

In fact, American manufacturing ranked first in manufacturing value added in  2008 as most other countries showed drops in their output because of the recession.  In 2011 the Department of Labor said that America and China are both close to the number one position in terms of total manufacturing value added.

The U.S. Labor Department shows that output per hour of American Manufacturing from 1987 to 2011 was 3.4 in 24 years. This is very high compared to most other countries except for Finland, Singapore and Taiwan.  So if these figures are all true, why is there still doom and gloom by many manufacturers?

The problem is that American manufacturing is not growing in terms of percentage of GDP, number of employees, number of plants, or in many cases sales revenue.

The chart below shows the macro economic figures from the last decade to support this claim.

            # Employees               # establishments’                   % of GDP      

We have lost 5,906,639 employees, closed 45,564 factories, and manufacturing’s percentage of total GDP has slipped 2 percentage points since year 2000.

In a recent Deloitte consulting survey of North American CFOs, they found that “60% of the firms say their top company challenge is revenue growth from existing markets."  I think that it is safe to say that since America has felt the pressure of globalization, American manufacturing is no longer growing especially in terms of sales.

One alternative is to wait and see. We can hope the government will make progress in forcing China to stop manipulating its currency which is under valued by as much as 35%. This makes China very attractive for American manufacturers seeking ways to lower costs, and it makes Chinese imports superficially cheap.

Or perhaps the large multinational companies will become more patriotic and quit out-sourcing jobs and production to low wage countries. This would create an immediate demand for American manufactured products and opportunities for growth.

Or maybe the Obama administration will give into to the multinational companies and reduce their corporate tax rate by 10% or even give them a tax holiday so they can bring in the profits they are holding out side of the country.

Or perhaps someone will come up with a successful way to reduce the cost of health care. But hope is not a plan and waiting for outside events to change or the government to step in to help us may never happen.

As old industries dwindle, new industries emerge, and large customers evolve to adapt to globalization, your company will be part of this change. And change can be good news as many new industries, hundreds of new market niches, and thousands of new applications will emerge. (I am fond of saying there are always opportunities in chaos.)

Certainly there are going to be many industries that continue to decline and perhaps some, like circuit boards, textiles, and shipbuilding, will never come back. But there are other industries that are emerging and evolving that will provide new opportunities for manufacturers in the future.

Advanced Technology Industries

As some traditional industries die, they will be replaced by new and emerging high growth industries. Among those industries are many technology industries – manufacturing in areas like biomedical devices, nano-technology, nano-manufacturing, informatics, biotechnology, pervasive computing, analytical instrumentation, and optic-electronics. Some of these industries can become very high growth industries and the technology will eventually be used by small and midsize manufacturers for new products.

Traditional Industries

Many huge traditional industries like paper, food, chemicals, and oil are not going to go away. They are U.S. industries that have a long history of growth. Although growth may not be spectacular in these industries, most will continue to grow and continue to change to be more competitive.

Industries likecChemicals include hundreds if not thousands of market segments and they are supplied by manufacturers of all sizes. Because of the changes going on within each of these industries and the ongoing need for improved process machinery, there will continue to be literally thousands of opportunities for new products and services, particularly in process and production line automation.

A good example is packaging and the packaging industry. Every time a large consumer product manufacturer changes the packaging of their products, it can cause a chain reaction of opportunities down through the OEM suppliers that supply machines for their production lines. For example, saving money by eliminating the traditional corrugated or cardboard cartons and replacing them with some kind of shrink-wrapped package or plastic bag may cause every machine in the production line to be redesigned or changed in some way. In every major industry there are thousands of packaging changes that result in thousands of opportunities for new applications of machines and new products.

Suffice it to say that many of these market opportunities will probably be outside of the markets you now serve. To reach them may require new approaches to marketing, a different type of organization, and new sales channels.

Jeffry Immelt, Chairman of G.E. and chairman of President Obama’s Jobs and Competitiveness Council said,” the panel has asked all Fortune 500 companies to double their hiring of engineers over the coming year.” In another speech he said he would like to see American Manufacturers double their workforce from 10 million to 20 million people. But, Immelt also added that the U.S. must take market share to add jobs.

Although hiring manufacturing workers is a step towards growth and a positive statement by the GE chairman, manufacturers won’t and can’t hire workers unless there is and increase in sales. And for most manufacturing companies this will mean finding new customers, markets, or gaining market share.

So What Can We Do?

Instead of waiting for things to change or waiting on the government to change policies, I would advocate that companies should go on the offense, take matters into their own hands, and develope strategies that are within their control. There are seven factors that must be addressed to have a chance at growing your company.

They are:

• Finding out if your products and services have a competitive advantage
• Considering a different kind of organization to allow you to prospect for new market opportunities
• Learning methods to find new customers and markets
• Developing a system to design new products that customers will buy.
• Using future technologies and other methods to modify your products or invent new products
• Analyzing the way you sell and considering different types of sales channels
• Creating an advanced  training program for the people you will hire in the next decade

Mike Collins is President of MPC Management. He is the author of “Saving American Manufacuturing”