Can We Grow American Manufacturing?

America has done a good job of solving internal manufacturing problems, improving quality, and reducing waste and costs. These internal programs have kept American manufacturing in the game. But there is a problem. Manufacturing isn’t growing in terms of factories, % of GDP, employees, or sales revenue.  

America has done a good job of solving internal manufacturing problems, improving quality, and reducing waste and costs. These internal programs have kept American manufacturing in the game. But there is a problem. Manufacturing isn't growing in terms of factories, % of GDP, employees, or sales revenue.

Staying with current marketing and sales strategies is not going to increase sales. The old paradigm of being loyal to your customer, depending on a few large customers, and focusing all of your resources on improving your operational systems to reduce cost and waste, are not working.

If you examine the customer list of most manufacturers you will find the 80/20 rule applies. In other words, 20% of their customers account for 80% of their sales volume. In fact, it is common for only 10% of the customers to account for most of the smaller supplier manufacturer's sales volume.

Needless to say, the profitability of these customers becomes a very serious issue. For the last 20 years, customers up and down the supply chain have been trying to reduce costs to compete in a global economy. The pressure from many of these larger customers has forced price/cost reductions onto their suppliers. But depending on a few customers for your existence is a dangerous game. They may decide to offshore their products, use a foreign supplier, or increase their pressure to lower prices.

Solutions

The real answer is to diversify and find new customers and markets. Finding new customers and markets means taking an aggressive approach to expanding the number of customers in existing markets and also finding new markets. It usually requires expanding sales out of state and developing some method of generating inquiries. It will require new methods for prospecting and sometimes new sales channels or in some cases (like job shops) hiring the first outside sales person. This will, in most cases, automatically lead to changes in products and services.

A Case Study

A good example of how to diversify is SRC Holdings in Springfield, Mo.. When the company first started (following the recession of 1983), it was doing engine remanufacturing and had taken on $8.9 million of debt.

"When we were starting out in the 1980s, more than 75% of our labor hours were in the truck market," says CEO Jack Slack. "We did some investigating and found out that the truck market has a recession every six years. So we had to ask ourselves what we'd do if we had a recession.

"We thought about what goes up in a down market," he continues. "and we discovered that automobile parts go up, because people keep their cars longer and fix them. That's how we got into the automotive aftermarket business. That kind of thinking became part of our culture and our way of doing business."

Slack knew the more the company diversified, the safer it would be.

SRC Holdings is now a mini-conglomerate with 26 businesses and 1,200 employees. They make automobile engines, refrigeration units, agricultural machinery, irrigation pumps, and much more.

This may seem like an extreme example, but it makes the point that in the new global economy SMMs must defend themselves and consciously avoid a concentration of customers that can put them out of business. It is better to go on the hunt for new customers who will see the value of your price and products than to continue accepting losses or no growth in sales.

6 Essential Questions

If you need to find new customers and markets you should begin by answering the following questions to see if the company is ready.

  1. Can you identify the best customers to sell – now and in the future?
  2. Do you know which market niches (customer groups) to focus on now and in the future?
  3. Do you know what kinds of products and services the best customers want?
  4. Can you compare your products to the competitor's products in terms of price, delivery, key features -- model by model
  5. Do you know the specific reasons you lost orders to competitors for every known lost order in the last year?
  6. Do you know if you are making adequate margins on each product line, model, or job?

Hoping that something will change to help American manufacturing (like the Chinese agreeing to not manipulate their currency) is dangerous because it is very political and the Chinese are committed to taking more manufacturing away from the U.S. no matter what we say or do. Hope is not a plan or a sustainable strategy. U.S. manufacturers need to find ways to grow without relying on the government, politicians, economic changes, or the Fortune 500 companies for their salvation. There are many reasons that we can do it.

Reasons for Optimism

There are tremendous opportunities for those manufacturers who can adapt to the new economy. In fact, even with the stagnation of U.S. manufacturing, there are still opportunities to grow, create new products, access new markets and create jobs.

As old industries dwindle and large customers evolve to adapt to globalization, your company will be part of this change. That can be good news, as many new industries; hundreds of new market niches and thousands of new applications will emerge.

Here are 9 reasons why manufacturers should be more optimistic about emerging opportunities:

1. The Promise Of New And Growing Industries -- There are going to be many industries that continue to decline and perhaps some -- like semiconductors, apparel 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. Among those industries are many technology industries -- manufacturing in areas like biomedical devices, nanotechnology, nano-manufacturing, informatics, biotechnology, pervasive computing, analytical instrumentation, cyber security, data storage, micro electromechanical systems, robotics, specialty metals, supercomputing, tissue engineering and electro-optics. There is a good chance that some of these technologies might blossom into high growth industries. There is an even better chance that many of the new technologies will evolve into technologies that can be used by SMMs in developing new products

2. Traditional Industries -- Most of the plants in traditional industries are not leaving the country. In big industries like food, paper, and consumer products, there will be ongoing changes to plant production lines to increase performance and to handle all of the changes caused by new products. For instance, in the food industry there are thousands of packaging changes that result in thousands of opportunities for new applications, equipment modifications and new machine designs. New applications mean thousands of new market niches.

Another example is packaging and the packaging industry. Every time a large consumer products 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 will 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 machine designs.

3. The Asian Countries Are Not Invincible -- Remember in 1980 to 1985 when manufacturers began believing the Japanese were invincible? They were higher quality, lower priced and seemed to be taking market after market away from us. Then they got into economic trouble and suddenly, they were less than the powerhouse we had envisioned.

Today, we are all living in fear of the new Chinese juggernaught and they are taking products and markets away from American manufacturers. But they already have problems with energy, resources, banking, litigation and rising labor costs. If they didn't keep their costs low through currency manipulation a lot of American companies would bring products back now being made in China.

They are also experiencing quality problems with food, toys and many other consumer products. There are also reports that quality problems are beginning to show up in industrial goods like parts going back to U.S. assembly lines that are supposed to be just in time. In this situation, the original unit costs the Chinese predicted do not look so good. If these trends worsen, China is an economy that might implode. My bet is that China will eventually go the way of Japan and we should not view them as invincible.

4.New Services Will Be Needed -- Along with all of the opportunities for innovative new products, there will be a demand for new services. Customers don't need just new products; they also need new services from manufacturers. There are opportunities to sell new services such as design, start-up, training and education, on-site maintenance, repair, emergency, financing, trade-in, dismantling, consignment and a host of other services. Providing services to U.S. customers is more efficient in the U.S. so get creative in dreaming up new services to offer your customers.

5.International Markets -- Everyone, including the Europeans, is coming to our markets, but American manufacturers on the whole don't seem to be interested or ready to compete in international markets. We have been spoiled for a long time -- doing business in this giant U.S. economy — and haven't had to market internationally. But growing foreign markets are a big opportunity for American manufacturers if they can learn how to do industrial marketing.

6.Products Coming Back To America -- Many companies have found out that quality, delivery and legal problems will make the total cost of outsourcing to Asia not worthwhile. At minimum, large companies will find it wiser to split production between U.S. and foreign suppliers in case the foreign supplier can't deliver what was promised.

7. Market Proximity -- The biggest single advantage American companies have is close proximity to the customer and for complex industrial products this is more important than unit costs. This is a partial reason Japan and other nations build manufacturing plants in the United States to serve our markets. We have a proximity advantage. U.S. manufacturers are geographically closest to these industries and can seize the initiative for finding the best solutions to new applications. It's all about monitoring customers and their problems.

8. Inshoring -- Foreign manufacturing companies have invested $40 billion in assets in the U.S. that now employ 6 million employees. This is called "inshoring." There are many examples of foreign companies that have invested in the automobile, steel, appliance, machine tool, and lift truck industries in the U.S. These are only some of the foreign investments and they beg the obvious question, "Why is it that foreign companies can build plants in the U.S. and hire American workers to compete while American companies move offshore? It is only a matter of time before U.S. companies figure out that keeping plants close to their markets and suppliers is the best way to operate.


9. Future Technologies? -- There are many new advanced materials that have been in R& D for many years and will eventually become available to small and midsize manufacturers (SMMS). They are technologies such as Advanced Stainless Steel and "Superalloys", -- Advanced Ceramics and Superconductors, Carbon Nanotubes, Nanopowders, Advance coatings, Thin films, Bioplastics, Advanced high strength steels (AHHS), and Nanosize sensors and generators. I have only mentioned some of the advanced technologies that can be used by suppliers to develop new products and services. There are also new technologies coming along in biotechnologies, pharmaceuticals, and chemical and energy industries.

Looking Forward

American manufacturing has stabilized around 11% of GDP because all of the internal efficiency programs kept us in the game. But I am making the argument that to grow in terms of sales revenue, GDP%, or jobs is going to take a different approach then what has been accomplished in the last 3 decades.

It will take a mindset change from an internal to an external focus. By external approach I mean more aggressive techniques to monitor customer wants and needs, market trends, and competitor products. It is all about doing a better job of finding out what is going to happen before it happens.

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 develop strategies that are within their control. There are seven factors that any company who wants to grow should consider.

  • Finding out if your products and services have a competitive advantage
  • Learning methods to find new customers and markets. Instead of leaving it up to the sales force to find new customers, it is much more efficient to provide them a plan of what kinds of customer profiles you are seeking and markets you are targeting.
  • Learning how to use internal information and inquiries to help you sell.
  • Considering a different kind of organization to allow you to prospect for new market opportunities. The pyramid or functional organization used for so long to efficiently manufacture products doesn't work very well for finding new customers and markets. I would like to suggest that American manufacturers need to adopt a new type of organization — the Prospector Organization -- to be able to grow in the future
  • Gathering enough information to make sure your new products will sell and there are enough customers to justify the investment costs.
  • Using future technologies and other methods to modify your products or invent new products
  • Analyzing the way customers want to buy and considering different types of sales channels for different customers and markets

Changes to the American economy marches relentlessly on. I think it is realistic to say that there are going to be many winners and losers as we try to adjust to the global economy. However many companies will "freeze in the headlights" of global change or will hunker down and continue to use the same strategies with the hope that we will somehow return to the good old days. But there are a variety of American manufacturers that are changing their strategies and taking advantage of the new market opportunities being created.

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

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