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The Manufacturer's Agenda: Did Finance Gut Manufacturing?

June 9, 2014

Getting to the root cause of what's hindering U.S. manufacturing.

    "If you have strategic sourcing reporting to finance, what do you get?
    You get purchase price reduction. What else do you get?
    Nothing.
    You get purchase price [reduction] at all costs.
You don't get lead time, you don't get order quantity, you don't get on-time delivery and you don't get quality. You get purchase price reduction.
    You get what you deserve."

-- Marty Thomas,
SVP Operations & Engineering
Services, Rockwell Automation

Such was the comment by a speaker at the 2014 IndustryWeek Best Plants Conference last month that jolted me. It confirmed for me that it is time to bring to the fore an issue that's lurked for some time in the back of my mind: Has our focus on financial metrics held back manufacturing's business success?

The idea that financial decisions can have (and have had) a negative impact on a manufacturing business isn't new, but it hasn't garnered the attention it deserves. Now -- and maybe it's just because I've started paying closer attention -- I'm starting to hear and read more about the role of finance in manufacturing strategy. And it's not positive.

Most recently, Suzanne Berger, an MIT professor and co-chair of the MIT Production in the Innovation Economy project, penned a no-holds-barred indictment, "How Finance Gutted Manufacturing." Published in the March/April issue of the Boston Review and online, she cites shareholders' forced break-up of Timken Co. into two separate companies as an example in which short-term financial concerns trumped long-term technology and product development considerations.

A little earlier, in February, Michael Sekora, director of the Reagan administration's Socrates Project and head of Operation U.S. Forward, published a commentary in Forbes.com with a similar message: "The disease killing America's economic health is financial-based planning, and one of the symptoms of this ongoing disease is the loss of the U.S. manufacturing base." He calls for a return to technology-based planning, which focuses on "the effective acquisition and utilization of technology," and away from financial-based planning, based on the "effective acquisition and utilization of funds." Through the years, in this column and other venues, we've identified several obstacles that keep U.S. manufacturing from achieving its full potential as the nation's economic engine. Together, these three leaders' assertions -- Thomas at an operational level, Berger from a company point of view, and Sekora from a public policy perspective -- make a strong case that allowing financial considerations to exclusively drive strategy can be detrimental to the long-term success of a manufacturing business and, in turn, the strength of our nation's economy. I think it's time we add it to the list. I hope you agree.