Just In Time -- Compete Or Retreat

A new report on competitiveness suggests that offshoring low-value production jobs while focusing on high-value services is the best strategy for U.S. manufacturers.

It's been a while since we've heard from Michael Porter, the Harvard professor who back in the mid-1980s wrote Competitive Advantage, which not only got people in the United States thinking seriously about competitiveness, but in fact laid the groundwork for much of the current thinking on supply chain management. As it turns out, Porter has been working with the Council on Competitiveness, a public policy action group whose motivating goal is to drive U.S. competitiveness and economic leadership. (The current chairman of the council is none other than Charles O. Holliday, Jr., chairman and CEO of DuPont and IndustryWeek's 2006 Technology Leader of the Year.)

Porter and the council have just issued the Competitiveness Index: Where America Stands, which has generated virtually no interest from the popular press, perhaps because its message can't be reduced to an easily digestible sound bite. The basic message of this report is that the globalization of manufacturing isn't necessarily a doom-and-gloom scenario for U.S. companies. Quite the contrary: Porter believes the U.S. "is better positioned than perhaps any other country to benefit from the forces that are reshaping the global economy."

There's a big "if" lurking over America's shoulder, however, as the report warns that continued prosperity will depend on improved education. In addition, while the level of unemployment in the U.S. remains low, job creation has lagged previous economic recoveries. And perhaps the biggest "if" of them all is the willingness to accept that outsourcing low-value, commodity-based manufacturing jobs to other countries is itself evidence of competitive advantage, not a fundamental weakness of the U.S. economy.

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See Chain Reactions: David Blanchard's blog about supply chain management.
Clearly, the Competitiveness Index challenges the conventional wisdom that we typically hear on the evening news, or during a political campaign. The news tells us, for instance, that the manufacturing sector of the U.S. economy continues to bleed jobs, with another 15,000 jobs lost in November 2006. Is this loss of jobs in and of itself necessarily a bad thing, though? The Competitiveness Index suggests, maybe not. Maybe it's a sign that the U.S. economy is shifting toward high-value, innovative manufacturing and services activities, such as design, marketing and supply chain management. The services sector, the report notes, now accounts for 83% of U.S. private-sector GDP and 85% of private-sector employment.

Consider, too, that the U.S. is still the world's No. 1 producer of manufactured goods. Indeed, as the report points out, "U.S. manufacturing output in 2005 was 50% larger than China's." Furthermore, U.S. workers are more productive than their global peers, thanks largely to the adoption and use of technology, and they enjoy the highest standard of living in the world.

See Also

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In any event, whether or not you agree with its conclusions, what makes the Competitiveness Index a worthwhile document is that it focuses squarely on a facet of manufacturing that tends to go overlooked these days: Well-run companies do well in the marketplace, while poorly run companies do not. "Competitiveness is not a zero-sum game," Porter emphasizes. "The success of other economies is not a failure of U.S. competitiveness -- a job created there does not mean a job lost here, a new R&D lab built there does not mean one lost here, a rise in another country's exports does not necessarily mean a decline in ours."

In other words, sometimes the fault lies not in China but in ourselves. I'm a big believer in the idea of best practices, and as I state in my new book, Supply Chain Management Best Practices, (just published by John Wiley & Sons), the ultimate best practice for any manufacturer is to have top-performing employees at every level and in every department. That's the kind of competitive advantage nobody can take away from us, and it's in everybody's best interest that U.S. manufacturers insist on nothing but the best from themselves.

David Blanchard is IW's editor-in-chief. He is based in Cleveland. Also see Chain Reactions: David Blanchard's new blog about supply chain management.

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