Shaping The Future Of Manufacturing

A tour through manufacturing's recent history reveals clues of what's to come.

Editor's Note: This is the first installment of a special series as IndustryWeek marks its 35th anniversary. The series will explore the most significant events, trends and people in manufacturing in the past three decades.

Bill Gates was five years from founding Microsoft, and Michael Dell was 15 years from starting Dell Computer Corp., but Gordon Moore and Robert Noyce were in their second year running Intel Corp., and Sam Walton was in his eighth year running a new discount retail chain called Wal-Mart (20th if you count back to the original store).

The year was 1970, and the manufacturing sector was about to enter a period of profound change in which these and other new companies played key roles. Though they couldn't have predicted with certainty the events that were about to unfold, the editors of a magazine named Steel clearly sensed something new afoot as they retooled their magazine and renamed it IndustryWeek.

Now in its 35th year, IW continues to tell the story of manufacturing, but this year we're taking the time to review the trends, technologies, strategies and ideas of the past that shaped today's -- and will continue to shape tomorrow's -- manufacturing sector. It's fascinating: The undulating cycle of history turns up perennial problems that each new generation declares will variously sink, save, stall or speed the sector's growth. Even a cursory look through the pages of IW since its beginnings turns up stories that could have been written today: Healthcare and energy costs soared throughout the '70s, '80s and '90s too; skilled labor was dangerously short; and U.S. manufacturing dominance was being threatened. For every new development today, it seems, there's a precedent 10, 20 or 30 years ago.

Yet punctuating these seemingly mundane recurrences are events that dramatically altered the course of manufacturing history -- that set off a chain of events and a change of thinking that will resonate far into the future. As we careen through the first decade of the 21st century, a brief pause to look back at these events will provide clues to our future.

Globalization

Yes, we know this is a no-brainer, but just because it's obvious doesn't mean we can ignore it or can't learn from it. Besides, when you stop to look at the trend toward globalization over the past 35 years, you'll wonder why so many manufacturers seem ill prepared for China's "overnight" success.

Still, the idea of a global economy was but a glimmer in the most visionary manufacturing executive's eye when IW's Bill Miller became the first business journalist to report from China in the Spring of 1973. Following then-President Richard M. Nixon's historic trip to China the previous year, Miller's reporting from the Canton Trade Fair found high prices, reluctant buyers and inefficient manufacturers along with U.S. manufacturing executives eager to do business there.

But make no mistake: What would become known at the close of the century as "globalization" and China's sudden emergence as a manufacturing powerhouse had begun long before Miller's trip. "We tended to be global to a much greater extent than people realize," says Jerry Jasinowski, president of The Manufacturing Institute, the research arm of The National Association of Manufacturers in Washington, D.C. Argentina, Brazil and Mexico had all passed through the first phase of industrialization decades before, and in the '60s many U.S. companies had begun buying materials and components from low-cost Asian countries.

But it was Japan, not China, that first flexed its industrial muscle, and by 1971 an IW special report wondered, "Is there still time to save U.S. manufacturing?" It described the imports flooding into the U.S. and reported that poor productivity, high labor costs and unfavorable trade rules hampered U.S. competitiveness. By 1980 Japan topped the world in automobile production, making 11 million of 38.6 million and taking 30% market share in the U.S. The U.S. dropped to second place for the first time since 1904. By the mid-'80s Japan Inc. seemed to threaten U.S. manufacturing's very existence.

It didn't take long for U.S. manufacturing to respond -- by the early '90s the tables had turned and U.S. manufacturing thrived -- but the manufacturing environment was forever changed. Entire industries -- computer memory chips, most consumer electronics, shoes, apparel and textiles -- had migrated overseas, and new industries began to take their places. A January 1993 cover story welcomed the biotechnology industry "out of the lab and into reality," and in 1995, U.S. companies led the world in manufacturing personal computers, semiconductors and chip manufacturing equipment.

Meanwhile, other economies sought their share of the manufacturing pie. Most prominently, Taiwan, South Korea, Hong Kong and Singapore catapulted from third-world to first-world status in a matter of decades on the strength of export-driven growth, only to suffer an economic setback in the 1997 Asian Crisis.

By the late '80s manufacturers were anticipating the European Communities' attempt to create a single, unified and open market by 1992. Later in the decade Eastern European countries emerged as the low-cost production center of Europe after the breakup of the Soviet Union.

By the dawn of 2000, India and, most especially, China, had burst onto the global manufacturing scene. While it may seem as if China arrived without notice, IW regularly featured articles on the country's increasing role in manufacturing. In November 1981, IW reported on the return of the first U.S. Ambassador to the People's Republic of China. His analysis: "Once it's economically healthy, the internal demand for goods and services should be tremendous." In 1986 "Beyond Japan: the Trade Crises to Come," IW noted that China was the world's fourth largest exporter of textiles to the U.S. and quoted a business professor saying, "China is 'probably the biggest' future competitor to U.S. business." A 1993 cover story later declared: "The China Boom: This Time It's for Real."

But globalization didn't just happen. Business and government leaders' push for free trade drove global expansion and led to "a very clear trend line for passing free trade agreements of one sort or another, whether regional or bilateral," says Tom Deusterberg, president and CEO of Manufacturers Alliance/MAPI, an Arlington, Va.-based business and public policy research organization. Indeed, the world's government and business leaders had long before turned their attention to expanding free trade and making it easier for developing countries to participate in the global economy. From the General Agreement on Tariffs and Trade (GATT) in 1948, to the first United Nations Conference on Trade and Development in 1964, to the World Trade Organization in 1995, and the hundreds of bilateral and regional trade pacts penned in the last five years, globalization is a trend that's likely to accelerate in the coming years.

Production

The emergence of Japan as a manufacturing leader brought to the sector more than just a new, formidable competitor to U.S. dominance. It brought entirely new management strategies that many manufacturers today still struggle to understand, let alone perfect: The Toyota Production System (now called lean manufacturing), with its focus on "make to order" and just-in-time deliveries; and Total Quality Management, with its belief that quality should be built into the manufacturing process. Indeed, while information technology tends to get most of the credit for the dramatic productivity improvements that helped U.S. manufacturing meet competitive challenges from Japan and elsewhere, these new plant-floor production management techniques deserve some of the credit, says Jasinowski. "We did overcome the Japanese threat, and we did it by incorporating some of their production ideas in our plants." IW noted the trend throughout the late '80s and in 1990 prepared a special report on "world-class manufacturing," which highlighted such specific production strategies as TQM, JIT, work teams, continuous improvement, total productive maintenance, close supplier links, and performance measurement and reward." In 1995, the magazine launched IW's Best Plants, an annual awards program that celebrates world-class manufacturing and evaluates plants based on their successes with the new production strategies.

Just as important as the changes to how production was done, are changes to where it was done. In the search for improved productivity, manufacturers started moving from the traditional manufacturing strongholds to cheap-labor countries and rural refuges. Even as early as the 1950s transnational companies had explored the possibilities of splitting up the production processes, making possible the sourcing of materials and components in different countries.

Meanwhile, within the U.S. factories started their migration from the Midwest and Northeast toward the right-to-work states in the South, and more recently the West. An early '70s IW article notes that the Southeast had become the fastest growing area of the country, with "plentiful cheap land, lower taxes, lower wages and lower construction costs." It also noted: another stimulus "for moving southward is 'union problems.'"

Information Technology

It's difficult to overstate, however, the role information technology played in U.S. manufacturing's resurgence in the late '80s and throughout the '90s. In the '70s, CAD/CAM had begun to fundamentally change how products are designed and manufactured. And the first ERP systems, which promised standardized software for real-time, enterprise-wide business processing, were introduced. A flurry of software applications followed, promising productivity leaps, quality improvements and, best of all, customer-supplier integration. By the mid-'80s, IW reported that desktop computers, introduced a decade before, had flooded the business world, and described how digital networks -- electronic and voice mail and facsimiles (the short term, fax, apparently not in common use yet) -- give companies a competitive advantage.

By the time the Internet became commercially viable, interest in IT had reached a fever pitch, and the Internet boom -- now known as the Internet bubble -- was born. IW editors, caught up in the hype, struggled to distinguish between "vapor ware," (newly introduced, untested software whose developers' promised capability never materialized) from software that companies had implemented and benefited from. As early as 1990, Wal-Mart, which had grown to be the dominant retailer in the nation, offered manufacturers "Retail Link" direct access via a secure Internet Web site to internal information, one of the first implementations of a new strategy dubbed value-chain management strategy. For manufacturers it was a mixed blessing: The ability to ship to the giant came with the realization that control over the buying-selling process had shifted to the retailer.

By 1996, Cisco Systems Inc. and Dell Computer Corp. had pioneered business-to-business and consumer selling, respectively, over the Internet. Compared with these companies and a few Web-only retailers such as bookseller Amazon.com, companies with brick-and-mortar plants and stores seemed like obsolete relics of the costly and slow-selling process of the past. Also, Dell's supply-chain strategy demonstrated the efficiencies that were possible with an integrated supply network, earning founder and then-CEO Michael Dell IW's CEO of the Year for 1998. From 1996 to 1999, IW expanded its IT coverage to accommodate the flood of new technologies introduced each year.

By the end of the century, information technology was both revered and feared, as companies raced to update their systems to avoid the dreaded Y2K meltdown. For nearly two years before the turn of the century, IW published warnings and possible solutions to the impending problem, including the 1998 cover story, "The Real Year 2000 Nightmare." What happened, however, was a different kind of meltdown, as the financial collapse of Internet companies wiped out billions of dollars of shareholder value, helping set off an economic recession in the U.S. Manufacturers' expectations of IT and the Internet fell back toward earth, with the realization that neither software nor the Internet would be the panacea they'd hoped, or been led to believe -- but that it would continue to be a powerful tool for a host of challenges.

Somewhat overlooked amidst all the IT excitement were advances in industrial automation, though a 1988 article reported that "81% of electronic components are now assembled automatically compared to 48% in 1983." On the back of these new production strategies, IT and industrial automation, productivity skyrocketed -- hitting a 3.6% annual growth rate in 1990s, and 4.7% so far in the new century -- leaving no doubt that manufacturers will continue to seek out and perfect the implementation of the latest strategies and technologies in the future.

So many other significant events transpired in the past 35 years that it's difficult to summarize them all. The increased role of government in the '70s when the creation of an entire alphabet soup of regulatory agencies -- OSHA, EPA, EEOC, ERISA -- ultimately forced manufacturing executives to play a greater role in public policy making, and caused manufacturing associations to move to Washington, from New York and Chicago. Manufacturers moves to exploit new non-production-oriented "value creation" strategies, such as providing services with (think GE) and branding their products (think Intel). The metamorphosis of the CEO from being a "corporate statesman" in the '70s, concerned about the community and society, to being a celebrity in the '80s, to being as mistrusted as a politician in the '90s. Yet even as these words are being written, new challenges are gathering, new strategies are being formulated, new industries and the companies that will lead them -- the Microsofts, Dells, Wal-Marts and Intels of 2050 -- are being created. None of the new will spring forth without precedent. The clues are here, now, all around us and in our generation's history: in the labs, in the halls of academia, in the boardrooms of companies. We just need to pause and pay attention.


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Productivity Growth Soared
Average Annual Growth Rate
1970s 1980s 1990s 2000-03
Non-farm Business 1.9% 1.4% 1.9% 3.5%
Manufacturing 2.7% 2.6% 3.6% 4.7%
Source: The Manufacturing Institute

Union Affiliation Of Wage And Salary Workers Employed In Manufacturing Industries, 1983-2002
(Levels in thousands)
Wage and salary workers employed in manufacturing industries
Year Total Members of unions Represented by unions Nonunion
Total Percent of Employed Total Percent of Employed
1983 19,066 5,303 27.8 5,812 30.5 13,254
1988 20,430 4,516 22.1 4,854 23.8 15,576
1993 18,871 3,604 19.1 3,818 20.2 15,053
1998 19,763 3,127 15.8 3,315 16.8 16,448
2003 16,130 2,173 13.5 2,314 14.3 13,816
Source: Current Population Survey, Bureau of Labor Statistics

Manufacturing Moves South And West
Geographical distribution of manufacturing GDP (1977 vs 2001)
1977 2001
New England 6.0% 5.5%
Mideast 19.7% 14.6%
Great Lakes 28.3% 22.2%
Plains 6.8% 7.4%
Southeast 19.2% 22.5%
Southwest 6.6% 9.6%
Rocky Mountains 1.6% 2.3%
Far West 11.9% 16.0%
Source: The Manufacturing Institute
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