Editor's Page -- Reinvesting In U.S.-Based Production

A Wisconsin consortium demonstrates a win-win way to address challenges confronting U.S. manufacturers.

It's no secret that suppliers and smaller manufacturers have borne the brunt of globalization's less positive results, while the mighty OEMs have leveraged size, strength and global reach to reap the benefits. Indeed, it's this reality that has exacerbated an already uneasy alliance between OEMs and their suppliers, causing a rift that threatens to undermine U.S. manufacturing pre-eminence. Already calls for damaging protectionist policies are making headway among some public-policy makers, to counter what many see as the only alternative: the expansion of unfettered free -- and in many ways, unfair -- trade that threatens to decimate small- and medium-size U.S. manufacturers.

However there's a way to "save" U.S. manufacturing's base of small- and medium-size companies, as well as to strengthen U.S. OEMs, without resorting to protectionist measures. The solution comes straight from the capitalist's playbook even as it builds a private-public partnership much like the highly successful Sematech program that helped U.S. semiconductor manufacturers counter the formidable Japanese challenge in the 1980s.

Sound too good to be true? Take a look at just such an effort in Wisconsin in the industrial heartland. There, executives of three U.S. OEM icons -- John Deere, Harley-Davidson and Oshkosh Truck -- have formed, in partnership with the state's manufacturing extension partnership program, a consortium dedicated to helping their local suppliers succeed. Dubbed the Original Equipment Manufacturers-Supplier Development (OEM-SD) consortium, the group assists the OEMs' suppliers in implementing lean management strategies -- and thus becoming more globally competitive -- by using the MEP system's extensive lean consulting and education services. In the first year, the executives credit the program with helping 16 Wisconsin-based suppliers to reduce lead times by an average of 53%. Now the OEMs are set to test the model in supply chains spanning multiple states and MEP centers.

The philosophy behind the effort doesn't disdain or attempt to eliminate offshore sourcing. Rather it simply recognizes and seeks to capitalize on its limits. What's more, the consortium's approach addresses head-on the conundrum that plagues U.S. OEMs: They need both offshore and local suppliers to effectively compete. To win the global competition to deliver high-volume products at low prices, OEMs must source from low-cost offshore providers. But placing such orders overseas threatens the viability of domestic suppliers, which an OEM needs to win the competition to fill the increasing demand for low-volume, customized products. Offshore sources, as many manufacturers have discovered to their dismay, are often unable to meet the short lead times required to deliver such products. By helping their local suppliers become more competitive, the OEMs become more competitive, effectively securing the local supply base they need to compete in on-demand production without sacrificing their ability to tap low-cost offshore sources. At the same time, the effort helps make U.S. manufacturing more competitive, maintaining good jobs and generating tax revenue to fuel a strong economy.

The OEM-SD model is a win-win-win way to address the nation's manufacturing challenges. Reasonable people can debate the intensity of the conflict between the small and large manufacturers, and many will debate whether the government should intervene at all. But small- and medium-size manufacturers -- the bedrock upon which U.S. manufacturing strength rests -- are struggling and need help adapting to the fierce global competition. For my money, the OEM-SD approach is a sound strategy and a reasonable public investment. OEM executives and public-policy makers should take note.

Patricia Panchak is IW's editor-in-chief. She is based in Cleveland.

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