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DOC's Chief Economist: Looking Out for Manufacturing's Little Guy

May 24, 2015
How to ensure a bright future for U.S. manufacturing? Commit to strengthening small manufacturers and pay high-skilled workers what they're worth, says Susan Helper of the U.S. Department of Commerce.  

Before she became Chief Economist of the U.S. Department of Commerce, Susan Helper, “who lives with her husband and three bicycles in Washington, D.C.” (according to her bio), was professor of economics at Case Western Reserve University in Cleveland. During her time in academia, her research focused on the globalization of supply chains and ways to revitalize U.S. manufacturing. Now Helper advises the Secretary of Commerce and works with the White House on issues related to manufacturing and innovation, including strengthening the small manufacturers that are the backbone of the U.S. supply chain.

As Capitol Hill birds chirped in the background (a fire drill had sent her outdoors), Helper talked, among other things, about the importance of collaboration between the federal government, academia, and industry; a remarkable community partnership in Puget Sound, Wash.; and her belief that worker training won’t solve a skills shortage if wages aren’t what they should be.

Q. What have been your priorities since you became Chief Economist in July 2013?

A. Manufacturing has clearly been one. We’ve looked at a lot of reports on the quality of manufacturing jobs. We’re also actively involved in the president’s Supply Chain Innovation Initiative. And then we’re working on holding some roundtables on natural capital--how firms can invest in ways that improve both the environment and also profits.

Q: What’s been the focus of the supply chain initiative?

A. Our report stems from an observation that small manufacturers are increasingly important in manufacturing supply chains. Forty-two percent of supply chain in manufacturing comes from firms with less than 500 employees. So they’re this critical player, but they face barriers in innovation, and some of those barriers hold back all supply chains—they make it hard for all manufacturers to compete. We’re doing a lot of fact-finding now, so we can understand what the barriers are, and what kind of private-sector models will help overcome the barriers to work with large companies. Things like incentives for purchasing and also programs for supplier development. We also want to better understand the role of federal assets and how we can use them more effectively.

Q: What are you finding some of the barriers are?

A lot of these firms are just very small, and have one CEO. And for them to both keep the doors of the plant open and also be thinking about what’s coming down the pike, that’s a big problem. Just those two jobs, worrying about today and worrying about tomorrow—those are both full-time jobs. And there’s sometimes a shortage of information—you get one bet, and if you invest in a particular direction are customers going to reward that investment?

A third problem is that many big companies still prioritize low piece price in their purchasing. And so it’s hard to invest in technology and make sure you’re getting a return on your investment, even if the supply chain as a whole would benefit.

Q: What do you think are some ways to help these smaller firms?

A: We’re in a diagnostic phase to get a better understanding of what they need. We’ve undertaken some things already. The federal government has set up the National Network of Manufacturing Innovation hubs as meeting places for large and small firms. We’ve also asked for an increased budget for the Manufacturing Extension Partnership. But we still feel like addressing these relationships between firms is something that we haven’t totally done and needs attention and we’re looking for the best way to do that.

We’re doing a lot of interviews of large and small companies. Actually if your readers have thoughts, they can get in touch because they’re our prime [subjects]. We also have formal advisory committees, like the Department of Commerce’s Manufacturing Council.

Q: Where do you see U.S. manufacturing headed in the next five to ten years?

A: I think we have a real opportunity to revitalize manufacturing, driven by relative increases in costs. Our competitors’ costs are increasing relative to ours, and I think companies are increasingly aware of the problems of far-flung supply chains. So these two factors give us an opportunity to rebuild the manufacturing ecosystems.

But it’s not a given. There’s a lot of hard and intense policy work that needs to be done, both by private and public sector leaders, and the supply chain initiative is one of them.

Q: What’s the idea behind the Total Cost of Ownership Estimator, and are people using it?

So the idea is that if you go to a low-wage country, the costs that you measure easily—the direct labor, the hourly wage—will fall. And sometimes if you’re buying something from abroad, the actual part is cheaper. But what’s harder to capture is a lot of hidden costs. You’re going to be holding more inventory, you’re having more lead time, so it’s hard to forecast. There are quality problems that can be hard to resolve. You can lose the opportunity to innovate when you’re further from where the production occurs. So the tool provides a framework, and links to more information about those costs.

Q: Have you heard from manufacturers who are using it?

Yes, we have a couple of case studies on the website of firms that have found it helpful, and we also partner with the Manufacturing Extension Partnership. They will help companies walk through the calculator.

Q: What’s the idea behind industry clusters—one of [Secretary of Commerce] Penny Pritzker’s initiatives?

A: The benefit is that it’s easier to share common resources, whether those are workers or specialized equipment or specialized suppliers, and you get a collaborative environment where ideas are more easily transferred.

One place I would talk about is Puget Sound in Washington State. We have a competition called the Investing in Manufacturing Communities Partnership, to encourage communities to submit plans to strengthen their cluster. There’s a lot of aerospace in that area, and so they included a plan about how they were going to help the small suppliers reduce lead time, which can dramatically help you cut costs and see quality problems early. It can also help you diversify your customer base because now if you have that equipment you can do more with it.

Through the competition, different regional actors [in Puget Sound] got to know each other. For instance, the economic development people didn’t know that there was a Manufacturing Extension Partnership affiliate in Washington State. They got together and realized that the MEP has the skill and technology to offer this lead time training, so they did that as part of the application. Since they’ve been announced as a winner, they got a grant from the Department of Defense to actually fund some of this training.

Q: What are some exemplary workforce training collaborations you’ve seen between industry and higher education?

One way to solve problems with short-term immediate need is to raise wages, and you can get people with the training back into that work. In the long-term, if you want to have a high-skilled manufacturing workforce, these training programs are really important and they benefit both companies and workers, so promoting both apprenticeships but then also training affiliated with the NNMI (National Network for Manufacturing Innovation) Institutes, which has a lot of university involvement. The initial one, called America Makes, in Youngstown, is a good example.

Case Western Reserve University has been partnering with community colleges. They have some joint teams of students working on projects. It gives this mix of foundational knowledge that comes from studying physics and math, and then mixing it with exposure to real manufacturing problems. It’s very powerful.

Q: How do you reconcile the fact that manufacturing brings high-paying jobs yet it’s becoming increasingly automated? If we invest in manufacturing, will U.S. workers see the benefits?

I think that it’s likely that they will. The reason I have that confidence is if you look in the past at the U.S. manufacturing industries that did best in terms of employment, those are the ones that had the highest productivity gains. So the way that you look at it, if productivity increases, you need fewer workers to make that given number of widgets. But there are a number of other things to consider. You may likely end up with more demand for labor and certainly higher wages.

If productivity goes up, your market share increases. You sell more to other countries or import less. You also have an income increase that means that people can buy more. And so that will create jobs, maybe not in your industry but in some other industry.

Also, if you have robots doing the work, you have fewer production workers, but you may need more people to maintain the robots.

Q: Do you still see big gaps in education and training?

One of the reasons that Germany has been so successful in manufacturing is their wages are significantly higher than ours. Yet manufacturing is 20% of their GDP compared to 12% in the U.S. They do have a very good system of education and they combine these foundational skills and practical exposure, but I think to get there you have to increase not only the supply but also the demand for workers.

But if employers either don’t want those workers or aren’t willing to make a reasonable return on investment for workers, you can end up with a problem.

There’s a view out there that technology will just drive everything, but I don’t think that’s the case. There’s a lot of room for action, and the vision of the administration is a highly productive sector with a lot of good middle class jobs that innovates and provides a lot of value to consumers. But getting there is not automatic. That’s one of the reasons that we’re working so hard in developing these federal policies and public-private partnerships.

About the Author

Laura Putre | Senior Editor, IndustryWeek

I work with IndustryWeek's contributors and report on leadership and the automotive industry as they relate to manufacturing. Got a story idea? Reach out to me at [email protected]


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