The Manufacturing GPS: Where Are We Now?

Feb. 13, 2014

I was pleased when a young engineer came up to me and said that my talk had made him feel better about his career in manufacturing. I was speaking to a group this week about U.S. manufacturing – where exactly the industry was since the Great Recession ended in June 2009. So much talk has been made of a manufacturing renaissance and yet it is difficult at best to make the case that we are in the middle of one. That’s why I titled my talk “The Manufacturing GPS” – to step back and try to get our bearings. Here are some of my thoughts:

We’ve made the transition from “manufacturing is dead” to realizing that manufacturing is a vital element of a healthy U.S. economy. Have we done enough to help manufacturing through tax reform, trade policy and other initiatives? No. But at least we’ve changed the national conversation.

Manufacturing lost 5.1 million jobs during the decade of the 2000s. Most of those jobs are not coming back. Some of that job loss could have been prevented but much of it was going to occur as manufacturers sought to improve their productivity through new technology and globalize their businesses. But industrial production is almost back to its pre-recession peak and labor productivity is continuing to rise. That’s progress and it’s a positive indicator for long-term growth in manufacturing employment.

Reshoring has not meant a flood of jobs coming to America yet but surveys such as Grant Thornton’s 2013 Realities of Reshoring survey show a strong upsurge in companies planning to move production back to the U.S. Global companies are going to produce where their products are consumed. And that means the largest economy in the world should see an upswing in manufacturing employment as the U.S. economy grows and production here becomes more competitive.

The U.S. energy revolution is still in its early stages. Billions are being spent on new energy infrastructure and facilities, much of which is not in operation yet. The U.S. is the largest natural gas producer in the world and should be the largest oil producer in a few years. That’s a huge competitive advantage for U.S. industry, which consumes about 22% of the energy in the U.S.

China is a formidable competitor and an enormous market, but it does not have a stranglehold on manufacturing. China attracted manufacturing because of cheap labor and various government incentives. Labor rates are rising rapidly in China and the country’s enormous surplus of cheap labor is drying up as the population ages. The burgeoning Chinese middle class will ramp up consumer spending. Those both promise good things for U.S. manufacturing as a competitor and a supplier.

Innovation turns out to be a more complex chemistry than many had imagined. With sophisticated communications and software systems, we thought that we could develop technologies and products in the U.S. and produce them in low-cost countries. But notable research by Harvard professors Gary Pisano and Willy Shih, and others has demonstrated that there is a notable benefit to the interplay between R&D and production. We put long distances between them at our peril. Maintaining production in the U.S. carries important benefits for U.S. innovation, our national competitiveness and our national defense.

Advances in additive manufacturing, robotics and manufacturing software are going to help level the manufacturing playing field. U.S. manufacturers that take advantage of these technologies will help minimize the effects of labor arbitrage and allow inherent benefits such as cheaper transportation, quicker delivery times, intellectual property security and an innovative, open culture to shine through.

Continuous improvement methodologies such as lean manufacturing and Six Sigma are taking root in U.S. manufacturing and providing significant productivity and quality advantages. Take a few minutes to look at the gains enjoyed by our most recent Best Plants winners and then imagine those transformations across U.S. manufacturing!

President Obama’s decision to appoint Vice President Biden to make a comprehensive review of our government-funded training programs is a welcome step. Baby boomers are leaving the workforce at the rate of 10,000 a day. Manufacturing has thousands of good-paying jobs available but they require skills that are in short supply. Again, there is lots of work to do but we are starting to recognize that vocational skills offer a path to a middle-class life and can’t be ignored by our educational system.

So are we in the midst of a manufacturing renaissance? To answer that question, you’d need a definition of what exactly a renaissance entails. But my sense is that despite the job loss of the past decade, we’re in a healthier place regarding manufacturing than we were a decade ago. We understand better manufacturing’s role in the economy. Manufacturers today are tough, able competitors. The industry is rising to the challenge of marketing itself to creative young minds who will develop better processes and great new products. There are no assurances but I think American manufacturing is at an inflection point and I’m placing my bet on better days ahead.

What is your GPS telling you? I welcome your comments.

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