Viewpoint

Dec. 21, 2004
Global economic 'pause' gives U.S. manufacturers time to prepare for battle.

After taking a drubbing from foreign competitors through most of the last 20 years, U.S. manufacturers say they are best-in-class on a global basis, and they are looking forward to competing in markets around the world. The reeling Asian and slow European economies restrained manufacturers there from implementing new production and information technology systems while U.S. manufacturers surged ahead, creating new efficiencies, new tools, and new business practices. "We are seeing a continued gain in the U.S. competitive advantage," according to Stephen Hardis, chairman and CEO of Cleveland-based global diversified manufacturer Eaton Corp. "As a whole, 1998 was a year of pause resulting from the Asian economic crisis. However, given the policies of the Federal Reserve Bank, we expected to see growth in 1999, and we have." The "year of pause" gave domestic manufacturers the opportunity to adopt new business practices, trim costs, install new equipment and ground themselves thoroughly in the use of the Internet as a manufacturing tool. U.S. manufacturers today are indisputably leading the world in e-commerce traffic. Hardis also notes that U.S. manufacturers now are working in a very healthy business environment. Inflation is low, raw material prices are low, interest rates are steady, and business and consumer confidence in the economy is high, he says. Further, he adds, there are no reasons to believe the North American economy will change dramatically in the foreseeable future. Even with demand increasing as Asian and European economies recover, manufacturing industry executives are counting on enough idle production capacity to prevent the resurgence of inflation. James Perrella, chairman and chief executive officer of Woodlciff Lake, N.J.-based, Ingersoll-Rand Co., recently delivered evidence of the U.S. manufacturing industries' efficiency. Perrella told industry analysts that Ingersoll-Rand, an $8.3 billion world leader in mining, construction and industrial machinery, industrial controls, bearings, and architectural hardware, no longer will report "orders booked" as an indication of its economic health. The reason, Perrella says, is that Ingersoll-Rand, like so many other manufacturers, has shaved its inventories and its order-to-delivery times so closely that orders booked has lost meaning as an indicator. U.S. manufacturers now are striving for an orders booked-to-delivery ratio of 1:1, the natural goal of the practice of just-in-time delivery of products that now is common in the automotive industry. The potential economic effect of achieving a 1:1 order-to-delivery ratio is staggering, as millions of dollars in inventories and costs associated with tracking, warehousing, and distribution are eliminated. This level of efficiency is made possible through the use of information technologies that provide manufacturers hardened, direct links with their customers, whether the customer is an industrial user of millions of fasteners or a custom user of specialized equipment. Perrella's elimination of orders booked as an indicator seems to confirm Hardis' view that U.S. manufacturers are in the catbird seat on a global basis. Now, as market demand resumes in Asia and Europe, domestic manufacturers have a new, sharper competitive edge. With low interest rates keeping money for expansion cheap, with low inventory levels demanding smaller investment, and with inflation all but dead, U.S. manufacturers are in a position to provide greater returns for their investors and turn increased profits as worldwide markets open up demand for their products. Bruce Vernyi writes on manufacturing for Bridge News, Bridge Information Systems.

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