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Does America Need Manufacturing?
August 4, 2011 |Estimated reading time: 4 minutes
Editor's Note: This column originally appeared in the June issue of The PCB Magazine.
The topic for this discussion came to me, as most of my best ideas do, during a casual conversation about life over a cold beer. Having finished our weekly volleyball league match, my friend Mike and I had just settled in at our favorite watering hole to soothe away the aches and pains that accompany playing competitive volleyball after the age of 50. We have had some very interesting discussions over the years, on a variety of topics, but mostly our conversations tended to center around Harleys, sports or politics.
This particular evening Mike turned to me and asked, “Steve, I want your opinion on something. Does America need manufacturing?” Now, this is not quite the radical departure from our normal topics as you may think. You see, Mike is not only a good friend and fellow Harley enthusiast, he is also a small business owner whose business has been significantly impacted by Asian competition. Like Mike, I had grown up in this business “making stuff,” and before I had time to even think about an answer, I blurted out a resounding “Hell yeah, we need manufacturing!” as my American pride and loyalty involuntarily kicked in. However, after thinking more about it in the following days, I decided it would be worthy of some research to support my well-intended gut reaction.
Sobering Facts
If you are a U.S. manufacturer, the following information from the CIA’s World Factbook should scare the hell out of you. Using the metric of Services as a Percent of Gross Domestic Product (GDP), in the year 2010 the United States was in the top three of all industrialized countries at 77%. Simply put, 77% of our revenue as a country comes from service-related industries, with only 23% from manufacturing. The data provided by the Handbook of U.S. Labor Statistics for the percent of the U.S. labor force in each sector are equally disturbing. Using 1950 as a baseline, 60% of U.S. employees worked in manufacturing and 40% in service industries. By the year 2009, this mix has changed to only 20% in manufacturing and 80% in service.
While these statistics are great news if you are a service provider, they are catastrophic for the once mighty American manufacturing sector. The United States is no longer a manufacturing nation, and I really don’t believe there will be enough service jobs to support our growing population if this trend is not arrested. Looking next at 1998-2008 data published by the International Labor Organization, it clearly shows just how far America has fallen in global manufacturing employment compared with our competition. As Figure 1 shows, America’s 22% decline is last among major manufacturing countries, and we need to consider that this number is probably conservative when factoring in how “U.S. employment” is defined within multi-national organizations.
It gets worse. In 2007, the United States ranked 168th out of 182 nations in Industrial Production Growth Rate with a rate of 0.5%. Sudan is number one at 32%, and China is number six at 12.9%. The United States is the largest importer in the world, bringing in over $1.6 trillion in goods and services during 2009. The United States had a population of around 312 million and a workforce of 155 million people in 2010. Compare that to China’s population of 1.4 billion and a workforce of 800 million people and it is painfully easy to see why we are where we are today.
On-Shoring
Referring to the preservation of existing manufacturing in America, on-shoring is the result of companies becoming more globally competitive through efforts such as Lean, product design, reduced labor cost through increased efficiencies and improved customer responsiveness. Evaluating the value proposition in total cost terms, it is entirely possible that America could become a low-cost country option!
Re-Shoring
This interesting new buzzword refers to the return of work to America that had been previously lost to offshore competition. This reversal is being driven by a number of factors, namely, recent economic conditions are forcing customers to change their focus from unit cost to total cost of ownership. Perhaps the grass isn’t always greener on the other side (of the world!).
Re-Shoring Drivers
- Increasing transportation and fuel costs;
- Higher foreign wages;
- IP/counterfeiting concerns;
- Reduction of pipeline inventory for JIT;
- Localizing manufacturing near R&D facilities;
- Regulatory compliance risk;
- Design and delivery flexibility;
- Political and infrastructure stability;
- Improved U.S. competitiveness through Lean;
- Higher reject rates/quality; and
- Product liability.
Is There Hope?
Some encouraging trends do give us hope. The U.S. has dropped from number one to number three in the world ranking of GDP from services over the last decade, and we have seen a 26% drop from 2008 to 2009 in dollars imported (2008 was a staggering $2.1 trillion). The key to both preserving the manufacturing business that we still have (on-shoring), and bringing lost manufacturing jobs back to America (re-shoring), is going to hinge on the ability of domestic suppliers to become, and remain, globally competitive.
So, does America need manufacturing? Hell, yeah! It is my hope that, as a nation, we can collectively take the steps to preserve manufacturing in America. However, in what may very well be our last chance, will America once again regain its manufacturing home-field advantage in today’s global environment? I don’t know, but to use another sports metaphor, the ball is clearly in our court.
Steven Williams is a 35-year veteran in the electronics industry and an authority on manufacturing and management. He is currently the commodity manager for a large global EMS provider, a distinguished faculty member at several Universities and author of the book Survival Is Not Mandatory: 10 Things Every CEO Should Know About Lean (www.survivalisnotmandatory.com).