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Focus: Manufacturing

Feature Article from Our Manufacturing Subject Area - See All

From SCDigest's On-Target E-Magazine

- July 10, 2013 -

 
Supply Chain News: If US is in Early Stages of Manufacturing Renaissance, it is Doing it with a Lot Fewer Factories

 

Number of Plant Closing is Slowing, but Openings Even More So; the Procter & Gamble Example

 

SCDigest Editorial Staff

While talk of a US manufacturing renaissance continues, driven by such factors as rising costs in China, low natural gas prices in the US, and need for greater market responsiveness, from SCDigest's view the state of American manufacturing affairs is still mixed.

SCDigest Says:

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Surprisingly, Meckstroth says that in 2010, 89% of foreign manufacturing affiliates' sales went to non-U.S. customers. Only 11% ($242 billion) went to the United States

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Whatever the status and trend line, what is clear is that US manufacturers are doing more with less, as the number of actual factories in the US continues to decline.

Research earlier this year from Daniel Meckstroth, Vice President and Chief Economist at MAPI - The Manufacturing Alliance, quantified what has been happening in the US manufacturing sector relative to factory openings and closings.

As can be seen in the graphic below, the number of plant closings in the US has actually been declining since 2000, other than a small blip up in the 2001 recession and a more major surge in the dreadful economic year of 2009.

"Unfortunately, the rate of plant openings has consistently fallen even more. On average over the last 13 years, 3.5 percent of all plants closed each quarter and 2.9 percent of all plants opened," Meckstroth writes.

The net result, of course, is that the total number of US factories is falling, as more plants consistently close than are opening (the openings numbers, we will note, do not include expansions).

The number of US manufacturing plants fell from 375,00 in 1998 to 304,000 in the first quarter of 2012, the last period of Meckstroth's analysis, based on data from Bureau of Labor statistics.

Some of course will blame offshoring and "runaway factories" for this dynamic. Meckstroth isn't so sure.

SCDigest believes manufacturing productivity is certainly one key factor. As an anecdotal example, in 2011 consumer products giant Procter & Gamble opened its first new US plant - a paper products factory - in 40 years.

 

Rates of US Plants Closing are Slowing, but Plant Openings Even more So

 

 

 

The Result: Total Number of US Plants Continues to Decrease

 



That despite the fact that P&G's sales and unit volumes have soared multi-fold over those four decades. But increased productivity likely accompanied by some expansions and/or an increase in the number of shifts used in some cases obviated the need for a single new production facility in four decades.


(Manufacturing Article Continued Below)


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The same phenomenon is of course true in other industries, with the US automakers finally able to close a number of factories after they fell into bankruptcy or close to it, as increased productivity per plant and growing flexibility to make more models in a single factory led to the OEMs having a lot more capacity than there was demand.

There are also many reasons why US companies invest in plants overseas, Meckstroth says, besides just replicating US operations at a lower cost.

So simply equating foreign direct investment by a company with runaway plants is an incorrect interpretation, he says.

"There is a major distinction between investment in runaway plants and investment in foreign affiliates to participate in the global marketplace," Meckstroth notes.

The difference hinges Meckstroth says, on where the foreign manufacturing affiliates of US corporations make their sales. If the affiliates' sales are to the US parents, then it is possible that the sales come from runaway plants. If the affiliates' sales are to non-US. customers, however, then the investment abroad was clearly to participate in the global market, and not for shipping back to the United States.

Surprisingly, Meckstroth says that in 2010, 89% of foreign manufacturing affiliates' sales went to non-U.S. customers. Only 11% ($242 billion) went to the United States - 9 percentage points to the US parent company and 2 percentage points to non-affiliated US customers.

The real issue is sourcing decisions relative to intermediate products or components - items that go into the production of finished goods. In 2011, for example, the sum of all revenue from manufacturing shipments in the United State was $5.4 trillion. But only $1.7 trillion of this amount was manufacturing's US value-added. More than double that ($3.7 trillion) was intermediate purchases of goods and services.

The important point, Meckstroth says, is "that the nearly $4 trillion in sourcing decisions made by domestic manufacturers dwarf the runaway plant and export platform issues in determining the location of manufacturing production," though we would note that the sourcing decision could - and often have - result in a runaway plant from the US to an foreign location.

And in some bad news for US manufacturing, Meckstroth says the statistical data show that the import share of intermediate purchases is not declining within US manufacturing companies, meaning it is possible/likely that even if there is a resurgence of US production of finished goods, much of the underlying manufacturing of intermediate goods components (the much bigger number) will still be imported.

Does any of this US plant data surprise you? How much of US factory closures do you think are do to offshoring for cheaper costs?
Let us know your thoughts at the Feedback section below.

 

Recent Feedback

Normally I wouldn't comment but I will take this time to chime in here since I am impacted greatly on the "fiasco" this has created, all mostly due to corporate greed and profit ...

1.) U.S. plant data does not surprise me at all and I'm sure it doesn't surprise anyone running a manufacturing operation.

2.) I would think a VERY large percentage of plant closures are due to offshoring for cheaper costs.  It's American culture.

The answer isn't in just creating American production.  It's in making "results driven decisions", not by giving up on your employees, (direct or indirect labor).  It's by directing and educating them so they can do a better job for the company, for you, the processes and for themselves.  Off-shoring and lay-offs aren't the answer.  Efficiency is!  Versatility is.  Flexibility.  How much was saved in outsourcing or offshoring?  How much was lost?  What about Quality?  Engineering?  Transportation?  Logistics?  Availability?  Leadtime?  Or, (here's a good one:) ... What about: "America"? 

It's almost as though Corporate America is trying to prove how inefficient we are!  I wonder what would happen if the whole world had such a non-productive, failing "can't do" attitude?


Don
Analyst
Worked self out of a job
Jul, 11 2013
 
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