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Supply Chain News: MAPI Attempts to Bust Four Myths around US Manufacturing


Mixed Data on US Manufacturing Complicates the Picture

July 25, 2017
SCDigest Editorial Staff

There is no question there are mixed opinions on the state of US manufacturing.

Many see US manufacturing in steep decline, losing workers and global market share, among other woes. Others say that is far too pessimistic - US manufacturing is far stronger than most realize.

SCDigest will note this divergence comes in many cases directly from data from different sources that does indeed paint varying pictures on the state of US production.

Supply Chain Digest Says...

A 2015 study by The Manufacturing Institute and Deloitte revealed that only 37% of Americans would recommend that their child seek a career in manufacturing.

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You can count the researchers over at MAPI - The Manufacturing Alliance as being in the more optimistic camp, and in a recent report sought to bust four myths they see painting a misleading picture of US manufacturing's current status.

Here are MAPI's four myths:

Myth No. 1: U.S. Manufacturing is in Decline

With growing global competition versus decades past, it's not surprising US manufacturing is under pressure, but nevertheless MAPI says it can "prove that US manufacturing decline is only a myth."

For example, if the U.S. manufacturing sector were its own economy, it would be the seventh largest in the world, with $2.2 trillion of value added in 2015.

That value is greater than the total economic output of India, Italy, Brazil, and Canada. Moreover, a 2016 MAPI Foundation report found that by some estimates, the total US manufacturing value chain could be as high as $5.5 trillion, or about one-third of the US. Economy [editor's note: this is not well explained].

The US has fallen behind China to become the second largest manufacturer in the world, but still accounts for 17% of world manufacturing activity. China leads with a 24% share.

The US sector's domestic value "increasingly comes from advanced manufacturing, which leverages the growing availability of cutting-edge design, production, and automation technologies to create fundamental efficiencies in the production of a wide range of goods," MAPI says. "Such efficiencies in production have contributed to success in global markets, and have allowed the US to be the third largest manufacturing exporter" [behind China and Germany].

MAPI acknowledges that US manufacturing employment has declined. Between 2000 and 2010 the factory sector shed 5.7 million jobs - though some of those have indeed comeback in recent years.

But manufacturing still employs nearly 9% of the U.S. workforce. And as a MAPI Foundation study shows, for each full-time equivalent job in manufacturing dedicated to producing value for final demand, there are 3.4 full-time equivalent jobs created in non-manufacturing industries, such as support services.

Also worth noting is that according to McKinsey & Company, trade and outsourcing are responsible for just 20% of the jobs shed by the U.S. factory sector during 2000-2010, with much of the remainder a result of productivity growth and automation.

There are also an increasing number of US jobs from foreign manufacturers operating in the US - some 2.4 million in 2014, or 20% of the total.

SCDigest view: We would not say MAPI has busted a myth that US manufacturing is in decline - it's global share continue to fall, but that is primarily versus China, as the US is doing better than say Japan or Germany. But despite the declines, manufacturing is still a powerful force in the US (see graphic below).


US Share of World Manufacturing


Myth No. 2: Manufacturing is a Poor Career Choice

A 2015 study by The Manufacturing Institute and Deloitte revealed that only 37% of Americans would recommend that their child seek a career in manufacturing.

MAPI says that "For the sake of a needed manufacturing workforce, and for the benefits of those who are failing to seek potentially rewarding manufacturing careers, this perception needs to change."

SCDigest wonders whether this survey data reflects perceptions of all manufacturing jobs - including white collar - or is more specific to thoughts on shop floor jobs. We don't think most parents would object to their child taking an engineering job at Intel, just for example.

MAPI adds that "Many people may be surprised to learn that manufacturing is notable for its relatively low turnover and lengthy job tenure, making it a stable career choice in a difficult economic environment."

SCDigest would again say Yes and No here. While there is no doubt many workers have long careers at one manufacturer, and there is probably less "job hopping" in manufacturing than other sectors, when recessions hit and plants start closing lots of jobs are lost.

But MAPI counters that "the separation rate is consistently much lower in manufacturing, and the sizable gap has grown since 2010."

What's more, government data on the employer cost of employee compensation in major sectors of the economy show that during the first half of 2016 wages and salaries in manufacturing were 16% higher than in service-providing industries - though of course that includes areas like restaurants.

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Manufacturing may be good for starting a business too. MAPI says that relative to other types of firms, manufacturing companies have a lower closure rate, and that this holds true across the span of company ages, not just those companies that began within the last few years, though just by a few percentage points.

For example, in 2014 the closure rates was 7.8% for non-manufacturing and 6% for manufacturing.

"With positive signs on job stability, compensation, paths for educated workers, and entrepreneurship, a change in perception could be the trigger that motivates career interest in the factory sector and thus provides the U.S. with the manufacturing workforce that it has long needed," MAPI concludes.

SCDigest's View: This discussion really needs to happen at two levels: true shop floor workers, and then more white collar jobs, even within a factory.

Myth No. 3: U.S. Manufacturing Isn't Needed

The US would be at a lot of different risks if fewer products were made inside its borders.

First, exports are part of the key to a healthy economy, MAPI says, noting that "Without the funds generated from the export of goods, the U.S. would need to increase domestic savings massively or persuade foreign investors to finance a $2 trillion deficit to cover the current level of goods imports."

Manufacturing is also the largest source of US innovation, MAPI says.

It adds that "At an active time of manufacturing policy consideration, it is important for the public, business leaders, and policymakers, to move away from the stereotypical view of outdated manufacturing and see the light of innovation generation that comes from manufacturing companies."

SCDigest's View: We wish MAPI would have provided data on the growth or not of US manufacturing R&D spend, and addressed the national security risks associated with losing manufacturing capacity in many sectors, which could be huge. Also, we're not sure how widespread this attitude towards manufacuring is (see Trump victory last November).

Myth No. 4: Manufacturing is Unduly Harmful to the Environment

Manufacturing profitability and environmental outcomes aren't mutually exclusive, MAPI says.

MAPI notes, for example, that adoption of Lean manufacturing processes can also reduce environmental impact by eliminating waste, reducing resource requirements, etc.

With regard to CO2 emissions, MAPI notes the challenges, especially with regard to measuring the CO2 emissions across the full lifecycle of product.

Of course, many manufacturers have been very aggressive about reducing CO2. Siemens, for example, is spending $110 million to reduce carbon emissions. The company's goal is to cut its emissions in half by 2020 and to become carbon neutral by 2030. Many other manufacturers have similar programs.

More broadly, a 2015 study from the National Bureau of Economic Research notes that between 1990 and 2008 air pollution emissions from U.S. manufacturing fell by 60% despite a substantial increase in US manufacturing output over the period.

SCDigest's View: If there is really this belief out there in some sections of the populace, it is a myth, as today US manufacturing is becoming very environmentally responsive across multiple vectors.

Our final view: interesting work by MAPI, but we're not sure we'd call it complete myth busting either.

Any reaction to these "myths" regarding US manufacturing or MAPI's view of them? Let us know your thoughts at the Feedback section below.


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