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Focus: Manufacturing

Feature Article from Our Supply Chain Trends and Issues Subject Area - See All

From SCDigest's On-Target E-Magazine

Nov. 10, 2011

Supply Chain News: Turning the US Manufacturing Inflection Point in the Right Direction


US Manufacturing at Inflection Point, Needs "Wake-Up" Call to Head Back in Right Direction, Report from Booz & Company Says


SCDigest Editorial Staff

Several weeks ago, we summarized key findings from a recent report on the challenges and opportunities for US manufacturing from Arvind Kaushal, Thomas Mayor, and Patricia Riedl, all consultants at Booz & Company.

SCDigest Says:


Manufacturing engineers are also in high demand. Siemens recently said it has 3500 US manufacturing openings for such jobs, and was pessimistic about its ability to fill them.

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That article said that US manufacturing was at an "inflection point" in its future, and that the right strategies and policies by business and government could see the percent of goods consumed in the US that are made in the US rise from its current 75% or so (a higher level than many people would probably guess) to as high as 95%, or fall steeply to just 40% in coming years - at which point "US manufacturing could then erode past the point of no return," the authors say.

Either change would have huge ramification's for the level of the country's wealth and labor markets (See A Comprehensive View of Opportunities and Risks for US Manufacturing.)

In part 2 in this series, we take a look at the strategy and policy steps Booz & Company argues are needed to ensure the current inflection point does take the US in the right direction.

The stakes are high indeed. The chart below, taken from the report, shows the change in employment levels in the US in manufacturing for both production and non-production jobs. Both categories have taken a dramatic plunge since about the year 2000.

While some of that loss can certainly be attributable to automation and productivity gains, as least as much or more would seem attributable to offshoring, and the rise of China in the past decade in particular. The US trade deficit with China over the past 10 years exceeds $2 trillion, for example.

As many have noted in the past, changes in manufacturing employment have many ripple effects, with some studies suggesting that each manufacturing job on average can be related to as many as seven additional jobs when considering suppliers to the plant and other support services. Booz & Company says the impact is just as strong in areas such as product innovation, quality management, process design and more. Meaning, the more manufacturing is performed in a country, the more progress overall will be made in these sorts of areas, creating further competitive advantage; the opposite is obviously the case as the level of manufacturing declines and a country loses its strength in these areas.

Manufacturing Employment Drops Sharply Over the Past Decade



Recommendations for a Manufacturing Renaissance

The authors lay out a series of recommendations for both the private and public sectors it believes can ensure the US moves in the right direction coming out of this inflection point. Those include:

1. Attract the Best Workers: It may be a surprise to learn that even in this era of high unemployment, there is a shortage of skilled manufacturing workers in the US. This is especially true as more and more factories go high tech, requiring operator skills that go far beyond traditional manual labor. Manufacturing engineers are also in high demand. Siemens recently said it has 3500 US manufacturing openings for such jobs, and was pessimistic about its ability to fill them.


(Manufacturing article continued below)




A recent Booz & Company survey of engineering, science and math undergraduate students found only 50% of them saw manufacturing as an attractive career. The challenge finding the manufacturing talent they need is another factor in why many companies move production offshore.

The authors call for more programs to promote engineering as a major, relaxing H-1B visa to allow more foreign talent to come into the US to fill these jobs or stay here to work after receiving their educatio, and rethinking the manufacturing workplace environment to more appeal to the current generation of employees entering the workforce. It favorably notes a program in South Carolina in which the state will create customized training programs for a given company at certain colleges to supply a steady stream of new workers - a key factgor in why BMW chose the state for its US plant.

2. Invest in High Impact Manufacturing Clusters: Cluster thinking has been around a long time, and is in fact aggressively being pursued in China - though not always with success. Clusters involve development a number of companies in the same basic industry, along with a supporting ecosystem of suppliers, service providers, etc. Silicon Valley is a sort of mega-cluster for high tech. Another example is the medical devices cluster in Warsaw, IN. Clusters provide a sort of oxygen and deliver synergies that make it more likely manufacturing companies in that sector can thrive.

Booz & Company believes federal and state governments can do a lot more to promote cluster development. That include improving logistics and communications infrastructure in and around a potential cluster area, provide tax incentives, and support related research at nearby universities, though the report says government should not try to micromanage cluster development. It also calls for various trade groups within industries to support cluster development more aggressively.

3. Build a Partnership with Mexico: A hybrid approach, say the authors, is to move production work from China to Mexico. This allows a tighter connection to US engineering and product development processes, and enable a strategy where older, less innovative or more commodity products can be produced at lower costs across the border, while more innovative, higher value added products can be made in the US.

"When you combine the US and Mexico as a manufacturing partnership, for the most part it wins over the US and China," the reports quotes Ron Weller, a vice president of global operations at Johnson Controls, as saying.

Of course, concerns about drug violence and related safety issues there need to be resolved before many companies will take this path.

4. Simplify/Streamline US Tax Code and Regulations: At 39%, the US corporate tax rate is the second highest among developed economies. While it's true the effective tax rate is more like 28%, that is due to all the various loopholes, credits and other factors that add to complexity and compliance costs. Plus, most companies and investors use the 39% for evaluating potential returns on investment, because they can't be sure the various loopholes and incentives will be around forever.

All that, plus the overall regulatory burden, is a big barrier to manufacturing in the US. These growing burdens are another reason the US has been falling in the World Economic Forum's global competitiveness index, dropping for the third year in a row to fifth place in 2011.

The authors call for a streamlined tax code (lower rates, fewer loopholes/incentives), and reduced bureaucracy relative to regulations, noting many other countries have more stringent regulations, but with a lot less red tape and therefore costs to get there.

In addition to those sorts of macro-level changes, the authors say US manufacturers themselves need to rethink their approaches to competiveness. Continuous innovation in product and process is not surprisingly at the core, especially with regard to developing globally unique capabilities that are closely tied to larger strategic goals - and that may mean a significant relook at current strategies and how a company is currently executing.

"You better focus on reinventing manufacturing and process technology, and on finding the next breakthrough process that's going to leave everyone else behind, a process the rest of the world can chase," says Johnson Controls' Weller.

Do you think the US can - or will - take advantage of this current inflection point to grow its manufacturing sector? What do you think of the recommendations provided in the report? What else should be done? Let us know your thoughts in the Feedback section below.

Recent Feedback

Long before the trend to move operations offshore ever started the direction for manufacturing was headed in the direction of automation. 'Offshoring' was an easy way to reduce costs of operations and, as a result, the efforts to develop automated solutions slowed down. Automation takes a lot of skilled effort to achieve. These skills take a lot of education investment to make these available. Unfortunately offshoring has resulted in a reduction in these investments. The US in particular needs to get back on track right now but it is not clear how this will start. The US education system has not focused on developing engineering talent. Students in high schools probably do not see a future in engineering either. Investment capital is in short supply. With this background the future looks bleak. To turn this around the CSCMP and other organizations should be highlighting the need for a return to strategy based upon investment in automation. If I had the opportunity to contribute to this article, before it was published, I would have pushed to  invest in engineering education and as number 1 on the list of things needed to create a manufacturing renaissance. I would be more than happy to submit a paper to the CSCMP on this subject.

Alan Bishop
Nov, 11 2011

I agree with all of the Booz and Company points. One recommendation to add to their list: An important requirement for manufacturing to return is convincing companies to use total cost of ownership calculations instead of just price in making sourcing decisions. Boston Consulting Group recently reported: Chinese net unit manufacturing costs are converging on U.S. costs for products to be sold in the U.S. For the economic trends to have a rapid impact on the behavior of major U.S. companies, however, the companies will have to calculate their total cost of offshoring. To help these companies make better sourcing decisions the non-profit Reshoring Initiative,, provides for free a Total Cost of Ownership (TCO) software that helps them calculate the real offshoring impact on their P&L. With clear evidence of the fragility of global supply chains, Chinese and other LLCC (Low Labor Cost Country) wages rising rapidly, the U.S. $ declining and oil soaring, this is the perfect time for U.S. companies to reevaluate their offshoring strategies and bring some of the sourcing home. Readers can bring back some manufacturing by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore. You can reach me at

Harry Moser
Reshoring Initiative
Nov, 23 2011

In addition to reforming the immigration laws to allow foreign engineers who train in the U.S., to work in the U.S., there needs to a movement to reinstitute shop classes in high schools in order to develop interest and requisite skills needed in today's manufacturing environment. 

Darrel Kuhse
Traffic Manager
Electronic Manufacturing
Nov, 23 2011