THE FUTURE OF AMERICAN MANUFACTURING (4th article in a series on US Manufacturing articles)

Print pagePDF pageEmail page

We have been losing our manufacturing base at an ever increasing rate to overseas competitor nations. Large portions of American manufacturing have experienced a sharp drop in their domestic and world markets. Let me illustrate by looking at three pivotal industries: motor vehicles; electronic computing equipment; and machine tools. In the past couple decades the share of the domestic market held by domestic manufacturers producing in domestic plants has declined from approximately 80% to about 50% for motor vehicles, from 90% to below 60% for computing equipment, and from 80% to below 60% for machine tools. Exports have also fallen more dramatically in each of these industries.

It is hoped that we can find a way to put our talents together to deal with the very real problems facing manufacturing in the USA. My purpose here is to suggest ways to do so.

We have one relatively simple decision to make: do we accept the current situation, continuing the decline in our manufacturing base or do we recognize that manufacturing and industries which support our manufacturing base are critical to our position in a global economy and commit intellectual and financial resources to improve our manufacturing base?  Recognizing the situation and doing something about it, however, are two very different issues. Nevertheless, manufacturing accounts for nearly 20% of our Gross National Product, as it has for about 40 years. There is a much lower percentage of the total work force employed in manufacturing, but they are responsible for a large part of our economy. In addition, our burgeoning service industries are in fact dependent greatly upon manufacturing. About half of all U.S. service employment is tied to manufacturing related activities.

There is a second reason why manufacturing really matters. Most if not all of us to some extent value the principles, “free” market economic system, and political structure of our nation. Some of us also feel it is important that we remain influential and powerful in an uncertain and sometimes dangerous world. We cannot maintain our influenceon the world affairs, if we become a second rate industrial power. While I don’t see us in the same context as colonial Great Britain, the declining influence of Britain for yearswas in part due to its neglect of its technological and industrial bases.

If we value our political and economic systems, we must strengthen and enhance our manufacturing base. But what are the specific tasks we need to address? As I see it, there are three tasks to be addressed. First, we must improve manufacturing related technology development and deployment. Second, we must improve the art of managing our manufacturing base. And, third we must “up-grade” and strengthen our human resources in manufacturing.

The Development and Deployment of Technology

Technology development and deployment are important because manufacturing has become a technologically-driven endeavor. Our ability to compete in manufacturing is dependent upon the quality and the sophistication of our human resources, manufacturing facilities and equipment. In the past 4 decades, we have allowed our manufacturing equipment and facilities to deteriorate relative to our foreign competitors.

It is indeed a bitter pill to swallow that the U.S. is failing in the development and commercialization of new manufacturing technologies. As the recent Nobel Prize awards attest, our scientific base is still unparalleled in the world. We have the support of the Federal government and the strength and vitality of universities to thank for this state of affairs. We also have a strong and vital network of federal labs and a distinguished groups of not-for-profit R&D facilities contributing to the nations store of knowledge. Even with this scientific base, however, we have not learned to master yet the” art of knowledge utilization and technology transfer. In effect, the scientific knowledge produced by our universities and labs has benefited other nations, at least as much, and arguably more, than it has helped us.

We have assumed that the pursuit of basic knowledge, and the publication of scientific results, are ends in themselves and are the only responsibilities of the basic science community.

Unfortunately, today’s economic realities seem to argue against this blissful and naive view. We must create more effective structures and incentives to link basic science to applied research and ultimately to commercial product development. Since one phenomenon of today’s world is the rapidity of change we must move toward the above a lot more swifter than we are currently doing. There are some emerging programs to do just this. In the past fifteen years we have witnessed a tremendous growth in the incidence of cooperative research relationships and other institutional arrangements between universities and industrial partners. Some of these arrangements include novel intellectual property and patent agreements, new ways for industry to fund and support research such as R&D limited partnerships, and a willingness to share facilities and personnel across institutional boundaries.

I strongly support these activities at MIT and the University of Michigan that began sometime ago. I would urge other universities to accelerate cooperative arrangements with industry. I would also encourage experimentation in the creation of “hybrid” organizations that explicitly bridge the gap between the university and the industrial community. The former Industrial Technology Institute of Michigan was designed for this purpose.  It was to be an example of such a bridging/hybrid organization. Unfortunately, State and internal to the Institute politics put an end to the Institute as it were designed. There is nothing inexorable or natural about the process of technology development and commercialization. We simply must become more aggressive and proficient at it.

Turning now to the issue of technology dissemination and technology transfer, unfortunately, I think we have a classic case of a market failure. The structure of U.S. manufacturing confounds the deployment of technology. U.S. manufacturing is composed of a large number of relatively small firms producing a wide variety of products, within a highly complex structure of economic and technological interdependencies between suppliers, original equipment manufacturers, and equipment vendors. In my experience and understanding American manufacturing  has been a “mom and pop” industry. Over 70% of U.S. manufacturing establishments have fewer than 100 employees, my estimate. The average size of U.S. special tooling and machining shops is about 30 employees, which is about  one-third the size of their average Western European counterparts. With smaller size comes fewer financial and human resources to adopt and utilize technology. Of course there are exemptions, i.e., Delphi and Visteon, and several others. These are large corporations but poorly managed over the years and have not been able to take advantage of the above.

Looking at the rate at which new manufacturing technologies are being adopted and implemented, we find with some striking results. Based on my own experience for newer, particularly computer-based technologies, the rate of adoption is between 5 and 10 times greater in plants with 250 employees or more when compared to plants with less than 50 employees. Smaller plants find it difficult to compete with larger plants on the basis of cost or quality.

However, smaller plants make up the bulk of our supplier base. Major customers of these plants, namely original equipment manufacturers, have chosen an easy solution to reducing component, sub-assembly and tooling costs which has dire consequences for the supplier base and for our economy as a whole. These firms are outsourcing much of what they used to buy from U.S. firms to Korea, Taiwan, Mexico, Brazil and other nations. In some cases, the only portion of the manufacturing process which remains here is final assembly of the product. This solution may make short-term sense for the individual company, but has deadly long-term strategic implications for both the firm and the nation. We are essentially destroying the base of our manufacturing pyramid by an outsourcing strategy. These firms are willingly giving up a major portion of our technological expertise to other firms and other nations. These firms are unwilling to initiate manufacturing innovations to increase manufacturing competitiveness. These firms are following the same strategy as their Japanese competitors, who are establishing plants in the U.S. which are shells for the assembly of parts and components produced offshore. The Japanese, however, use this strategy to retain their technological expertise and innovative capability. They retain the base of the pyramid.

We need to increase the technological and innovative capability of small- and medium scale firms rather than moving this capability offshore. There are two major solutions to the dilemma. One is for large original equipment manufacturing companies, such as the auto makers to pay greater attention to the modernizing and upgrading of their supplier base. For too long, large companies have looked at their supplier base only in terms of procurement relationships. Cut-throat cost competitiveness between multiple suppliers has limited the willingness and ability of suppliers to improve their production technology.

There are a few interesting exceptions to this situation. Some U.S. firms are emulating their foreign competitors and developing highly structured and reciprocal supplier relationships. Customers are demanding qualification of suppliers for quality and on time delivery, while providing longer-term contracting, assistance and training in technological upgrading of supplier equipment and facilities.

Managing the Manufacturing Enterprise

We must recognize that the development and deployment of new technology is only one part of our competitiveness problem. Technology may, in fact, not be the primary or most important factor in regaining manufacturing competitiveness. Perhaps foremost among these other factors is a lack of ability in managing the manufacturing enterprise. There are a number of ways in which our managerial shortcomings manifest themselves. One is that many accepted management structures and practices do not interface well with advanced manufacturing technology. The product and process flexibility of new technologies, the linking together of different operational nodes on an electronic network, and the “knowledge-embededness” of the new technologies tends to make a traditional “bureaucratic” command structure obsolete. There is a much greater emphasis on inter-functional and interdepartmental integration in the organization of the future, as well as less of a need for hierarchy and accompanying rigid status structure. There is a requirement for multi-skilled employees, and greater responsibilities must be given to each of them than is required by task specialization.

For their part, manufacturing managers must become more actively involved in redesigning the organizations in which they work. Managers must excel at managing the process of change itself in a more flexible and rapidly changing environment. They must be risk-takers in this design process employing radically new forms of work organization, different kinds of communications patterns and more flexible work rules. The onset of programmable automation technologies are only one set of changes that intrude on manufacturing. Markets are much more dynamic and graphically dispersed. The character of the work force requires radical and dramatic change. Change, then at ever increasing rates (accelerating), becomes the norm.

Thus, we require managers and management systems which can cope with neverending improvement brought about by change. We must hasten the development of all management as an ongoing commitment to adjust to the dynamics of the current and future business climate.

To illustrate one area of management behavior which requires special emphasis I offer the following. Increasingly, competition in the world market has moved away from simple issues of cost and product design, to requirements of product integrity and quality. I view the inability of American manufacturing managers to manage for quality as pivotal in the declining position of U.S. manufacturing. For too many managers, quality is treated as an afterthought. As something to be monitored or controlled. A typical response is to introduce statistical process control training for operators and first line supervisors, and the purchase of new product quality monitoring technology. But, controlling quality will not do the job.

To manage-for-quality implies a top to bottom managerial commitment. Quality has become the goal for companies to accomplish. All new programs are justified on how they will improve quality from the customers’ point of view. Reward systems, management practices, and near-term objectives are oriented towards the ultimate goal of total quality – product, material, process integrity, people integrity and attitudes. These companies will have to achieve these goals at competitive costs so that we do not lose these businesses to other nations, China, India, etc.

Human Resources for Manufacturing of the Future

There is tendency on the part of too many manufacturing professionals, as well as manufacturing scholars, to look at the enterprise as a simple combination of capital, management, and labor, while usually looking at labor as some commodity that can be bought and sold, easily obtained, and of little concern for our immediate or long-term future. Such an assumption is a grave error given the current and foreseeable human resources of U.S. manufacturing. There are several aspects to this general problem. One is the training and skills level of the existing workforce.

Conducting a survey of manufacturing employees as to what they need to do a better job the response invariably is: training of technical staff, operators, and supervisors.

The difficulties that American manufacturing companies are having in training for the new technologies is illustrative of a larger problem. There are some, not many, companies that consider their workforce as an investment which must be nurtured and trained and maintained. If formal training is offered at all, it is often too little in scope and coverage, applied to too small a segment of the workforce, and rarely has the mix of general principles and specific skills that good technical training involves.

We can learn much regarding training from both our foreign competitors and our exemplary domestic companies. In these organizations, training and a commitment to human resources upgrading is woven into the very fabric of the company. Rather than considering training as a bothersome commodity which is purchased from time to time from external vendors, permanent training/educational organizations have been *established which serve the workforce of these companies on a continuous and proactive basis.

In addition to being concerned about the training level of the general workforce, we also need to be concerned about the present and future status of manufacturing engineering and engineers. Historically, our nation has been the leader in producing technically astute, energetic, and practical engineers. In this century, they have gone forward and built much of the industrialized world as we know it. However, there are certain trends in engineering education in the U.S. which give one pause. One problem is that, a growing and worrisome percentage of graduating engineers, in all fields, are foreign-born, and more importantly, will take their skills back to other countries and further raise the ante of international competitiveness.

This is a problem. On the one hand, for reasons of morality and wise public policy, it would be ill advised to close our engineering schools to foreign students. Many of these individuals are among the most talented in the student population, and in turn, many of them elect to stay in the United States and contribute to our nation, both technically and personally.

I would strongly recommend that the engineering societies and the engineering schools of this nation mount a national, long-term public relations and advertising campaign to increase the attractiveness of engineering careers. We cannot assume that intelligent people will naturally gravitate to the engineering sciences; there is too much money and a seemingly more certain future in disciplines such as law, finance, and the service professions (until recently investment banking).

We should adjust the challenge/reward/performance systems into balance to accomplish the results required.

The Future Workforce

Let us turn once again to general workforce issues. In this case, however, I would like to concentrate my observations on the workforce of the year 2020, as opposed to our current problems.

The entry-level workforce for the challenges ahead is now in the first grade. To understand what the implications of that statement are for the future of manufacturing, one needs to examine, a few demographics of that five to seven year old group which is now struggling with the basic skills of early grammar school.

For one thing, that age group is much smaller than previous groups of the past ten to twenty years. There has been a decline in fertility among most groups in this country, and unless reversed will result in a much smaller group of youths ready to start work as we look at the next couple decades. Again, manufacturing will be competing against all the other employment possibilities, but this time for a shrinking supply of person power.

Another fact about this incoming generation is worth noting. Upwards of a third of this age group will be members of minority groups of one sort or another. Moreover, if as members of minority groups they will be subject to the same shortcomings in educational opportunities, family income and general life opportunities that past minority groups have experienced, then we can expect the educational level, drop-out rate, and work motivation to be considerably less than optimal.

I bring you these facts, not as a naive social reformer, but as a concerned former manufacturing executive. I am concerned that companies, as we assimilate the incoming workforce, will end up doing the educational tasks that have been heretofore neglected.

I would strongly urge academics and manufacturing executives to take a more active and in fact, proactive role in the educational policies and practices of our primary and secondary and even tertiary school systems. Playing catch-up fifteen years from now will not solve the problem. We need to make sure that our business and personal tax resources are spent wisely and appropriately in programs that will provide basic skills and the scientific underpinning for the workforce which we will have to hire and use to become competitive in the world.

In summary, here are certain fairly simple tasks for us to perform, if we want to make sure that our manufacturing economy survives and prospers into the decades ahead. Very simply, we need to solve three dilemmas. How to develop and deploy new technologies; how to more effectively manage our manufacturing organizations; and how to develop human resources- for the future.

Leave a Reply

Your email address will not be published. Required fields are marked *