Thursday, June 13, 2013

US Manufacturing: 1979 to 2013 (Outsourcing to Resourcing)

Boeing manufactured the B-17 Flying Fortress and B-29 Superfortress during World War II. The B-17 was produced in Boeing's home State of Washington; but the manufacturing of the B-29 involved factories in Renton Washington, Wichita Kansas, Marietta Georgia and Omaha Nebraska.

On Oct. 26, 1958 history was made when Pan Am flew a new commercial Boeing 707 jetliner from New York to Paris. That was when manufacturing had been the backbone of the U.S. economy --- when only 8 percent of all cars sold in the United States were imports.

Also that year, a small Japanese company sold its first vehicle in California. Toyota had sold 288 Toyopet sedans to American consumers in 1958. By comparison, General Motors produced 2.1 million cars in the U.S. that same year -- and the 1958 Chevy Impala had been one of the best-selling cars in America.

According the U.S. Bureau of Labor Statistics, manufacturing in the U.S. peaked in 1979 when we had over 19.6 million manufacturing jobs --- but it has been on a downward trend ever since. As of 2012, that number stood around 11.8 million --- for net difference of 7.8 million manufacturing jobs --- jobs that we could use today with 11.8 million unemployed (not to mention, all the exponentially created jobs that we could have also realized.)

And it's also no coincidence that today the labor force participation rate is also the lowest it's been since 1979. And 1979 is also when the U.S. broke off formal diplomatic relations with Taiwan and established full diplomatic relations with China.

Since 1979, the collapse of the manufacturing sector due to globalization not only increased unemployment dramatically, but also created urban decay and ghettos. In same cases, whole towns were left to ruin. The year 1979 could have been the peak year for America's middle-class, before it's long slide into decline.

Since 1979, the massive U.S. trade deficit has been a major cause of the decline of U.S. manufacturing over the past several decades, the cause of the current high unemployment rate, and the debilitating budget deficit. Domestic suppliers have watched with utter dismay as large manufacturers have outsourced work and good-paying jobs to foreign countries.

Ten years ago Boeing had a unit of 1,200 engineers in their home State of Washington designing electronic controls for all its airplanes, and a plant in Texas where another 1,200 people built the hardware. When Boeing launched the 787 Dreamliner program in 2003, management dispersed all those engineers, outsourced their work, then sold off the Texas plant.

Data shows there were 398,887 private manufacturing establishments of all sizes in the United States during the first quarter of 2001. By the end of 2010, the number declined to 342,647, a loss of 56,190 facilities. Just over that short span of 10 years, that equates to an average yearly loss of 5,619 factories --- or more than 15 factory closings per day.

Robert Reich recently wrote, "If we had a strategy designed to increase jobs and wages...it would focus on raising the productivity of all Americans through better education." But what does that have to do with manufacturing jobs? After all, we can't all be IT or mechanical engineers. Have you ever heard of the saying, "Too many chiefs and not enough Indians." And supposedly, Americans are already the most productive workers in the world.

Although I do agree with Robert Reich when he says, "We should also unionize low-wage service workers in order to give them bargaining power to get better wages." But then again, we can't all be expected to work in the fast food or retail industry either --- which means, we need more manufacturing jobs (less imports and more exports).

Robert Reich also says, "Companies should spend at least 2 percent of their earnings upgrading the skills of their lower-wage workers." I don't know about that --- two percent sounds like a huge investment to me; but just exactly what other skills are needed for manufacturing
(excluding automation and robotics) besides: tool-and-die makers, assembly line workers, machinists, fork-lift operators, truck drivers and janitors to sweep the factory floor? Exactly what skills do the Foxconn workers in China possess that Americans don't have or can't obtain? And besides, whatever became of "on-the-job" training?

In their book, Producing Prosperity, Harvard Business School professors Gary Pisano and Willy Shih write, "For years--even decades--in response to intensifying global competition, companies decided to outsource their manufacturing operations in order to reduce costs. But we are now seeing the alarming long-term effect of those choices. In many cases, once manufacturing capabilities go away, so does much of the ability to also innovate and compete. Manufacturing, it turns out, really matters in an innovation-driven economy. Companies must reinvest in new product and process development in the US industrial sector. Only by reviving this "industrial commons" can the world's largest economy build the expertise and manufacturing muscle to regain competitive advantage."

Edward Alden at the Council of Foreign Relations writes, "They [Gary Pisano and Willy Shih] demolish the comforting story that many economists have offered to dismiss concerns over the shrinking role of manufacturing in the U.S. economy. The conventional argument goes like this: It makes more economic sense to locate the actual production of goods in lower-wage countries, while the United States maintains the skilled parts of the supply chain (R&D, branding, marketing, etc.) The classic example here is Apple: most of the value of an iPhone or iPad comes from the design, software, branding and retailing, not from the assembly. Therefore, U.S.-headquartered Apple can become the most valuable company in the world even while making virtually nothing in the United States."

Forbes reports that a number of recent initiatives are seeking to pump muscle into U.S. manufacturing as fresh data on industrial activity is giving M&A (mergers and acquisitions) professionals reason for some optimism. Three investment bankers who focus on industrials said M&A could increase if U.S. manufacturing goes up.

The initiative that has attracted the most interest from Wall Street is the Reshoring Initiative.

According to their website, the mission of the Reshoring Initiative is to bring good, well-paying manufacturing jobs back to the United States by assisting companies to more accurately assess their total cost of offshoring, and shift collective thinking from "offshoring is cheaper" to "local reduces the total cost of ownership".

Reshoring is an efficient way to reduce imports, increase exports and regain manufacturing jobs in the United States. It's also the fastest and most efficient way to strengthen the U.S. economy. For the nation, reshoring brings back desirable jobs that have been lost to decades of offshoring. Reshoring also helps manufacturers recover from offshoring's poor quality, trade secret thefts (industrial espionage), supply chain disruptions and lengthy delivery times -- all while staying cost competitive.

Earlier this year Forbes reported that about 220 to 250 companies have brought manufacturing back to the U.S., with the heaviest migration from China. This represented about 50,000 jobs, which is only 10% of job growth in manufacturing since January 2010. Key reasons for returning to the U.S. include rising wages offshore, better quality of goods produced in the U.S., easier access to repairs and lower delivery costs.

But Harry Moser, the president and founder of the Reshoring Initiative, has called the 50,000 reshored jobs “a trickle” --- and also noted that U.S. companies continue to offshore jobs, saying that there has been a net loss of 3 million jobs since offshoring started decades ago. But Moser estimated that 6 million jobs could be created if certain scenarios, such as an increase in Chinese wages, continue.

The offshoring of manufacturing jobs is a result of the corporate strategy of "lean manufacturing", a production practice that considers the expenditure of resources for any goal (other than the creation of value for the end customer) to be wasteful, and thus a target for elimination. Essentially, "lean" is centered on preserving value with less work.

Lean manufacturing is a philosophy derived mostly from the Toyota Production System (TPS) and was identified as "lean" in the 1990s. TPS is renowned for its focus on reduction of the original Toyota "seven wastes" to improve overall customer value: Transportation, Inventory, Motion, Waiting, Over-processing, Over-production, and Defects.

The steady growth of Toyota, from a small company in 1958 to the world's largest automaker, has focused attention on how it has achieved this success. In 2007, for the first time, Toyota passed General Motors to become the #1 automaker.

In 2012 the three-way race between Toyota, GM and Volkswagen was tight, but Toyota held onto its status as the world's top-selling automaker in the first quarter of 2013.

Timeline since the Boeing 707 and the Toyota Toyopet in 1958

1960 The Big Three began selling small cars -- such as the Chevrolet Corvair, the Ford Falcon and the Plymouth Valiant -- to compete with the Japanese models.
1963 Caterpillar and Mitsubishi Heavy Industries formed a joint-venture, when John Deere surpassed International Harvester to become the world’s largest manufacturer of agricultural and industrial equipment.
1964 Japan began operating high-speed bullet trains, the same year that the last independent automaker in the U.S. (Studebaker-Packard) went out of business.
1965 Ralph Nader published “Unsafe at Any Speed” (a book exposing safety issues within the U.S. auto industry). That year Chrysler had opened a state-of-the-art plant in Belvidere, Illinois.
1967 Congress passed the Highway Safety Act, which made the installation of seat belts in vehicles mandatory.
1968 The United Auto Workers (UAW) union pulled out of the AFL-CIO union, citing strategic differences on domestic and foreign policy.
1970 General Motors opened a controversial, automated assembly plant in Lordstown, Ohio.
1971 The Occupational Safety & Health Administration (OSHA) began conducting random checks on manufacturers.
1972 Congress passed the Consumer Product Safety Act, which established the Consumer Product Safety Commission.
1973 The ABACUS II, designed and built by Texas Instruments, became the first practical automated production machine for the assembly of integrated circuits. 
1974 Assembly Engineering and the Society of Manufacturing Engineers co-sponsored the first Assemblex trade show. That same year the Robotic Industries Association was formed.
1977 Solectron Corporation was headquartered in Milpitas, California and was an electronics manufacturing company for original equipment manufacturers (OEMs). It was the first in the electronics manufacturing services (EMS) industry. Solectron had been established to provide outsourced manufacturing services to third parties (such as contact manufacturers in Asia.)
1978 Volkswagen opened the first foreign auto plant on U.S. soil in New Stanton, PA.
1979  U.S. study missions were sent to Japan to see the Toyota Production System. The National Association of Manufacturers (NAM) unveiled a six-point “Revitalization Agenda” which became a major part of President Ronald Reagan’s economic program in 1981.
1981 IBM unveiled the first personal computer.
1982 Honda opened the first Japanese auto plant on U.S. soil in Marysville, Ohio. That same year General Electric invested more than $2 billion in a massive factory automation program aimed at reducing costs and improving quality.
1983 Chrysler opened the auto industry’s first in-line, sequenced assembly line in Windsor, Ontario in Canada.
1984 Toyota and GM's joint venture NUMMI (New United Motor Manufacturing, Inc.) was established in the U.S.; and the automobile manufacturing plant was located in Fremont, California. 

Also, several AME founders (Association for Manufacturing Excellence) barnstormed for the APICS (The Association for Operations Management) in the "Zero Inventory Crusade", collectively making hundreds of presentations on what is now called "lean manufacturing". 

1986 General Motors opened its groundbreaking Saturn plant in Spring Hill, TN. --- the same year that the first Toyota car, a Corolla sedan, was assembled in the U.S.

Also in that year, General Motors began assembling front-wheel-drive axles at its Vanguard plant in Saginaw, MI. The controversial “factory of the future” featured advanced automation, such as robots and automated guided vehicles. The initial goal was to develop a "lights-out" factory, but the trend-setting plant closed quietly in 1992.

1987 Chrysler purchased American Motors; and Caterpillar launched a $1.8 billion plant modernization program to streamline its production processes.
1988 Toyota opened its first independent plant in the U.S. in Georgetown, KY to assemble Camry sedans.
1990 Microsoft launched Windows 3.0 software.

Also, "The Machine That Changed the World : The Story of Lean Production" (now on sale at Amazon)

1991 The interstate highway system was officially completed, 35 years after construction first began. 
1992 The North American Free Trade Agreement (NAFTA) is signed by Canada, Mexico and the United States.
1995 Lockheed Corp. merges with Martin Marietta to create Lockheed Martin.
1997 Boeing acquires McDonnell-Douglas.
1998 Daimler-Benz and Chrysler merge to form Daimler-Chrysler.
1999  General Motors opens its first joint-venture plant in China.
2000 American manufacturers began using the "lean" production techniques that were pioneered in the auto industry.
2001 China officially joined the World Trade Organization (WTO).

Also, Lionel closed its last manufacturing plant in the U.S. and outsourced its toy train assembly to China and Korea.

Also, Apple first unveiled their iPod.

2002 General Motors opened what is hailed as “the most significant auto industry plant in the last 25 years” in Lansing, MI.
2004 ASSEMBLY (technologies) sponsored a session on “Offshore Assembly Challenges and Opportunities” at the 25th annual Assembly Technology Expo in Rosemont, IL.
2006 The first Assembly Technology Expo China is held in Shenzhen, which was China's first and most successful "Special Economic Zones".

Also, Kodak agreed to divest its digital camera manufacturing operations to the Singapore company Flextronics International Ltd --- including assembly, production and testing.

2007
  • Boeing finally unveiled their 787 Dreamliner, which manufactured it's parts all over the world.
  • Daimler-Chrysler dissolved and both automakers go their separate ways less than 10 years after merging.
  • General Motors and the United Auto Workers (UAW) union reach a labor settlement that narrowed the wage gap between domestic automakers and their foreign competitors.
  • Automakers in China and India began developing super-low-cost cars aimed at emerging markets.
  • Solectron Corporation (Milpitas, California) was acquired by the Singapore company Flextronics International Ltd.
  • Toyota passed General Motors to become the No. 1 automaker.

Sub-note: In the last 10 years, Airbus has received 7,714 orders while delivering 4,503, and Boeing has received 7,312 orders while delivering 4,091 --- competition is intense.

* My other posts regarding outsourcing can be found here. Also visit Virgil Bierschwale's website at Keep America at Work - - - which is currently being redesigned.

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