Archive for Made in the USA

Made in USA: How We Do It Matters

house-of-strawHuff and Puff and Blow that Economy Down…

What is not to like about more US manufacturing? It is important to our economy, to national security and to the individuals needing jobs and purpose. A nation should be able to build the things that it needs. A hollowed out economy that is only exporting services is not a long term play.

But a revolution is not the solution. Shaming companies to come back is also not a simple anecdote. It took us over 20 years to dismantle our manufacturing prowess. We can’t bring it back overnight. Without some planning we will build a house of straw. We will alienate our trading partners. We will bring back jobs that we can’t fill because we don’t have trained workers. We will try to use the same processes and facilities we have always used and the result will be poor quality and expensive product. We will impact our economy because our goods will be more expensive. Finally, retaliation by other countries will slow down the exporting that we do today. The right way to bring back manufacturing is to consider all of the aspects of a strong foundation and to build a house out of brick. What will that entail?

  • Focus – What kind of manufacturing is right for this country? Given our higher standard of living we will not find enough workers for low skill tasks. The best products for re-shoring can be manufactured using automation, are high value or are heavy or bulky. Those kinds of products don’t rely on low wage workers and they cost a lot to move around. If the market is here you can eliminate shipping costs by building here. We also should consider where we can bring a competitive advantage. If we have access to materials and other natural resources, design expertise or automation capability we can do a better job than the competition and build product for the US market and also successfully export. Examples of good products for US manufacturing are appliances, vehicles, expensive electronic devices, machinery, robots and construction materials. It also makes sense to build close to home when a product is difficult to build and contains a lot of intellectual property. The interaction between manufacturing and design engineering is critical during a fast ramp and doing that close to home has time to market advantage. Time is money and fast to market protects IP.
  • Infrastructure – We need better roads and power and better access to human resource. State government officials in some locations are working on this. Kentucky, South Carolina, Tennessee  and Alabama are attracting more than their fair share of new manufacturing jobs because they have favorable policies, strengthening infrastructure and active government programs aimed at attracting companies. Each state needs to craft policies to attract the kind of industry that will be beneficial to the population.
  • Prepare the Workforce – In a 60 Minutes interview Tim Cook, the Apple CEO, said that one of the reasons that Apple needs to build phones in China is that the US doesn’t have a trained manufacturing labor force. The obstacle is not so great. If we package training with job opportunity at a living wage, the workforce will be available. Apple can not afford much labor content with this model but automation is a way around that roadblock. Increased automation will generate the need for other skills that we currently lack in the US. We need more manufacturing savvy engineers. We have the best higher education system in the world and there are many excellent programs that can meet this need. Those programs train engineers for the whole world. We can harness that momentum for our own workforce through part-time, online or even full time degree or certificate programs that are sponsored by companies in need of talent. This is an investment worth making and where some profit should be directed.
  • Government Support – Of course tax reduction is what comes to mind here and perhaps President Trump’s intention to increase the tax burden on companies importing goods will help fund education or infrastructure. But there are other ways our government can have a direct impact on a continuing manufacturing renaissance.
    • Training program sponsorship or tax credits
    • Increased community college support for practical apprenticeship type programs
    • Higher education support in the form of manufacturing and technology research grants
    • State or Federally sponsored manufacturing initiatives used to focus funds and research
    • Increased vigilance for fair trade 
    • Logical and sustainable regulations that solve for both competitiveness and the environment.
  • Leadership and Vision – When I worked with Canon, I was told that Canon just did not understand our actions. HP was making decisions for our stockholders. We were trying to minimize the tax burden and they felt that taxes were a patriotic duty. Losing jobs to China was a defeat and there was much debate prior to any movement of manufacturing. They believed that they could build the product with higher quality and with more process technology and therefore it would ultimately be less expensive. Perhaps we can’t turn public international companies into patriotic entities but with more visionary leadership and more action that drives innovation and competitiveness right here in the US,  companies can find a win for US manufacturing and for stockholders. The win is there. It will take leadership to invest in factories, commit to a plan that isn’t easy to pull off in the short term and then execute with determination.

There is a path to solid manufacturing growth in the US. It isn’t a move back to the 1970’s. We won’t go back to what manufacturing looked like then but neither will the rest of the world. The new era of manufacturing will be lean and automated. It will require an educated workforce and a supportive government. We will need the willpower and the leadership at high levels in government and industry to take a stand and to chart a path to a successful win-win future where the consumer gets a good “Made in the USA” product at a competitive price.

“All human situations have their inconveniences. We feel those of the present but neither see nor feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse.”     Benjamin Franklin

Fair and Good Trade

datsunI made the trade for a Ford Taurus. By then my little red Datsun 210 had traveled from California to New Hampshire. It had carried me through my masters degrees, my early career days, into a marriage and kids. The seat fabric had rotted and split. The paint finish was crackled and faded. A family of mice had decided to store dog food pellets in the fabric roof lining. (We have ever since stored dog food in metal cans!) But this car meant something to me and it was a hard possession to give up. But I needed a car that didn’t slip and slide in the snow and that carried me with a little more dignity to my engineering manager job. So I made the trade. It was fair. It was good.

These days, in the midst of isolationist leanings, there is a great deal of talk about fair trade. The treaties that were enacted over a decade ago are being blamed as the root cause for all of our economic woes and lack of full employment. The US has 14 trade agreements in effect with 20 countries. We are in the process of examining and likely will be rejecting an additional Asia-Pacific trade agreement, known as the Trans-Pacific Partnership (TPP) Agreement and are in negotiations with the EU  regarding the Transatlantic Trade and Investment Partnership (T-TIP). Why are these agreements in place and are they fair and good? 

The argument for international trade agreements is that they reduce barriers to U.S. exports and protect U.S. interests and enhance the rule of law in partner countries. The reduction of trade barriers and the creation of a more stable and transparent trading and investment environment makes it easier and cheaper for U.S. companies to export their products and services. This is goodness if both parties have something valuable to exchange and if each side ends up satisfied with the arrangement. Right now in the US we are not satisfied. We have lost over 5M manufacturing jobs since the beginning of the century. Our annual trade deficit was $500B or 3% of the GDP last year. That money is used by foreign investors to buy real estate or businesses or other assets. But these stats don’t tell the whole complicated story. The complex story makes the solution complex. The WSJ covered this recently in an article on the Future of Manufacturing. If we close our borders to trade or if we heavily tax imports to slow down in the influx of goods, there are consequences.

  • We export more services than we import to the tune of about $300B. If we slow imports we could slow exports of our service industry thus hurting those US businesses.
  • If we tax imports of cheaper goods we are creating a regressive tax. In other words we will hurt the people with smaller incomes who can’t afford it.
  • We could lessen the value of our currency making imports look more expensive but that again will be a regressive action, hurting the wrong people.
  • Moving quickly could cause an economic backlash that could push the US into a recession.

None of the ideas above are easy to implement without repercussions. But we can take positive action to increase our competitiveness and move back to a positive trade balance. However, these ideas require leadership, partnership with government, some patience and a bit of altruism. We as a country seem to be short on those things right now.

  • Measure the costs: Company executives should measure the full, true cost of off-shoring. Doing the math rather than just following the crowd could accelerate the trend to keep manufacturing in the US.
  • Train workers: There is a gap between manufacturing workers needed versus available even today. This gap will increase as our baby boomers retire. We need to create training programs and apprenticeships like are available in Germany and other countries.
  • Embrace Technology: There are ways to improve our competitiveness and the time is ripe. Additive manufacturing, Internet of Things (IoT) and collaborative robotics are ways to use our technical prowess to beat the competition. US universities have developed and progressed these capabilities and progressive companies are employing them to improve productivity and features. The government should encourage investments in manufacturing technology. US incentives for investments in factory automation and research lags behind our competition.
  • Employ Lean and Agile Methodologies: Productivity in the US (GDP/hour worked) has increased year over year for 3 decades. In the first quarter of 2016 it actually decreased by .6%. We need to find ways of doing more with what we have. Lean for Manufacturing and Agile for Innovation are two proven ways to improve efficiency and speed up results.
  • Create Manufacturing Ecosystems: Regional governments have been encouraging a resurgence of focused manufacturing capabilities. Examples are the growth of automotive manufacturing in the Southeast or capital machinery in the Midwest. These clusters are attracting the right kind of workforce, setting up supply chains and are working with regional governments to create workable tax schemes.

We will not rewind time to the days when you could provide for a family and retire on one assembly worker’s wages. But it is possible to generate a good living with the new jobs that are emerging. A robot technician’s salary is about $60K.  A CNC programmer and operator earns about $40K. With the right kind of training and infrastructure we can revitalize manufacturing in the US and embrace good and fair trade once again.

Good and fair trade is within our reach. I gave up my Datsun with thoughts of better driving days to come. Similarly, we need to let go of the past and embrace a new manufacturing reality of automated factories building products the rest of the world will want to buy.

Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek.      Barack Obama

Manufacturing: A Bond Adventure

182_100_100M: “Bond, I need you back.” 
James Bond: “I never left.”
Quantum of Solace

Recent articles written about reshoring manufacturing bemoan the fact that we’ve lost our manufacturing expertise. We don’t have the people or the passion in the USA for a strong manufacturing culture. So, while we might want to bring manufacturing back and it might even make sense to bring it back, we just don’t have a population equipped to do the work. Common wisdom is that it would be too hard to lure people back into manufacturing and without trained engineers, technicians and line workers we would be unable to grow our manufacturing capability in North America. We could never regain our former strength because too much has been lost. Besides the difficulties in ramping up this expertise, there is also the issue of attraction. Who would want to be in manufacturing? Don’t our best and brightest want to be entrepreneurs, venture capitalists or iPhone app programmers? There is no attraction to building products in the USA. We are a service oriented culture.

Malarkey. Hogwash. Nonsense. Balderdash.  The potential of more manufacturing in the USA is “James Bond” cool.  Who wouldn’t want to be part of the fun?

  1. Adventure abounds – Building products is an adrenaline rush from start to finish. Partnering with all parts of the company to maximize the product’s value while minimizing the costs starts the adventure. Dealing with the political and environmental influences in a global supply chain while meeting the needs of customers who want it now in their chosen color and size can only be compared to solving James Bond sized problems.
  2. Intrigue and Mystery – Trying to shorten time to market while hitting the highest quality marks at the lowest cost is a puzzle worthy of the brightest minds. Working cross-functionally with design, marketing and sales to hit a promised delivery date requires social skills and Bond finesse.
  3. Global Plot – The stage on which this drama unfolds is always international. Even if manufacturing ramps back up in the USA we will work across time zones to get parts delivered and to get product shipped. The world is a Möbius strip.
  4. Flashing lights and non-stop action – The nature of manufacturing has changed for the better. Automation will increase in importance as labor rates go up around the world. In the USA, we have to use our innovative skills to drive highly productive, less labor intensive manufacturing plants. These will run 24 X 7 and will need skilled workers to design the processes and to keep things running. These will not be monotonous manufacturing plants of old.
  5. Always get the girl – Given the complexities of relationships, cultural intrigue and the problem solving nature of manufacturing the need for diversity is obvious. We need the best minds and the best combination of ideas to win this global competition. As automation takes over to build products it will be brains, not brawn that will rule. Manufacturing is gender neutral.
  6. The good guys win – The best and the brightest will design and manufacture products for the world. It will take leaders with a vision for a better paradigm. It will take young engineers who get a kick out of building things. It will take men and women who aren’t afraid to learn about competitive ways to work cross-functionally with the latest technologies. The combination of creative talents will come together to win.

I’ve always loved manufacturing. Even as it has evolved over the years it remains challenging, fun and intriguing. Consider a career in Manufacturing. Talk it up with your friends and neighbors. Encourage your children to move into this area of expertise. Aspire to this great profession. It will only get better in the future. Manufacturing is coming back as the coolest job out there.

James Bond:  “Everybody needs a hobby.” 
Raoul Silva: “So what’s yours?”
James Bond: “Resurrection”         

Bring (Some) Manufacturing Back

Yesterday a riot in a Foxconn plant in Taiyuan, China got out of control and police were called in to stop the violence. The reason for the unrest is unclear. The news articles coming out of China are stating that there was a disagreement in a dormitory between guards and employees. The articles are saying that 1000 workers were involved (out of the 79,000 in this facility)…and yet 5000 police were called in. This conjures up a disquieting image.

Warning: the following numbers are my guesstimates and are just a way of framing the problem. I have read that if Apple were to build the iPhone in the USA the cost would increase by $50 which is about 2 hours of fully loaded labor. Since that is just too much time to assemble, test and package the phone I am going to assume that the $50 includes space, logistics and even a tax differential so it is an “all in” number. The consumer price of the phone is about $650. If the gross margin is 50% (surely Apple doesn’t get all of this but it is spread amongst distributors/carriers) then the total cost of goods sold (COGS) is about $325 for material, logistics, overhead, depreciation, labor, etc. Adding $50 to this is an increase of over 15% to COGS which isn’t small change. What if that increase in cost could be offset with benefits that either manifest now or in the future? Could we find a way to bring some manufacturing back to the USA? What is the tipping point?

1. Grow your own workers – There is value in having access to trained and local electronic assembly and test technicians, engineers, manufacturing leaders. We have lost the training grounds for good manufacturing prowess in the USA. The last of us “hands on manufacturing nerds” are going to leave the workforce eventually and the next generation will not have experience on an actual manufacturing line.

2. “Next bench” experience for development engineers – The engineers who are developing the next big thing can walk down the line, ask questions, observe and learn from the people doing the assembly work.

3. Faster quality resolution – If a problem is found it is easier to be all over it if manufacturing is close at hand. Thus, faster resolution.

4. Faster ramp – Once the manufacturing expertise is solidified near the development and marketing arm it is easier to take ideas and ramp them to market. Less travel is needed. Less translation and more cooperation is possible.

5. Disruption insurance – Spreading out risk is a good idea. If all of a company’s manufacturing is in China and there is a labor strike, natural disaster, logistics event, fuel crisis you have a longer and more expensive recovery. Put your eggs in multiple baskets if you have the volume.

6. Good will and free advertising – Surely it is worth something to a company to get the good will associated with “made in America”. I know people who won’t buy an iPhone because of the “slave labor” association and noise. That is an unreasonable response since all phones and frankly almost all electronics are made in China. But there has to be some consumer value to “made in the USA”.  Maybe it would just be a willingness to buy the brand but not a willingness to pay more. But even that has value. Volume helps a company get to lower costs and more margin dollars associated with that volume helps cover more operating expense even if the margin per unit is lower.

7. Wild card government help – Maybe it is coming at the federal level. Surely there is help to be found at the state level. Look for it. Find a deal. Make a splash in the news. Start some momentum.

It is certainly time to take some manufacturing out of China and to spread it across the world. The risks are just too high in China to put all of your manufacturing in that one country. I believe it is time to bring some manufacturing back to the US. If the differential to bring work back is about a 15% hike in COGS with no mitigation let’s chunk the problem. Find a way for government to mitigate 5% with tax breaks or deals on land or capital. Be willing to eat 5% in the company if margins are good and if the future benefits can justify the investment. Pass on 5% to the consumer. Since this is 5% of COGS it is a smaller percent of the price to the consumer. Perhaps the impact shows up as a 2-3% increase. I think it would fly.

But what do you think?