Manufacturing’s Wake-Up Call

Booz & Company, a global management consulting firm, published the report “Manufacturing’s Wake-Up Call” in August of 2011 that discusses the future of U.S. manufacturing.

“A debate of the future of U.S. manufacturing is intensifying. Optimists point to the relatively cheap dollar and the shrinking wage gap between China and the U.S. as reasons the manufacturing sector could come back to life, boosting U.S. competitiveness and reviving the fortunes of the American middle class. Whenever production statistics in the U.S. surge, it seems to bolster that hope; as New York Times columnist and Nobel laureate Paul Krugman put it in May 2011, ‘Manufacturing is one of the bright spots of a generally disappointing recovery.’”

The report goes on to say that U.S. manufacturing is at a pivotal moment at which we could grow from producing only 75% of what we consume to 95%. However, if we neglect this opportunity we could see our output reduced to less than 40% and could “erode past the point of no return.”

The report encourages manufacturers to look not only at labor costs and currency rates as determining factors to offshoring/reshoring, but to consider these four other points that are playing a growing role in manufacturing decisions.

  1. “The skill level and quality of factory employees, especially for high-tech facilities.
  2. The presence of high-impact clusters, in which many companies can learn from one another and innovate more readily.
  3. Access to nearby countries with emerging consumer markets and lower-cost labor (for the U.S., this means building a future with Mexico).
  4. A reasonably competitive regulatory and tax environment (for the U.S., this means simplifying and streamlining the current tax and regulatory structure).”

Furthermore, the question of why manufacturing matters is addressed by pointing out several reasons: “its economies of scale, impact on innovation, and multiplier effect on the rest of the economy.” Along with an analysis of the history of U.S. manufacturing the article provides a four step strategy to “provide the greatest momentum” in the resurgence of manufacturing.  These steps include attracting the best workers, investing in high-impact clusters, building a future with Mexico, and simplifying/streamlining the tax/regulatory structure.

“Every country needs creative, engaged, and profitable manufacturers if it hopes to have a healthy economy that supports the aspirations of all of its citizens. If you are a manufacturing leader in the United States, you shouldn’t have to go it alone. You should have support at all levels of government and culture — from Washington to the local cluster. Like all business people, you must come to terms with the fact that the world has changed. But as the data shows, the U.S. has a strong base to build on. The future of U.S. manufacturing in general, and of your company in particular, can be extremely bright. The current wake-up call represents an opportunity for you to clarify your strengths, channel your investment, and create your own distinctive direction.”

For further details the full report can be accessed here.