Tuesday, January 24, 2012

The conundrum of manufacturing in the USA

The Atlantic has published a very interesting article on US manufacturing industry, and why it poses such a challenge for both businesses and workers. Here's an excerpt.

In the past decade, the flow of goods emerging from U.S. factories has risen by about a third. Factory employment has fallen by roughly the same fraction. The story of Standard Motor Products, a 92-year-old, family-run manufacturer based in Queens, sheds light on both phenomena. It’s a story of hustle, ingenuity, competitive success, and promise for America’s economy. It also illuminates why the jobs crisis will be so difficult to solve.

. . .

I came to think of Standard Motor Products as an enormous machine that regularly scans every tiny part of every engine in every car on the streets of the United States to answer two closely related questions: What makes sense to manufacture here in the U.S., and what should be made in a low-wage country, like Mexico or China?

Standard’s customers, the big auto-retail stores and wholesalers, see the company more as a distributor than as a manufacturer. They expect Standard to be able to deliver any part in its categories — known as engine management and temperature control — to any place in the U.S. in less than 48 hours. Standard doesn’t sell the big stuff — batteries, engine blocks — but it does sell many of the cables and sensors and electrical components that surround those large things. If you look at your car’s engine, Standard has, in stock, many of the small parts that you can’t identify — for your car and for every other make and model with more than 10,000 vehicles on American roads. Standard’s enormous warehouse in Disputanta, Virginia, has tens of thousands of different sorts of parts ready to ship at any moment.

Standard makes only about half of the parts it stocks; it buys the rest from other manufacturers, most of them in China. The company’s engineers are constantly reviewing the parts they buy, to see whether they could make the parts more cheaply in-house. Not infrequently, Standard finds that by doing so it can control costs, quality, and delivery speed far better, and thus can better serve the superstores.

. . .

These meetings can lead the company to move dozens of jobs to another country or, in some cases, to create new jobs in the U.S. When Standard decided to increase its fuel-injector production, it chose to do that in the U.S., and staffed up accordingly (that’s how Maddie got her job). Standard will not drop a line in the U.S. and begin outsourcing it to China for a few pennies in savings. “I need to save a lot to go to China,” says Ed Harris, who is in charge of identifying new manufacturing sources in Asia. “There’s a lot of hassle: shipping costs, time, Chinese companies aren’t as reliable. We need to save at least 40 percent off the U.S. price. I’m not going to China to save 10 percent.” Yet often, the savings are more than enough to offset the hassles and expense of working with Chinese factories. Some parts—especially relatively simple ones that Standard needs in bulk—can cost 80 percent less to make in China.

Nearly every manufacturing company in the U.S. goes through this same process: regularly, carefully studying its products to see if they could be made more cheaply in a lower-wage country. The calculation constantly changes, because the world changes. Sometimes that’s bad news for American industrial workers, other times it’s good news. Workers in China and Poland and Mexico, for example, have become more highly skilled, and their factories are now able to produce more-precise goods than they could a decade ago. But at the same time, the wages of those workers have risen, as have shipping costs. Unrest in northern Mexico or an oil-price spike caused by trouble in the Middle East can encourage manufacturers to keep production lines in the United States. The development of increasingly complex machinery can do the same: because expensive machines are more likely to pay off when they can be counted on to run 24 hours a day, every day, the availability of steady electricity, for instance, is essential.

Yet however chaotic and contradictory these forces can be at any moment, over the years and decades they point in one direction: toward fewer jobs for low-skilled American workers. People who can be replaced by machines or lower-paid workers somewhere else, eventually will be. Unless people like Maddie learn how to do things that computers and overseas workers aren’t able to do, they are likely to lose their jobs one day.

There's more at the link.

The business of manufacturing is a much more complex subject than many people realize, and this article does a pretty good job of summarizing the many factors involved. It's fairly long, but it repays your attention. Highly recommended reading.


1 comment:

Graybeard said...

A long and complex piece on a complex subject.

I've worked in manufacturing for almost my entire adult life; first as an electronics technician, eventually as an engineer. If there's one constant, it's the refinement of processes to run more automatically and require fewer but higher level people. (I suppose the other constant since 1975 has been people telling me we don't manufacture anything in America anymore).

If an engineer from 1975 were put in suspended animation and brought back today, they would look in today's typical electronics components and recognize nothing. After a while, they'd have some recognition, but the it wouldn't be obvious.

Thanks for the link.