“Has America forgotten how to manufacture?”

In a recent conversation with a manufacturing finance entrepreneur, this is what he asked.??Specializing in supporting SMEs with financial services offerings through his start-up, he recently became involved with manufacturing, having come from the public policy world, identifying an opportunity in the manufacturing operational needs and described his startup’s significant early success with SMEs eager to address long neglected or lagging financial controls and management issues.?

In particular, he was amazed at what seemed to be a lack of operational controls and/or rigor in understanding how to scale operations while capturing incremental profits and this extended to all aspects of operations from supply chain to new equipment deployment and technology selection as well as to personnel training. ?In general, he described the input costs of manufacturing and their control.

Coinciding with the post-Covid boom in manufacturing demand, a “one off” to be certain, he was particularly shocked by how, in most cases, the significant growth in sales had resulted in decreasing profits. ?Most alarming was the inability of many of his clients to offer explanations or attributable factors for this, which are many and complex of course, and resorting to vague generalities like “supply chain”, “worker shortage” or “geopolitical factors”.?In his observations, there are no metrics or understanding of how each of these factors impacted the particular company itself, if it indeed they do, or any strategic thought offered as to how to mitigate those impacts even though the data available, while incomplete, was there to interpret and act upon.

“Has America forgotten how to manufacture?”

Reflexively, I chucked and replied Yes!!!

This is not true of course but it feels like that sometimes and reflecting on this further perhaps the true answer is, “it depends on what we mean by “manufacturing””.

To a follow-on question in this conversation as to how to address this, I suggested that the single most important action his SME clients should take is to hire an experienced Industrial Engineer to map out and define the current state of their process.?With that definition and analyzing whatever data is available, they will be able to take action to address all their manufacturing issues based on actual data and the root cause of most if not all their deficiencies will become more visible.

How we got here:

Depending on whether we choose to use Ross Perot’s 1993 "giant sucking sound" famous quote, regarding manufacturing going to Mexico if NAFTA was enacted, or China's 2001 accession to the WTO as a reference point, US manufacturing was outsourced in the past 20-30 years.??

Not all manufacturing of course, as the vast majority of OEM manufacturing remained in the US but the vital backbone that supports the OEMs, namely the SMEs were significantly impacted and even devastated.??This had the now visible effects of;

-?????????Arresting all manufacturing process developments,

-?????????Eliminating most skills training

-?????????and greatly diminishing innovation for most SME processes as in-house equipment, tooling, methods, and operational development groups were rapidly disbanded and/or outsourced….?In some cases, off shored themselves.?

Effectively “freezing” basic US manufacturing in time, roughly into the 1980s-1990s time period.

Such developments that did occur were happening in the now outsourced, offshore plants and subject to the constraints and factors of those conditions which may be generalized to be:

-?????????Abundant low-cost labor,

-?????????Minimum health and safety standards,

-?????????Minimum environmental regulations and

-?????????Other conditions incompatible with US manufacturing operating conditions.?

These domestic factors were the main reasons for outsourcing to begin with but the further manufacturing process developments in that intervening time cannot be easily integrated back into the US and SME manufacturers have had to indeed “re-learn” how to manufacture.??Catching up on the fly as it were.

Complicating matters, those SMEs that did survive this period did so by:

-?????????Generally, under capitalizing their operations,

-?????????Falling behind in technology,

-?????????Turning the once high paying manufacturing jobs where one could work in and retire from one company, into low paying, low skill jobs with minimum job security as having to close shop was a contract cancellation away from the OEMs that they continued to service.

In this generalized environment, all innovation fell behind but worse still, with the inability to predictable “count on the future” manufacturing knowledge and expertise that had been painstakingly built up in the post war decades, simply walked out the door at retirement age.

The Gap:

So we might say there exists an SME manufacturing process development gap between the time that US manufacturing was outsourced and now, when manufacturing is once again at the forefront for many reasons, including the trade wars, re-shoring, renewed public investments, supply chain rationalizations, near shoring and other considerations including the availability of information and other technologies which mitigate many of the justifications to outsource in the first place.

This gap will take some time to bridge but efforts, false starts, and all, are well underway as the free market always adjusts to changing conditions be they regulatory, technological, or even singularities that can be profitably exploited.?This gap is unique for each SME manufacturer to the extent that they have survived the outsourced period and may have kept up, as best as they could, in some respects better than others, during this difficult period and may have fared better in some attributes vs. others but this gap still exists for all SMEs.

What’s to be done:

Whether overtly or unconsciously most SMEs are aware of this gap and efforts are well under way to address and bridge this gap with various successes and setbacks.?As such the reflective answer of “hire an Industrial Engineer”, still holds but may be expanded into more detail as follows:

-?????????Value stream map the entire process,

-?????????Map and understand all material and workflows,

-?????????Rebuilt an in-house tooling and methods capability, (even if only a technology assessment capability to properly specify-develop-purchase new productivity tools).

-?????????Eliminate the “many hats” functions and split them up into as few “hats” as practicable.

-?????????Re-engage with customers to start to focus and invest in mutually profitable, long-term capabilities to be further refined and customized for the SMEs unique offerings.

-?????????Re-engage with employees and invest in training,

-?????????Other foundational actions …

Bridging the gap is a “construction project”, not a “transformation project”, and it requires analysis, planning and execution of patient but often hard work.?You will know you are heading in the right direction if work flows and worker distances are getting shorter as well as, if the cycle time between order and payment is also getting shorter.?These shorthand metrics say a lot about process efficiency!

The adoption of Industry 4.0 and Digital Transformation initiatives and technologies will likely be a significant part of the solution …. But … that’s where the solution ends up, Not where it starts!?

Resist the urge to look for this or that transformational technological solution to rationalize/fix the manufacturing process but instead focus on fully understanding and simplifying the process before investing in instrumenting it for better control. Identify the problem first and the solution will present itself.?Otherwise, there’s a risk of instrumenting and automating a flawed process.

The steps generally suggested are basically all the elements of a “turn-around” story.?In this case, we are speaking about the turn-around of the entire SME backbone of manufacturing so that it can once again become responsive and agile enough to produce any volume of product, low or high, as well as any level of mix, low or high, and to do so profitably and predictably.

Since most SME manufacturing companies are either privately owned by individual(s) or through Private Equity firms, following the generalized investment into bridging the gap, as described her, is generally possible as this is “patient” investment unlike large publicly traded companies that have to operate under the scrutiny of quarterly reporting to the markets.

“Has America forgotten how to manufacture?”

How is your SME manufacturing company bridging the Gap?

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