With the conclusion of major military activities in Iraq and weakened U.S. dollar abroad the future of U.S. manufacturing looks like it may be improving, albeit slowly. We believe that small and medium sized manufacturers who make the right business decisions will be positioned to profit from the improved economic climate in the coming years.
Many manufacturers who thrive and survive will make key infrastructure and technology shifts that might seem like “bet the business” moves. But in today’s climate, it’s these shifts that will enable companies to differentiate themselves from the pack and improve margins and marketshare. For instance, according to Business Week, Timkin Bearings invested $450 million in 1985, or roughly 2/3 of the company’s net worth, to build a new alloy steel plant. At the time, the investment in the new facilities helped decrease the amount of labor in each shipped ingot to roughly seven hours. But today, with additional investment in process and technology at the plant, it takes less than one labor hour to produce the same ingot. With reduced manufacturing costs like this, it’s no wonder Timkin believes than when you apply this “sort of technology, you can manufacture anywhere,” including the U.S.
But driving cost advantage is only one means of differentiation. The ability to rapidly innovate and introduce new products is also a potential strategy. Timkin invested in another plant that enabled the company to reduce the time to introduce new, customized products from 8 weeks to 24 hours. Reductions like this change the competitive landscape, making it possible for manufacturers to compete on lead-time and product, not just price, improving margins and cementing key customer relationships.
In the cases where it is impossible to compete against manufacturers in low-cost regions such as China, U.S. manufacturers must find a new place in the value chain. For example, in the highly commoditized electronics manufacturing market, Motorola has opted to source most of its cell phone components and assemblies from Asia. But the company relies on local, U.S. suppliers to create value in the later stages of manufacturing and distribution through a process known as postponement. The company relies on U.S. dealers, distributors and job shops to complete the assembly and packaging, localizing cell phones for individual market segments. This enables Motorola to more rapidly adapt to changes in market trends and local demand and provides small U.S., manufacturers with new types of opportunities.
Increasingly, larger OEMs are looking to trusted suppliers to outsource key functional areas of the supply chain. Nimble small and medium sized businesses will be able to profit from new contracts that focus on supply chain pain-points that offshore competitors cannot address effectively. These activities might include local packaging and distribution, warehousing and inventory management especially VMI (vendor managed inventory) or JIT (just in time) programs, maintenance and repair, and after market service parts management—or production.
In the global economy, U.S. manufacturers certainly face many new challenges. But with these challenges come new types of business opportunities. Those organizations that make the right business decisions will be best positioned to exploit these market opportunities. Sometimes this will require making difficult choices, shutting down production lines, and making investments in new strategies that might seem auxiliary to the business. But it’s precisely these types of moves that will enable small manufacturers to compete and win in the global market. Think globally and add value locally.