PERSPECTIVE: MANUFACTURING AND THE MIDDLE CLASS

President Obama constantly tells us that the “Middle Class” is in terrible shape and the people who qualify as middle class must be helped in every way possible with US government financial support. His idea is that the middle class is in such bad shape that we must take money away from those who could invest capital to make jobs for the middle class and instead just give that money to the so-called Middle Class.

Now, if Obama were really serious about helping the middle class, he might have noticed the Marcellus Shell development which will provide us with an abundant supply of the lowest cost most environmentally friendly energy on the planet. This combined with the development of new manufacturing technology is causing manufacturing to return from off shore. Both could be accelerated if Obama would get his government out of the way by eliminating unnecessary regulations and taxes on both the developers of our huge reserves of natural gas and the investors in the new manufacturing opportunities. This is what really would help the Middle Class!

The reasons why manufacturing is actually returning to the United States after a three decade hiatus are:

• The United States leads the world in digital technology which reduces the speed from product design to manufacture.



• We are learning that when manufacturing is separated from design and engineering, which are evolving with the needs of the market, manufacturing cannot stay apace.



• The natural gas windfall in the US reduces the cost of energy for manufacturing and also produces raw materials for the chemical industry.



• US labor productivity continues to grow, thus becoming an ever smaller part of manufacturing cost



• There is a better relationship between management and hourly workers who play a larger role in product and engineering design



• The cost of labor is rising in China and other low labor cost countries



• The price of oil is rising, thus increasing the cost to ship product from China and other off-shore manufacturers to the US

Much of the information that will be provided in this blog about the return of manufacturing comes from an article in the December, 2012 issue of the Atlantic written by Charles Fishman. The article states that as recently as five years ago the conventional wisdom held that there was little short of a hamburger that could be manufactured competitively in the United States. But there is a major flaw in the idea of off shoring. It has been thought for several decades that engineering and design could be done in the US and the actual assembling of the product could be done anywhere. It turns out that when you separate assembling from engineering and design to chase low labor costs, you lose the evolving development of manufacturing itself. This occurs slowly at first but the gap grows and you never get back. What is dawning on smart American Companies, according to the author, is that when you outsource the making of a product the whole business goes with it.

The article highlights GE’s decision to bring back their GeoSpring water heater from China to Appliance Park.”. Only a few years ago GE was trying to sell Appliance Park, but now, after years of offshore production, General Electric decided to move much of its far-flung appliance manufacturing operations back home. Fishman states that GE hasn’t just changed course, they have “pirouetted”.

A problem became apparent from the start. GE had forgotten how to make the GeoSping heater. So, a new style team was assembled and assigned to develop and manufacture the product. The team consisted of design engineers, manufacturing engineers, line workers and staffs from marketing and sales. Management was deliberately absent. The team realized immediately that the manufacturing design was all wrong. So they went to work to redesign how the product should be made. The final result was that they cut the cost of materials by 25% and cut the work hours to assemble the product from10 hours in China to two at Appliance Park. Consequently, GE could set the retail price 20% bellow the China-made retail price.

The article reports that there are other factors favoring producing a product in the US beyond just costs. Historically the design of a product would last seven years or more. Today, that time has shrunk to about two to three years. It turns out that factories have a learning curve also. It takes a while to settle into a new product or design. This means that a factory is just getting the hang of a new product just as a new product or design is being introduced. What the companies are finding is that this is virtually impossible to manage that problem if the assembly is off shore.

There is another factor that enters into the equation of where to manufacture a product. That is the need to shorten the time from a product’s inception to when it hits the market. Three dimensional printing is a new technology of computerized molding to produce a prototype on the basis of designs on a computer screen. With this technology a prototype can be produced in a matter of minutes, and variations can be tried to eliminate flaws. Consequently, factory management can determine the cost the next day.

Another major difference between the situation today and that of 15-20 years ago is the relationship of management and labor. The atmosphere is different. Management is aware of the problems of offshore production and therefore tries to create a better workplace environment. Importantly also, hourly workers play a larger role in the decision making.

There is an example from the article that epitomizes how the new team approach improves manufacturing, and it is worth mentioning. GE wanted to try to make a dishwasher more competitively. So they assigned a team at Appliance Park to see if they could develop a better lower cost dishwasher. Hourly workers were included in the team. As originally designed, the door had four visible screws. The marketing people wanted the door to have no screws. The workers liked the idea. Four screws takes a lot of assembly time.The engineers came up with a design with one hidden screw and a rod. The whole thing was sleeker, and cheaper. It would not have been possible, however, without the team members all located in the same place.

It turns out that GE is not the only company that is moving the manufacture of many of its products back to America. In-sourcing solves a number of problems. It simplifies transportation; it gives people confidence in the security of their ideas; it is easier to manage costs; and it is easier to get the right product to the right customer.

Last October, my nephew, Barron Smith gave me a chance to visit four machine shops in the Dallas area where he also operates such a facility. During this tour I was able to see first hand the latest cutting and shaping technology for manufacturing parts. This is something everyone should see, because all of the opportunities and problems that American manufacture has to deal with are on display. The new technologies for forming, shaping and cutting a piece of material to meet some specification are just amazing. And these shops are not just working with ordinary iron or steel anymore. The materials include complex and constantly changing alloys and even plastics. The sophisticated use of the computer in managing some of the complex machinery is inspiring, and one gets the feeling that we “ain’t seen nothin’ yet”. As a consequence of this, the workers must be skilled, and more than that, they have to be able to adapt to new methods of working with newer materials such as alloys and plastics as well as the addition of computerization in the operation of the machine itself.

Which leads to a problem that the shop owners have, namely, how to get and keep workers who are capable of doing more and more sophisticated tasks? Each manager in the plants lamented the fact that he cannot see where the new employees will come from considering the state of our K-12 system and the under supported Vo-tech schools. One of the owners has become so discouraged about his that he has set up his own Vo-Tech school right on his plant site with a professional educator to head it up!

In summary, American manufacturing is making a come back, and it could become bigger than ever before. We are witnessing a virtual revolution in the creation of and manufacture of products which will lead to more good jobs in America than ever thought possible only a few years ago We still have innovative persons at all levels in the process as the GE example shows, and such innovation is not exclusively held by the big companies such as GE. I observed the same thing in our machine shops in Dallas. What is new is that the jobs will be more sophisticated than ever before as more and more the workers become an integral part of the designing of the product. This means that these will be well paying jobs for those with the skills, and who are willing to work.

Finally, it would help if the main stream media and our legislators would take the time to catch up with this exciting and vitally important development. For example, if our legislators understood these principles, they could help by removing barriers that thwart the development and expansion of US energy development and manufacturing. Tax and regulatory barriers that make American manufacture less competitive globally should be removed. It would also help if our school system placed more focus on VoTech and less on college where only half of the graduates can find work commensurate with their training. Research that helps expand manufacturing efficiency should be supported and even subsidized where appropriate. Such cooperation between industry and government would do more to expand the middle class than anything else President Obama has in mind. Moreover, with the development of low cost energy and if manufacturing comes back, our economy will start to grow with the attendant rise in revenue which will help ameliorate our debt problem.