How Manufacturing Firms Are Fighting the Recession
As companies have felt the economic squeeze during the past three years, due to the recession, valuable lessons can be learned from the manufacturing sector. Any entrepreneur should learn what manufacturing companies are doing to compensate for these hard times.
First, however, many argue that people place too much emphasis on manufacturing as the primary source of job creation, technological fluidity, products with tangible value and domestic exports. While manufacturing is a vital sector, these arguments are correct.
The US services sector is a great example. Services, like manufacturing, are also exportable, despite the common misconception. Like manufacturing, they also create steady jobs where middle-class Americans can make a profitable career. Services are arguably better at switching technologies than manufacturing plants are. In essence, manufacturing isn’t the end all be all for an economy. Other sectors are just as important.
That said, here are two objective reasons why manufacturing is going to continue to profit despite the recession.
1. Outsourcing is Decreasing. In January, 2010, Grant Thornton of Supply Chain Solutions published a survey showing that US manufacturers are reshoring (opposite of outsourcing) to the United States. In 2009, 20% of companies brought operations closer to the US, while 59% actually set up shops in the continental United States once again.
During the 1990’s and the early 200’s, outsourcing made more sense. Transportation costs were lower, as oil was cheaper, and labor rates in developing countries weren’t rising as quickly as they are today.
Today, the reasons for not outsourcing are clear, as reported in the survey. Component and material prices are increasing. Labor rates in China are rising. Transportation costs are increasing. There’s a variety of political instability. As the dollar drops, more exchange rate variables increase costs. Natural disasters cause transportation/supply disruptions.
It’s obvious that outsourcing isn’t the best option in a global recession with a weak currency.
2. Lean Manufacturing Methods are being Adopted. Toyota pioneered a new variant to Henry Ford’s assembly line method of producing T-model cars. The “lean” manufacturing technique is just that: cutting excess off your production line.
Interestingly, the Japanese had a few different categories of waste. Muri (“overburden”) refers to unreasonable work that is assigned to people or machines. Lifting heavy objects, working faster than normal, dangerous tasks and moving things around are all avoidable, if one knows how to remove them without throwing a wrench in the works. Mura (“unevenness”) deals with unnecessary overhead and excess inventory—extra parts and products lying around that no customer has demanded yet.
Too much mura causes more muri, as workers are forced to move and work around the extras.
Finally, Muda is considered to be “non-value-adding work.” It refers to the monotonous physical movements of the workers on the assembly lines (rememer, we’re talking about manufacturing). Shigeo Shingo, a Japanese industrial engineer for Toyota, says that “only the last turn of the bolt tightens it. The rest is just movement.”
Reducing muda improves efficiency by cutting down on production time, and thus, the amount of time that for which workers deserve to be paid. Time, after all, is money.
Bringing it back to the United States, our manufacturers are adopting Toyota’s champion method of identifying and eliminating waste. Fox News reported on April 29 that “Leaders in academia, nonprofits, hospitals and even the U.S. Navy have all now embraced the lean concept, which has even been applied to the production of weapons systems.”
General Electric has been able to shave four hours off of the production time for their refrigerators—the equivalent of $60. Herman Miller, a furniture company based out of Michigan, has quadrupled productivity by adopting the Toyota system.
And so, with these common business sense ideas in mind, US manufacturers continue to demonstrate the resilience, determination and ingenuity of the American worker. Imagine where we’d go without Federal regulation tying our hands behind our backs.
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