Sunday, October 18, 2009

The Changing State of U.S. Manufacturing

Everyone has likely heard about the shrinking manufacturing base in the United States especially as we go through the current economic downturn. We all know people affected by organizations downsizing and off shoring jobs. It has been said that we have become a service based economy.

In a recent Industry Week article by Ralph Keller, the president of the Association for Manufacturing Excellence, he found that the data tells a different story. While the manufacturing sector has shrunk over the last several decades there is an upside. As a results of continuous improvement efforts manufacturing value-add has grown.

The number of people employed in manufacturing companies in 1977 was over 18.5 million but employment declined almost 29% by 2005 to just over 13 million. The number of hours worked by production operators also declined by the same amount to just over 18 billion.

Over the same period, the value added by manufacturing operations in the United States increased 377% from $585 billion to over $2.2 trillion, and manufacturers' sales increased 349%. The combination of increased value-add and reduced production hours results in the manufacturing value-add per production worker hour increasing by 530%.

This is really a case of increased productivity, not a shrinking manufacturing base as a result of continuous improvement and technological innovation. None of this would be possible without two key elements in businesses today. The first is the availability and use of capital to drive innovation in technology.

During the 29-year period of the Census data, capital investment in manufacturing companies increased from $51.9 billion to more than $128.3 billion, almost 2.5 times the investment in 1977.

The second element is the widespread adoption of Lean Thinking to improve our capability and efficiency in terms of value to the end customer.

Increased capital investment and increased productivity has resulted in less manufacturing jobs. But for those employed there is an upside in terms of higher wages.

The wages paid to production workers rose from just over $157 billion in 1977 to almost $337.5 billion in 2005. The average hourly wage (not including benefits) rose from $5.89 per hour to $17.70 an hour over this period.

The advantage the United States has over other low-cost countries is the access to higher-skilled workers with knowledge of continuous improvement methodologies using more capable equipment. This means the future of manufacturing here is value added products with higher profitability for US companies and higher standards of living for those US workers.

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