Ever tour a continuous-casting steel plant, where molten-metal rivers flow through coolers as big as tanks, to roll out on lines like highways? Witness experts service five-DOF tilting-head spindles, putting them back within tolerances for aircraft-engine manufacture or pharmaceutical mixing? Weave through immaculate aisles of efficient machinery producing the latest ICs?
These are the heartening scenes of industry, and this Special Report on U.S. Manufacturing outlines its current state and continued success. To get a better handle on the situation, we asked four industry leaders working in the trenches about current market conditions.
Calculations differ, but the U.S. produces roughly 20% of global manufactured products, closely followed by China. About 12 million Americans (9% of the total workforce) are directly employed in manufacturing. Another five million are employed in manufacturing-related positions, though roughly half of the jobs lost since 2000 (two million) have been displaced by Chinese imports, according to the National Association of Manufacturers. With this in mind, we asked our panel:
What are the most important reasons for manufacturing products in the U.S.?
U.S. Manufacturing panel
Dr. Helmuth Ludwig, CEO • Siemens Industry Sector, USA
Pamela Kan, President • Bishop-Wisecarver Corp.
Jurgen H. Steuer, Executive V.P. • AMK Drives and Controls Inc.
Frank Langro, Director of Product Mgmt. • Festo Corp.
Steuer • AMK: For us, as a German manufacturer of high-tech industrial automation products, it is most important to be as close as possible to the end users of our products and support the OEMs in their efforts to provide high-quality and fast technical service. In addition, we maintain an extensive spare-parts inventory to reduce delivery times and transportation costs for our customers by maintaining a U.S. subsidiary.
Langro • Festo: Due to the configurable nature of many of our products, it is important that we have local manufacturing, assembly, and testing for our product range — to be able to react quickly to the needs of our customers.
For example, a machine builder might have to modify a machine during a run-off or an end user may need a part to minimize downtime. Having local production of many of our products ensures that we can help our customers in these instances.
Kan • BWC: Currently our product is not 100% U.S. sourced — but we are trying to validate some domestic suppliers in order to get our supply chain closer to us and reduce lead times. The U.S. is an important market because it is still the largest potential market for our products. Customer lead-time expectations are compressing, so being able to ship quickly is a strategic advantage.
Ludwig • Siemens: There are many advantages to manufacturing products within the U.S. and there's no doubt that manufacturing will play a critical role in moving this economy forward. The U.S. is already on the cusp of a manufacturing renaissance as we’re seeing signs that making things here has become more attractive, especially as the valuation of the dollar has made U.S.-produced goods more competitive.
Additionally, higher oil prices have increased the cost of shipping goods across oceans and made domestic manufacturing more appealing. Large domestic natural gas reserves are paving the way for low electricity costs in comparison to other countries and that makes production in the U.S. very competitive. Siemens is also seeing firsthand that its customers are doing more with less by investing in improved productivity of their plants. In fact, The Boston Consulting Group estimates that U.S. manufacturing workers on average produce about three times as much per hour as their Chinese counterparts because of greater use of automation and more efficient manufacturing processes.
As a global company, we have five main considerations when looking for a new place to manufacture products: Proximity to customers in leading markets, a highly skilled and educated workforce, linking our innovation engine to manufacturing sites (particularly for early-stage technologies), strong infrastructure for the transport of goods and services, and policies that encourage investment.
Productivity: What does it mean?
Bureau of Labor statistics on U.S. manufacturing productivity, which nearly always report reliable and steady increases, have come under question by leaders of the U.S. Federal Reserve Board.
More specifically, accurate differentiation is not currently made between productivity improvements spurred by making American facilities more efficient (often through automation and application of lean approaches), and those improvements resulting from supply-chain victories in purchasing cheaper or better import subcomponents. It begs the question:
If we could improve one thing about U.S. manufacturing, what would it be?
Kan • BWC: I would like to see the country and the state of California actually value what manufacturing does for our economy and for creating a strong middle class. I am frustrated that manufacturing is a “dirty” word. The manufacturing happening in our country is by far the cleanest and most technologically advanced in the world. We should be proud that we can produce products efficiently and with reduced impact to the environment.
I think both state and federal regulations and tax codes work against a strong and healthy manufacturing base: We now have one of the highest corporate tax rates in the world. Japan’s is even lower than ours.
Our government also needs to more strongly protect the intellectual property of U.S. companies. The current patent process needs a complete overhaul.
Steuer • AMK: From our perspective, the rate of speed in adapting to new technologies is lacking. This might be due to fear of taking too much risk in exploring new and better technologies, or a lack of financial and human resources to support new technologies in the industrial sector.
There is a big disconnect between the individual trying out new technologies such as the iPhone and the corporate world updating technologies on the factory floor. Yes, there are some companies doing this and they are ahead of their competition — but many companies still operate like they did 30 years ago, and wonder why their plants are not efficient and can’t compete on a global level.
Ludwig • Siemens: There continues to be a skills gap among American workers. We simply don't have enough engineers, skilled tradespersons, IT professionals, and production workers to fill the increasing need for high-tech production and engineering roles.
We’re partnering with communities across the country to narrow this skills gap, investing more than $500 million in job training and education programs globally — about $50 million in the U.S. on K-12 programs. We're also partnering with state and local governments and with universities, community colleges, and vocational schools to develop a talent pipeline.
We need to see a continued emphasis on STEM education at all levels, including the public and private sectors, to encourage the next generation of highly skilled and educated manufacturing workers.
Langro • Festo: Manufacturing still has a "bad rap” in many circles of U.S. society. What many people don’t realize is the level of education required to operate the modern equipment found in large manufacturing facilities and the career opportunities that are present. With the resurgence in U.S. manufacturing, many companies are having a hard time filling these skilled manufacturing positions. Educational programs that give people the skills for careers in manufacturing are needed. We, along with other companies and organizations such as the Society for Manufacturing Engineers, support programs in high schools and community colleges to develop the next generation of workers.
Varied markets, rising technologies
In recent years, the application of mechanical devices such as gearboxes, bearings, and linear devices like ballscrews has generally followed the GDP growth of the country at hand. As expected, China’s growth has meant an increasing percentage of the world market for that country.
There are exceptions: U.S. (along with European and Japanese) motion designs are often still the go-to choice for mission-critical or safety-related applications.
Significant investment in energy-efficient designs has occurred over the last two years, spurred by the Energy Independence and Security Act (EISA) and its requirements for more efficient motors. Various IE3-efficiency motor types are increasingly being applied in everything from heavy machining applications to packaging designs — and the U.S. leads the way in this department. IE2 efficiency legislation in Brazil and the European Union followed, and China is expected to institute IE2 efficiency requirements for certain motors next year.
Segments in the U.S. hardest hit by the Great Recession include those associated with what some call the Third Industrial Revolution — that related to electronics: Robotics and semiconductor industries in the U.S. experienced up to 20% losses in revenue after 2008. That said, some indicators are showing a slow turnaround — and material handling, plastics, packaging, medical, and defense all held up surprisingly well.
Part of the new face of U.S. industry is increasingly smart, networked systems: At least 8 million Ethernet and fieldbus nodes are installed yearly, and that number is expected to climb. More specifically, motor-based motion designs that are either servo or VFD driven have led the charge, with four million drives to be networked by 2015.
Machine automation as a whole follows the same trend, with U.S. and Chinese markets spurring 9.5% growth in global industrial automation; advanced features and functionalities abound, though cost is prohibitive for some applications. A smaller sliver of automation, industrial-PC-based control, is still something of a relative rarity in manufacturing, but is increasingly being applied where ARM-based (custom designed and licensed) system-on-chip embedded controls aren’t already dominating.
Meanwhile, robotics are proliferating around the globe, but we remain relatively behind the times in this department — as the U.S. market is still only equal to that of Germany’s. Last year, roughly 165,000 industrial robots were installed worldwide (an all-time high) and China, Germany, and the U.S. led with growth between 39% and 51%. Japan (with 28,000 industrial new robots) and South Korea (25,500) remain the biggest markets, with decent increases reflective of the global economy.
According to our panel, do these statistics match up with what engineers are seeing — and what they expect of the economy for the next two to three years?
Langro • Festo: We are cautiously optimistic. Once the election is decided and the uncertainty regarding tax codes and regulations settles down, businesses will be able to make investments that some have been holding back on. Of course, some industries will slow down. For example, it will be hard for the automotive industry to continue the way it’s going now and we expect a slowdown in the next two years, but other industries like food and beverage should see steady growth.
Kan • BWC: There are many variables and it is hard to predict how the economy will fare over the next couple of years. As we become more of a world economy, the U.S. alone is not responsible for the health of our markets.
The election has created a level of uncertainty that has cooled some sector growth, but I hope that once we are past the elections we will continue to see slow but consistent growth in our markets over the next few years.
Ludwig • Siemens: We’re cautiously optimistic about global economic growth, and anticipate a moderate increase in sales. We expect to defend our position (despite the weakening macro picture) with moderate growth within the U.S., and expect the North American market to provide many opportunities.
Steuer • AMK:We first need to get past the election in order to estimate the impact of the coming tax increases and health care reform. After that is clear, we will head into more positive territory and not back into a recession. We all have learned over the last four years how to deal with adversity and have made the necessary adjustments in order to weather another storm. There will be ups and downs along the way, and it will be a slow go, but in the end we will see a pick-up on all fronts.
Both globalization and automation continue to change the field — and political ramifications are unavoidable. From 1950 to 2010, the finance, insurance, and real estate (FIRE) industries have grown from 10% to 21% of U.S. GDP, while manufacturing’s GDP share shrunk from 25% to 11% over the same time period.
Similar patterns are evident in other developed countries. A fascinating analysis of this trend can be found at sister publication’s Industry Week feature on history wrecking U.S. manufacturing, detailing Pivotal Decade: How the United States Traded Factories for Finance in the Seventies, by historian Judith Stein.
The Reagan administration’s policies kept inflation down and interest rates high, for a deep recession that eroded U.S. manufacturing; next, Clinton’s NAFTA amplified outsourcing trends. As a result, between 1980 and 1995, starting salaries for industrial, electrical, and mechanical engineers dropped an average of 4%.
It begs the question of whether or not the current policy focus on innovation (typically expensive) over manufacturing (generally more profitable) is prudent for long-term success.
In fact, annual domestic R&D spending is roughly $400 billion. An editorial on innovation by Machine Design’s Leland Teschler explores the specifics of how that money is spent. Roughly half of all governmental spending on R&D is through the defense budget — $81.5 billion (11%) of total Pentagon spending.
If cuts to the Pentagon budget are enacted, how might that affect manufacturing?
Kan • BWC: I think this would damage the U.S. manufacturing sector. Defense contracts support a huge supply chain and cuts would be felt all the way through the supply chain. Some smaller suppliers may not be able to withstand deep cuts.
Defense contracts also support innovation and R&D, which pumps more money into the economy long term.
Steuer • AMK: That is a very tough question. The first impacts would be felt in certain parts of the country, which might see severe effects that could then spread to other locations.
On the other hand, defense cuts could free up resources in other areas of manufacturing and spur innovations learned from military technologies that can be shared.
Recall the words of Henry Ford, “A machine does not belong to the man who buys it or to the man who operates it, but to the public — and it advantages the worker and the proprietor only as they use it to the advantage of the public.”
Acknowledging the relationship between manufacturing and society, what can be done to encourage U.S. innovation and competitiveness?
Ludwig • Siemens: Constant innovation is the only way to stay ahead of competitors, and this happens through investment and determination. We’ve co-located manufacturing sites with R&D facilities, and invest approximately $1.3 billion annually in R&D.
Also critical is commitment to creating an environment in which STEM education is valued and rewarded.
Langro • Festo: Education is key to sustaining the resurgence we have seen in U.S. manufacturing. Making programs available to train people to join the manufacturing workforce will be vital. This won’t be achieved through legislation alone, but will only happen if companies commit to supporting these programs. Ultimately, many of the people coming from these programs will be the next leaders within these businesses, keeping the U.S. competitive.
Kan • BWC: Our educational system must have a focus on STEM education.
Beyond that, we need an educational process that allows students to have hands-on experiences, and the chance to apply and explore personal aptitudes for STEM career paths. We need to value engineering and manufacturing as a career choice. Lastly, the government should not create barriers to companies investing in innovation. Government regulations and tax policies should have sunset clauses or set review periods. Too often, out-of-date regulations exist though they no longer make sense for the world economy or current technology.
Steuer • AMK: We need to pursue three vital strategies to encourage U.S. innovation and competitiveness:
First, creative workforce education on all fronts, from elementary school to college, is vital for the long-term revival and survival of U.S. manufacturing, innovation, and competitiveness.
Second, de-stigmatizing manufacturing jobs on all fronts is vital, from the pipefitter to the engineering disciplines. Only through hands-on experiences in the manufacturing sector can we stimulate innovative ideas and create a competitive advantage from the bottom up.
Third, bring more manufacturing back to the U.S. and make it more attractive for multinational companies to manufacture here than overseas.
These are not short-term fixes, but long-term strategies. There are no easy or inexpensive ways out. It might take a generation or longer to see measurable results, but if we do not invest in these goals now, we will lose advantages we still have, while others learn from our mistakes, shortcomings, and oversights.
To be sure, we have innovative and competitive companies in the U.S., but not enough — as should be expected from the greatest nation in the world. We should be leaders in many more industries.
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