Authored by:
Leslie Gordon
Senior Editor
leslie.gordon@penton.com
Twitter @LeslieGordon,

Key points:
• The ISM manufacturing index has been over 50 for 27 months in a row.
• Issues with offshoring can include quality, communication, and long lead times.
Resources:
Ace Controls Inc.
Association For Manufacturing Technology
Mazak Corp.
Mitrpak

Manufacturing in the U. S. has long been thought of as the iron backbone of the country’s economy. But with the advent of the Internet, other cultures could easily view the American consumer lifestyle and wanted to emulate its success.

Global competition became increasingly fierce, especially with China and then emerging economies such as Malaysia, Vietnam, Korea, Russia, and South America.

As a backlash, individuals in our now clobbered economy have resurrected the “Made in America” mantra. But exactly what does this phrase mean in a global economy? Businesses make money using the approach that makes the most sense to them. For example, some foreign-based companies with large plants located here hire many U. S. workers. Other firms have always remained 100% dedicated to manufacturing in the U. S. since their inception. And in some cases, U. S. companies that were offshoring had bad luck with intellectual property issues or long shipping times and these problems caused them to bring their manufacturing back home. A peek at an example of each type of company should help clarify different reasons to manufacture in the U. S.

Japanese firm supports U. S. manufacturing
Mazak Corp. is a large Japanese machine-tool manufacturer which has production facilities all over the world, including a plant in Florence, Ky. The facility is hiring workers, building new designs, and exporting more products than in the past.

“We strongly believe in manufacturing in the U. S.,” says President of Mazak Brian Papke. “We get a lot of pressure from this belief, not from the trade press, but in the business press because of the big disconnect between the manufacturing economy and the overall economy, which is primarily consumer based.”

But the manufacturing economy has actually been moving ahead briskly for some time, says Papke. “The Institute for Supply Management (ISM) manufacturing index has been over 50 for 27 months in a row,” he says. “Sometimes the media interprets the index going from, say, 55 to 53 as indicating that manufacturing has gone down. In fact, anything over 50 means that manufacturing is growing.”

Mazak started manufacturing in Kentucky in 1974 after having begun in 1968 as a small office in Long Island importing machines. “The primary reasons to come to the U. S. were to be fully integrated in the market, understand the market, develop machine tools that match the market, foster relationships with customers, and increase our manufacturing expertise,” explains Papke.

In fact, Mazak was the first Japanese-owned company to manufacture in Kentucky. “Today there are about 160,” says Papke. “Many of them had looked at Mazak’s success — we have expanded 15 times since we first came to Kentucky. We selected the area because it is central to the overall manufacturing operations in the U. S. A skilled labor pool, an airport nearby, and experienced local suppliers sealed the deal. Over time, we have worked closely with a number of universities to help develop people and that has paid off for skilled labor.”

According to Papke, the idea of U. S. manufacturers going offshore and chasing cheap labor rates is not primarily where it’s at today. “Everything has worked out well for us and over the years and we have continued to grow. The corporation’s early good decisions laid a strong foundation for this growth.”

The concept of the factory has changed to one called Production on Demand. “Rather than make a few models of machines and then sell them, we build based on demand using a modular approach,” says Papke. “We used to take designs that were done in Japan and change them to suit this market. But now, with the years, we have started to design complete machines here. Some machine models are the only ones being made in the world, for example, our new Orbitec. Most are being exported to energy-related companies throughout the world,” he says.

The company builds certain machines in the U. S. instead of at one of its other factories. “We are thinking beyond making the same machines as Japan,” says Papke. “We feel we have more power when we produce unique machines in each factory, and added strength comes from exporting — we are not totally dependent on the U. S. market. Today, that would be fine because the market is strong. In the longer-term though, companies are stronger when they can do some exporting.”

Mazak has, thus, decided to up its export from the Florence plant. “Foreign-currency-exchange problems can arise. But right now, there is a significant advantage to manufacturing in the U. S. because of the lower value of the dollar.”

Employee-owned company touts the U. S.
The Mitrpak line of right-angle gear drives was owned and manufactured by Johnson & Bassett of Worcester, Mass., before being bought by Lampin Corp. in 1990 and moving production to Uxbridge, Mass.

The decision to keep manufacturing in the U. S. was both a business decision and a moral decision, says Mitrpak Product Manager George Abbott. “The original owner of the company lives and worked in this area and felt that keeping good jobs local contributed to the overall well-being of the community. All our employees own a portion of the company and are a highly committed and talented group of individuals willing to go the extra mile for our customers. The more successful the company is, the more the employee-owners stand to benefit from that success.”

“In addition, many of our employees live in the area and benefit directly or indirectly from the charitable contributions the company makes to the community,” says Abbott. One of the company’s larger donations is to the Blackstone Valley Educational Foundation, which supports many schools located in southern Massachusetts.

“Also, the area has many of the resources necessary to support a manufacturing company,” says Abbott. “We can buy a majority of our materials locally and have developed strong business relationships that may not always be the cheapest, but the ability to visit a supplier locally often outweighs cost.”

Abbott has been with the company for over six years and says there have been no thoughts of offshoring. “Our volume is not at the level to consider this and although we do export our gear drives, the majority of our shipments are within the U. S.,” he says. “We also build to order and ship low quantities of our standard drives within 24 hours, so having suppliers and vendors nearby is very important. Another part of Mitrpak’s business is our capability to respond to special design requests. We machine a majority of our components in-house and can respond quickly to produce lower-volume, unique designs. High quality and short leads times make us a good choice.”

He notes one customer replaced a Mitrpak model with a less-expensive version from outside the U. S. only to return later that same year. “We believe this was due to quality, communication, and lead-time issues associated with offshoring,” says Abbott.

Abbott says the company has never considered offshoring. “We like the fact that we can produce and machine everything in the U. S. and have had good luck shipping outside the U. S.,” he says. “We pride ourselves on our ability to control and produce quality parts and might not get the same results if we offshored. I also find customers and distributors wanting to know where our drives are manufactured and assembled because they need to know the origin of the part and they are pleasantly surprised when I tell them right here in the U. S. A.”

Mitrpak sells in the U. S. and also exports to Canada, Mexico, Europe, and China.
“Business has been good for us over the last two years but finding experienced candidates has been a challenge,” says Abbott. “For example, we wanted to add to our machinists group but finding an experienced machinist proved to be very difficult, despite so many layoffs. Maybe people left the field in the downturn and no longer think manufacturing is a viable option. Whatever the reason, as manufacturing makes a comeback, and I think it will, we’ll need to continue promoting manufacturing and engineering as rewarding career choices.”

Firm outsourced, then brought the work back
“We are in the process of bringing back offshored products to the U. S. and it’s kind of interesting why, says Ace Controls North American Sales Manager Steve Phillips. “Our Farmington Hills, Mich.-based company sourced components from Pacific Rim countries. Some of our long-term suppliers are based over there. But in the last year-and-a-half or so, suppliers that used to visit us twice a year and call us and be responsive have stopped calling and stopped visiting.”

Says Phillips, the company speculates that this happened because the Chinese economy has pushed Ace Controls business down the priority list because the country is now building for the domestic market rather than the U. S. market. “As a customer, we are no longer as high a priority,” he says.”That’s our feeling. We don’t have hard evidence to support it, that but that’s what we think is going on with several of our suppliers.”

The offshored components were part of subassemblies of Ace Controls shock-absorber products. “The parts were made in shops in Singapore and China,” says Phillips. “We had to find new sources because what were good overseas suppliers are suddenly no longer good suppliers. Even though our volumes are increasing, we think we are no longer an important customer.”

Phillips continues that in his previous company, he saw quite a significant shift of business from China to Mexico. “Our Mexican customers told us that China was just too far away and the culture was too foreign for many North American companies. Mexico became a more attractive alternative.

Manufacturing investment in the U. S.
In 2010, foreign direct investment (FDI) into the U. S. was $228.2 billion versus the $219.9 billion invested in the fastest growing areas — China, India, Brazil, and Russia. For example, a spokesperson at The Association For Manufacturing Technology, McLean, Va., says that Japanese machine-tool-builder Mori Seiki is opening a new plant in California soon. For more information, visit http://www.unctad.org/sections/dite_dir/docs/WIR11_web%20tab%201.pdf

And U. S. investment in China is declining. See http://www.thehindubusinessline.com/industry-and-economy/economy/article2635510.ece

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