U.S. Manufacturing Renaissance: Myth or Reality?

April 29, 2014
What you see depends on where you’re standing, but reinventing how we make things seems to be driving growth in U.S. manufacturing.

When we asked Automation World readers in January 2014 whether the much-touted U.S. manufacturing renaissance was real or hype, their responses were as varied as the industries they work in. Bernie Anger, general manager of automation vendor GE Intelligent Platforms (www.ge-ip.com), said, “It’s not so much a manufacturing renaissance as a reinvention of how we make things.” As manufacturers themselves, automation vendors have something to say about how manufacturing in the U.S. is changing (see sidebar), and it correlates with the view of our 500 survey respondents: Manufacturing in the U.S. is on the upswing with much of the “resurgence” being reported over the past two years, and with automation helping to play a role.

Automation World survey respondents report new hiring (44.8 percent), extra shifts (16.9 percent), new facilities planned or opened (27.2 percent), and new technologies or processes being installed to increase production (38.8 percent).

Nearly 11 percent have seen manufacturing operations brought back to the U.S. from overseas locations. Many respondents also report increased production due to growing exports. The BMW plant in Greenville, S.C., for example, now exports 70 percent of the vehicles it makes.

In addition, many foreign-owned companies, particularly those based in Europe, have opened or expanded manufacturing facilities within the U.S. While some of this may be an effort to reduce wage costs, which are generally higher in Europe, the driving factor is more likely the need to be closer to U.S. customers, the world’s largest market for industrial and consumer products.

So if manufacturing production and (to a much lesser extent) hiring are increasing in the U.S., where are the growth areas?

Current hot spots, according to survey results and discussions with manufacturers, include aerospace, chemicals, medical devices, biotechnology and other industries that need complex, precision-made parts. Activity in the revitalized U.S. automotive sector appears to have plateaued, but the oil and gas industry continues to thrive, due primarily to the boom in hydraulic fracturing, or fracking. The increased energy supplies are expected to spur the growth of energy-intensive manufacturing industries in the U.S.

Some segments still in decline
A quarter of the survey respondents, however, said U.S. manufacturing is still in decline, pointing to continued job cuts, lower wages, fewer benefits and more work offshored to China, Mexico and other lower-wage countries. This is especially true for manufacturers of low-margin commodity products.

Said one survey respondent, “As a scout master in the Chicago area, I meet a lot of parents who are either unemployed or under-employed—at least 35 percent. One man was CFO of a 350-man manufacturing facility. He’s now selling flooring at Home Depot. I’d call that under-employed.”

Another reported, “We hired more employees, then we laid all of them off. I think manufacturing is still falling in the U.S. big time. CEOs are scared to spend money to grow the business.”

Even where there are new jobs, said another respondent, “many of the jobs added are either temporary or part-time that run for extended periods, or long-term contracting instead of full-time positions.”

But more than half who felt manufacturing was still in decline reported that their company had experienced no cuts of any kind, in jobs, wages or production. This may indicate at least some stabilizing of U.S. manufacturing.

Sourcing in China
Rising wages and a shortage of workers have made offshoring to China less attractive to U.S. manufacturers. “We have had quality issues with our manufacturers overseas,” explained one survey respondent, “and have been steadily bringing manufacturing back onshore to keep quality high and market share strong.”

Said another respondent, “I think many companies that outsourced have realized 20 years later that it is not cheaper in the long run. They’ve seen quality problems, difficulties in collaborating overseas, increased transportation costs and other problems.”

Marc Willden, vice president and general manager of Matrix Packaging (www.matrixpm.com), a custom packaging machine builder based in Saukville, Wis., points to his own company’s experiment with offshoring. “The Chinese company who contacted us about eight years ago promised a 30-50 percent cost savings for making our machine frames. We decided to try it, if only as a benchmarking study.

“We found out that you have to take 20 percent immediately off the top to account for the extra cost of logistics and the hassles of long-distance problem solving,” says Willden. “It just wasn’t worth it to save maybe 10 percent, and we’ve brought everything back.”

What Willden does see are food and beverage manufacturers outsourcing to contract packagers. “They want to continue to entice customers with new packaging designs, but at the same time keep their own capital investment rates low,” he explains.

This kind of outsourcing may bode well for the future of U.S. manufacturing, where smaller companies make up the majority of the country’s production capabilities. This trend could also help restore the network of research, design, engineering, component manufacturing and other essential elements of an industrial base that has been depleted by 20 years of offshoring.

“The real manufacturing renaissance will be through networking many small manufacturing houses to draw products through a lean pipeline, rather than setting up huge plants geared for mass production of a few items,” said one respondent. “This enables efficiency at a smaller scale, closer to the consumer. We need to think small and local—thousands of times over.”

Automation driving productivity gains
Purchases and planning for new automation technologies have been a fundamental component of the growth in U.S. manufacturing, according to more than 60 percent of those who responded to our survey.

“I think there is a pent-up demand,” said one survey respondent. “There are many U.S. companies that had some operations overseas or were thinking about moving some operations overseas, and are now deciding to stay or pull back some overseas operations. This is leading to a need to upgrade U.S. plants to account for old technology, and to move to higher levels of automation for cost reductions.”

Added another, “Manufacturers are becoming more lean and spending capital on automation to offset the cost of adding workers, and facing the additional expense of healthcare and related benefits.“

Explained another survey respondent, “We’re seeing a higher tier of automation than in previous decades of expansion. Companies are not hiring as many workers, but those workers must have higher skill levels. However, it doesn’t look like they are willing to pay very high wages for the higher-skilled workforce.”

>> GE and Siemens: Click here to read how Two Global Companies Bet on the Future of Manufacturing.

Most respondents to our survey consider increased use of automation technologies a definite positive. “With intelligent application of automation technology, we are able to significantly increase production while maintaining higher quality and tighter tolerances on a consistent basis,” said one.

“Low-wage countries rely heavily upon manual labor. While initially cheaper, consistency is unachievable and more costly in the long run,” he added. “Quality is what today’s world is demanding. As with all technology, we will improve upon it year after year. The initial cost of technology may be high, but it needs to be looked at as an investment in the future.”

Better manufacturing intelligence, in particular, is seen as the key to reducing operating costs and improving the competitiveness of U.S. manufacturing. “Automating data collection, data processing, and getting the right information to the right person at the right time helps prevent running a process that is out of specification or out of control,” said one respondent.

But automation will be no panacea for keeping manufacturing in the U.S., a point made many times by survey respondents. “Automation can be applied anywhere,” said one. “Even low-wage countries and companies can automate.”

Perhaps as important as the increased use of automation for the future of U.S. manufacturing are significant changes in plant practices and cultures.

“I have noticed in some of them a change in the way plants operate,” said one respondent who visits plants around the U.S. “I see a sense of nationalism, a focus on keeping their facilities clean, efforts to organize and standardize the daily job at all positions and levels, kaizen practices and operations full of poka yokes.

“There are human-machine interfaces in all the manufacturing cells to help operators in doing their tasks more efficiently and free of mistakes, and visual manufacturing throughout the plant, supported by daily briefing meetings to check the status of the things to do,” he added.

“It is really a different ball game. Now you can see the pride of the people in working for their companies.”

Where the jobs are
Bernie Anger, general manager, GE Intelligent Platforms, puts it succinctly when it comes to manufacturing jobs: “Long assembly lines, with thousands of relatively low-skilled workers, are never coming back. To compete successfully, manufacturers today need smarter technology and a highly skilled workforce. We’re reinventing how we make things. Manufacturing has become a vehicle for gaining a competitive edge.”

But just because assembly-line work continues to decline doesn’t mean manufacturing-related jobs are a thing of the past. “I think we seriously undercount the amount and type of jobs involved in manufacturing,” says Graham Harris, president of Beckhoff Automation (www.beckhoffusa.com). While his company, which is headquartered in Germany, doesn’t yet manufacture products in the U.S., it hires many technically skilled people to provide customer support and perform product repairs and modifications.

“The need for technical workers will continue to grow to keep all those automated systems working,” he says. “Most manufacturers are trying to get more production out of less floor space. To do that they need a technically capable workforce.”

The difficulty in finding workers with the right skills—a factor pointed to by many survey respondents—may be hindering the U.S. manufacturing recovery. But few companies today offer the apprenticeships and on-the-job training that were once common in manufacturing.

One model for addressing that challenge are the close partnerships between industry and education that are common in Europe, and that are becoming more frequent in the U.S. as European companies begin manufacturing here.

Another factor, not to be discounted, is the advance of consumer technologies into the industrial world, which may help spark renewed interest in careers in manufacturing. Not because young engineers will be able to bring their smartphones and tablets to work, but because using advanced technologies demonstrates that manufacturing is no longer the stodgy, change-resistant job your grandfather once did.