Riding the Small Wave in Manufacturing to a Diverse Economy and

Report
Riding the Small Wave in Manufacturing to a
More Diverse Economy and More Good Jobs
Susan Christopherson
Department of City and Regional Planning
[email protected]
The Resurgence of Manufacturing and the
New Location Calculus
• A weak dollar – dropped 26% between 2002 and 2008
• Gradual and anticipated increases in transportation costs – oil at
over $100 a barrel for the foreseeable future
• Lower wages in the US; higher wages in China
• Problems with quality control in China
• Intellectual property concerns in China
• Low energy costs in US
• Foreign direct investment has increased (19% in 2008)
Manufacturers are Taking a Second Look at
The US
“Manufacturers are beginning to recognize that many of the factors
they previously based their off-shoring manufacturing and supply
decisions on most heavily, such as component price and
transportation costs, have dramatically increased over the last few
years—and those seemingly initial cost savings are no longer so
big.“
The Manufacturing Institute 2011
Some Recent Examples in Transportation and
Industrial Equipment
• Caterpillar has repatriated manufacturing of construction
excavators, boosting investment in facilities in Texas, Arkansas
and Illinois.
• GE's appliance unit is in the middle of a four-year, $600 million
plan to build up its manufacturing presence in Louisville, Kentucky,
adding some 830 new jobs.
The success of these efforts will depend on the quality of regional
supply chains.
Great Lakes Metros Have Benefited from This
Trend
Upstate New York cities are among 40 least affected by the great
recession.
According to the Brookings Institution 2009 analysis of the Great Lakes metros’
unexpected resilience in the face of the great recession, many industrial centers
led the recovery from the massive downturn:
“With increases in job growth, GMP, and housing prices, the worst of the
recession may be behind both Madison and Syracuse. Steady, if not yet
growing, employment and increasing output, along with rising home prices,
provides some indication that Buffalo, too, could be on the road to recovery.”
Two Distinct Definitions of the “Problem”
From a Labor Supply Perspective:
A ten-year long shortage of workers with mid-level, technical skills
From a Labor Demand Perspective:
Inadequate job creation to employ unemployed or underemployed workers with few credentials
What Are the Challenges?
• Manufacturing job growth will occur in small and medium-size
companies.
• Few small manufacturing companies are investing in labor skills,
information technology or productivity-increasing process
innovations (The American Small Manufacturers Coalition).
• There is a serious skill shortage in manufacturing in SMEs, who
cannot compete with Global OEMs for skilled labor in
manufacturing regions
What Happened as SMEs
Replaced Old RoutineManufacturing Giants?
Source: Treado, Carey et al. “Sustaining Pittsburgh’s Steel Technology Cluster”
According to Dan Swinney of The Chicago Manufacturing
Renaissance: “The character of work has changed dramatically”.
The employers he works with are willing to train and pay high
wages for the “talent” they need. Though entry-level wages may
be low, the salaries of workers who see manufacturing as a
profession rather than just a job rise very rapidly.
What Can We Do in the Short Term?
To meet the demand for middle-skill, technical workers:
•
Create more “earn to learn” programs (which also create jobs).
• Insure that community colleges in all states can provide noncredit job training.
• Support manufacturer demands for stackable, mobile credentials.
What Can We Do in the Short Term?
To increase the propensity of manufacturers to return to the US and
labor demand among manufacturers who do return.
• Pass hiring incentives focused on SMEs in expanding
manufacturing sectors. Focus on payroll expansion not hiring.
• Train ED policy makers respond to the full range of costs that
manufacturers need to consider in making location decisions.
Assess the wide range of assets that may attract manufacturers to
repatriate production.
• Evaluate how direct and indirect federal and state policies can
contribute to accelerating location of manufacturing jobs in the US.
This includes energy policies.
Total Cost Model for Offshore Sourcing
Adapted from Archstone Consulting
Delivery
Costs
Supplier Price
and Terms
Unit Price
Logistics
•Labor
•Direct materials
•Management
•Overhead
•Capital Amortization
•Local taxes
•Manufacturing
•Local regulatory
compliance
•
•
•
•
Terms
•
•
•
Net payment
Volume Discounts
Free Goods
In-country transport
Ocean/air freight
Destination transport
Packaging
Operations &
Quality Costs
In-plant Material
Inventory
•Intra-plant demand
•Safety stock
•Handling
•Overhead
•Warehousing & O/H
Region Specific
•
•
Duty
VAT
Supply Chain
•
•
Inventory maintained
within
Satellite warehousing
& O/H
Quality
•
•
•
Quality validation
Quality management
Failure costs
Other
Costs
Standard
•Risk
•Qualification
•Local tax incentives
Situational
•
•
•
•
•
•
Procurement staff
Broker fees
Infrastructure
Exchange rates
Training
Tooling/molds
Customer Specific
•
•
Unique services
Unique capabilities
What Will Build “Stickier” Manufacturing?
• Build capacity and global markets in our manufacturing technology
“eco-systems” – electronic packaging, photonics, environmental
systems, energy storage, sensors. Develop efficient multi-modal
freight “villages” in urban sites.
• Transform State Centers of Excellence to serve small companies
rather than the multi-national dinosaurs.
• Develop Manufacturing Renaissance plans for cities along the
lines of Chicagoland and the Bay Area, supporting self-organized
groups of SME manufacturers.
• Encourage DESIGN initiatives (eg. competitions in engineering)
that respond to the needs of small manufacturers in basic
industries.
Our Ultimate Goals?
1. To take advantage of the “small wave” of interest in
manufacturing in the US, driven by comparative advantage in
factor costs. Magnify the advantage.
1. To build on the factor input cost advantage to create technologybased ecosystems made up of SMEs with global markets.
2. To make US-based manufacturing “sticky” because it is more
efficient and closer to the end markets.
Riding the Small Wave in Manufacturing to a
More Diverse Economy and More Good Jobs
Susan Christopherson
Department of City and Regional Planning
[email protected]

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