June 11, 2002
A Clarion Call for American Manufacturing
Manufacturing is the Rodney Dangerfield of the early days of 21st century business. The Information Age and the New Economy were to have rendered manufacturing as passé as clipper ships, but without the elegance. Post-dot.com, we don't hear much about the New Economy. But neither do we hear we need to get back to basics of the real economy: manufacturing making products people want. Manufacturers, government and education must recognize a changed landscape and collaborate in new ways to keep the American economy strong.
Even though manufacturing is so vital to a strong economy, it suffers from an image problem. It is perceived to be old-fashioned, dirty and a polluter of the environment. Actually, manufacturing today looks nothing like the grubby shop floor of the 19th century. In today's best manufacturing companies, you're likely to find a computer kiosk connected to the Internet so all parts of the company can access information and communicate in words, pictures, blueprints and schematics globally in real time.
How manufacturing came to its current state is illuminating: In the 1980s, a Japanese company was selling its photocopier for less than the price it cost its American counterpart to build a comparable machine. This was a potent symbol that American manufacturing was just not competitive in the global market.
This was perceived as a crisis and it was. Would we become a service economy nation, subsisting by selling each other hamburgers and insurance? My Purdue University colleague James Solberg, an industrial engineer, says that manufacturing is responsible for 85 percent of all wealth creation. The key idea is that there is a difference between the economic activities that generate new wealth (or increasing the size of the pie) and those that simply move it around (redividing the pie). Think about it. How much real value did the IPO and merger activity in the high-tech sector create in the '90s? Since when did the main task of a business become managing earnings rather than adding real value and creating wealth?
America, always at its best during a crisis, responded well to the manufacturing challenge of the '80s. Information technology, as both a driver of increased productivity and as an industry, led us back to preeminence. There was an increased emphasis on quality through Total Quality Management programs. But it was not all American ingenuity and know-how: Just as important were the Japanese recession-deflation-banking crisis and the Asian economic and currency meltdown in 1997 that hobbled the competition.
We face a new crisis in manufacturing today as companies ship operations overseas to take advantage of cheap labor to compete in the hypercompetitive global economy. Overcapacity of everything from cars to management talent is, and will remain, a problem for the foreseeable future.
As a nation we cannot afford to cede manufacturing to other countries and expect to maintain and grow our level of prosperity at home. Nor can we protect American manufacturing with steel industry tariffs and agricultural price supports. Protectionism means you're not doing something right.
Americans are admired around the world as an innovative and entrepreneurial people. To keep manufacturing as the creator of wealth requires not only new products but also maintaining our competitive edge in technology and working to keep our manufacturing processes and business practices at the leading edge worldwide. This is a moving target. We can't stop the system to implement a new system.
Our advantage in information technology, though, is allowing us to transform our enterprises. Product designers, financial analysts, marketers, manufacturing engineers and managers can work together from the inception of a product idea, through future models, all the way to obsolescence and succeeding products. However, the emphasis on information technology must not be on the technology, but rather on the data that knowledge workers interpret into information to make manufacturing processes better.
Management guru Peter Drucker has said that the only capital worth having is intellectual capital. It's not enough for an employee to know his job today. The best workers know they need to build upon their data-based knowledge to understand their business in the context of its industry in the global economy.
Knowledge workers and information technology-based data sharing are making our best companies flatter, less hierarchical. Decision making is being pushed further down in the organization.
On the corporate level, there are more and more alliances, not only on the macro Microsoft-Intel Wintel model, but also with companies and their suppliers. We know how to re-engineer companies. The challenge, says Michael Hammer, now is re-engineering across organizations.
The relationships among industry, the government and the university also are changing. The government is sending less and less money to universities to do basic research. Companies are less vertically integrated, so they do less R&D. Consulting companies help management convert new ideas into products. Companies are coming to universities to solve problems economically.
Indiana manufacturers understand there's already a crisis in American manufacturing. More than 400 manufacturing representatives came to Purdue for a two-day summit on advanced manufacturing this spring. (Indiana has a larger percentage of the population employed in manufacturing than in any other state, so it can be considered an American manufacturing bellwether.) The manufacturers voiced their concerns about the educational preparedness and work ethic of the work force, state and federal government policies, and the role of the modern research university. Responding to these concerns points the way toward coming to terms with manufacturing before an overt crisis such as we saw in the 1980s.
American manufacturing transformed itself to meet the challenge of the '80s, but it now needs the help of government and education to meet the new challenge.
Government is too often an inhibitor and not an enabler where manufacturing innovation and competition are concerned. For example, the advanced manufacturing summit attendees complained bitterly about Indiana's inability to accomplish the tax restructuring needed, even in the face of a $1 billion state budget deficit.
The manufacturers at the advanced manufacturing summit bemoaned high schools' and technical colleges' turning their backs on vocational education from traditional shop and welding classes to an almost exclusively college-preparatory curriculum. And even though the American system of higher education is second to none, college isn't for everyone. Manufacturing still needs employees who can build and bolt and weld. Companies also must create a culture of continual learning for all employees.
Manufacturing doesn't have the perceived intellectual aura and glamour of finance and marketing, but it is a science that requires knowledge workers. People generally have an idea of where the top law, business and medical schools are. But, quick, what are the top manufacturing schools? We need to steer some of our best students into this wealth-creating part of the economy.
It's not just our respect that's at stake in the manufacturing policies we put in place and the actions we undertake. What hangs in the balance is the wealth-generating future of the American economy and the prosperity of its people.
Purdue News Service: (765) 494-2096; firstname.lastname@example.org