Supply chains, out for the count.
If you survived the last five years you have to be doing something right. Think back to 2008 and remember the world’s largest economy contracting like a blown front tire by 3.9 percent (fourth quarter 2007 to third quarter 2009) marking the worst economic slump since the Great Depression and the first decrease(s) in the GDP in 17 years. In spite of all that, the manufacturing sector showed amazing stamina. By 2010, it added value of $1.7 trillion to the U.S. economy, rising 6.6% over the previous year (after accounting for inflation) and growing roughly twice as fast as the overall economy. We got sucker punched but then we got right back up. (Source)
Naysayers will argue we aren’t out of the woods. But the September 2013 Federal Reserve Industrial Production and Capacity Utilization report puts it at 99.4 percent of its 2007 average, just before the debacle. Several industry groups are seeing similar highs, construction lags at a scant over 81.9 percent of 2007 levels. It’s been and interesting fight.
What’s next? Renaissance or shadow boxing?
If you’re doing it right, you view current orders as recent history. You’re taking care and you count on repeat orders but you’ve got that in the bag so to speak. What counts most is how you answer the “what’s next?” question.
In light of that idea, there’s growing expectation for a kind of “manufacturing renaissance” coming down within the next 5 years. The heavyweight is China and, in this time, it is predicted that the celestial dynasty’s cost advantage will implode and many goods—those appropriate for U.S. manufacturing—will be reshored. Don’t expect a tsunami but all boats will rise if this tide rolls in.
Skeptics dismiss the “renaissance” plank as nothing more than cyclical factors driven by a normal post-recession recovery. Wall Street argrees most of the recent uptick, since 2010, in manufacturing employment and output, “owes to the usual course of the business cycle.” But in my opinion the critics rely too much on the usual suspects—big data perhaps. They use the big gloves and ignore significant signs there is something else going undetected.
Gene B. Sperling who is director of the National Economic Council and assistant to the President for Economic Policy is a major pundit for U.S. manufacturers. He acutely understands the value of the supply chain beyond its obvious heavy duty. Framing it from a government policy perspective, and making the case for the Obama manufacturing strategy, he recently offered his analysis of the value trend with a much more positive storyline. It helped me to broaden my perspective about the true social-economic impact of manufacturing and its supply chain. I share three rather disparate capsules of insight I skimmed from his paper “The Case for a Manufacturing Renaissance” just to start the conversation:
[It’s a long report but you may want to read it for the most accurate context]
1. On Paradigm shifts
Three paradigm shifts are needed to “provide a more insightful set of lenses through which to view the [actual] impact of manufacturing and the role of policy.” One example is a “shift from a large factory” standard “where continued gains in productivity lead some to perceive “silent factories” with few manufacturing jobs to a “supply-chain” paradigm which recognizes [all] the manufacturing and services jobs across integrated supply chains.” The view of manufacturing’s future as a collection of job-less, ‘silent factories’ misses the importance of these jobs.
2. Count the entire effect
“The McKinsey Global Institute estimated that there are another 5.7 million jobs in integrated manufacturing supply chains. Decades ago, when manufacturers relied more on in-house shops and services, these jobs might have been [rightfully] counted as manufacturing.” For example, today, when a company like GM uses an outsource which plainly rely on manufacturing, those jobs are counted as services jobs.” It’s a clear sign we are undercounting the employment effects of the broader supply chain.
3. Manufacturing punches above its weight
“Manufacturing plays an outsized role in our innovation economy.” Even beyond its direct contributions to the economy, economic studies show that manufacturing generates a positive economic and innovation spill-over that benefits both the specific communities impacted as well as the broader economy.
Labor economics experts Greenstone, Hornbeck and Moretti showed that as a result of a manufacturing plant moving into a community, the productivity of the surrounding firms improved 12 percent compared to a comparable community that did not receive new production, a concept referred to as ‘agglomeration spillovers.’” The numbers seem to prove it. Despite representing 12 percent of U.S. GDP, manufacturing accounts for roughly 70 percent of private sector research and development, 60 percent of all US R&D employees, over 90 percent of patents issued, and the majority of all U.S. exports.
The next 5 years could present unprecedented opportunity for the supply chain to capture the broad benefits of a real manufacturing renaissance. A period where you actually get counted for contributions made.
Last word:
HIT Solutions, the next 5 years
In retrospect it was a ballsy move to open the doors to business in October 2008. But HIT Solutions persevered just like you, playing the same silent but critical role in keeping America’s manufacturing—and its supply chain—running smoothly. What’s important is not that they lasted this tumultuous 5-year period but what they are prepared to do in the next.
HIT Solutions believes the more your business keeps up with important trends, the more you will improve your product, and improve your bottom line.
Leave me your comments below; share your thoughts.