Living the Dream--or a New Normal--for North American Manufacturing

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Columns From: 11/19/2012 Production Machining, , from United Grinding Technology

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Rodger Pinney

Several years ago, I attended a machine tool industry association conference featuring a speaker who got me hooked on responding “I’m living the dream” whenever anyone asks how I am doing. More often than not, I get a variety of positive comments and smiles in response, typically brightening both my day and that of the person who asked me the question.

So, ask the United Grinding Team and me how we are doing these days and our collective response would definitely be an emphatic “we’re really living the dream.” Our company sales are at all-time record levels, our total employment level has increased significantly the past 3 years, IMTS 2012 was highly successful for us, and we have just launched a new, growth-oriented strategic plan covering the next 3 years. Further, when we ask our customers, from big corporations and small job shops, how they are doing, their responses most often echo ours. I also believe, based on recent conversations with my industry peers, the same applies to most other major manufacturers of high quality machine tools. Yes, things are looking really good right now when it comes to North American manufacturing.

But, what’s next? Will living the dream continue, or will we soon be having another one of those past manufacturing business cycle nightmares many of us know all too well? Personally, I believe North American manufacturing related companies and industries are currently living a “new normal” and benefitting from the business cycle dream attached to it. Why do I believe this is the case and that it’s going to last for a while? In my opinion, there are many signposts pointing in this direction.

Just ask Steve Kline Jr. of Gardner Business Media to show you his graph that plots machine tool orders for the past 30 years or so. Of course, you will immediately notice the historical upward and downward order trends, plus a straight horizontal line that pierces it, representing average orders over the total time period. Most importantly, though, you will see that during the past 10 years, machine tool orders have been significantly below average and are only now approaching above average results.

Steve will tell you that this means, for an extended period of time, there has been an underinvestment by U.S. manufacturing in productive, reliable and efficient equipment. Manufacturing companies under the pressure of rising local and international demand for U.S.-made components and durable goods must now invest in this type of equipment to be both nationally and globally competitive. I believe this obviously real, pent-up demand for advanced manufacturing solutions is now and will be North America’s new normal for quite some time as a result and for other reasons mentioned below.

Or, what about articles you may have read in this publication or reports you may have seen on television about rising long-term manufacturing facility and equipment investments being made in North America by companies based outside the United States. Honda, Airbus, and Snecma are just a few that immediately come to my mind.

Better yet, talk with Harry Moser, president of The Reshoring Initiative, about what he feels is driving the resurgence in North American manufacturing. He can show you in great detail why cost per part, part quality, and overall business convenience are some of the main factors.

Let’s not forget that we have a highly flexible and adaptable workforce in the United States, which is attractive to offshore companies whose home country labor laws and regulations are much more restrictive. Consequently, past and continued long-term foreign investments in North American manufacturing is yet another reason I believe we are already living a new normal and will be for the foreseeable future.

Pat McGibbon at AMT - The Association for Manufacturing Technology can share data with you that states Oxford Economics has compiled to compare the change in unit labor costs among Canada, China, Germany, Mexico and the United States over the past decade. For many reasons, including productivity gains and wage rate considerations, it shows that the United States unit cost of labor for the past 10 years has stayed relatively flat as it also has for Mexico.

Conversely, you will also observe that unit costs of labor have risen dramatically in Canada and Germany during this same time frame and skyrocketed in China. The bottom line: It is becoming increasingly more attractive and preferable to manufacture things in the United States from a unit cost of labor standpoint than any other time in recent history.

Manufacturing companies and machine tool builders are collectively doing a lot of things right, especially when it comes to making high quality, cost competitive domestic products. The new North American normal, encompassing the implementation of innovative business models and consistently introducing new technologies focused on keeping our unit labor costs globally competitive, will definitely help perpetuate our living the dream and sustaining a new normal.

It’s possible that we will experience a certain amount of manufacturing marketplace volatility in the future because of, for example, the continuation of Europe’s economic issues, China’s slowing GDP growth and our own governmental regulation uncertainty. After all, the global economy has become interconnected more now than ever and continued global governmental uncertainty is and will be a fact of our future business life. But these issues will ultimately be addressed and resolved one way or another.

I believe an unshakable foundation for a stronger manufacturing base has been and continues to be laid in North America. United Grinding’s depth and breadth of products permits us to observe investment trends over a variety of manufacturing industry segments. We see that all of them, including aerospace, automotive, medical, power generation, and many others simultaneously investing in productivity improvements, increased capacity and state of the art manufacturing solutions.

Further, we strongly felt a rejuvenated manufacturing spirit, energy and swagger at IMTS 2012 coming from employees at large companies right down to the owner of one of our smallest job shop customers.

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