In 1965, manufacturing in the United States accounted for 53% of the economy. For over half a century, American manufacturing dominated the globe. By 1988, that fell to 39% and today only 9%. What happened? Will the United States ever be the leader in manufacturing again?
Outsourcing manufacturing has cost Americans millions of jobs. However, with rising costs for labor overseas and development of new technologies, many American manufacturing companies are rethinking their strategy and bringing jobs back home. In order to make the most of this shift, it is essential to ensure that American workers are highly skilled and up to date with the latest technology and tools.
Rising labor costs in foreign nations is one reason why manufacturers are returning jobs back to the US. In the early 1990s, labor was extremely cheap in Asia. However, as the standards of living increases, labor costs will also rise. China alone saw an increase in 10% for labor costs. That number is predicted to surge.
US automotive employment, for example, has been growing steadily hitting a low in 2009. Some foreign-based auto manufacturers are even expanding their US presence. The largest BMW plant in the world is now in South Carolina.
By reshoring manufacturing labor, production and delivery costs will decrease, allowing manufacturers to produce more. This, combined with increased quality and communication, is helping US manufacturing to become competitive.
With advanced technologies like automation and robotics, labor costs are lowered and there is reduced incentive to send work overseas. Manufacturers can find significant cost savings by investing in technology. A single machine can increase productivity by as much as 70%, while only costing as much as a single employee’s salary for one year.
In addition, with cloud computing and Internet of Things (IoT), digital sensors and chips can be programmed to feed information about a product’s performance back to the manufacturer in real time. Placing sensors inside machines will alert errors in processes, when parts are wearing out, ways to cut costs, and techniques to improve overall efficiency and design. New technologies increase productivity to the extent that labor costs will not be as big of a factor as the ability to effectively utilize advanced tools.
Former Ford Motor Co. CEO Mark Fields has been quoted saying, “If you think about Henry Ford, he was the leading disruptor in his day. Whether it was the moving assembly line or the $5 a day wage or the first affordable V-8 engine. And I think he would walk into this plant and say ‘Good job. You guys are continuing to look around the corner and say what does it take to move this business ahead. Not only in the next 12 months, but in the next 10 years.’”
Electric cars are also a great opportunity for American manufacturing. Tesla has created thousands of manufacturing jobs by looking forward with clean technology and renewable energy. Tesla plans to increase annual vehicle production to about 500,000 units by 2018, and then double that to one million per year starting in 2020.
A skills gap that needs to be addressed before the renaissance of American manufacturing takes hold.
Industry veterans are beginning to retire and some college-bound youth are not choosing careers in manufacturing. Some employers have stated that many of the students who do major in these fields are coming out of school with little hands-on experience, only theory. This lack of real-world application can cause them to design products that aren’t manufacturable, which leads to delays, scrap, and products failing in the field. Both employers and employees need to invest in training to fill the highly technical jobs being created.