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From the Desk of Jack Healy

A Decline in Investments is a Decline in US Manufacturing Capabilities

By Jack Healy, Director, Manufacturing Advancement Center, [email protected]

A lack of investment in companies by their management is one of the biggest concerns for the future of the manufacturing industry. Whether it’s a lack of investment in capital equipment or employees, manufacturing companies need to invest in the future of their organizations.

Suppliers are moving their businesses offshore because they believe they can make the parts cheaper in other countries, such as India or China, rather than investing in their plants and employees in the United States. This trend is having a wide effect on the U.S. economy, causing losses not only in employment, but resulting in an overall decline in manufacturing salary growth, which in turn has caused a slower recovery from the most recent recession. Lack of overall investment has also caused a loss in many industries that previously operated "state of the art" manufacturing plants; many now operate at a competitive disadvantage to foreign companies.

The United States-China trade deficit reached almost $124 billion in 2003 as imports from China hit a record high. This trade gap is by far the largest, as reported by the Telegram and Gazette on February 14, 2004.

Yet it doesn’t have to be this way. Kodak recently closed its instant camera plant in Rochester, New York, and moved the facility to China. The result was a loss of 500 jobs. Contrast that with the Fuji film plant in South Carolina, producing the same type of product. They’ve been flourishing since their opening in 1995.

Why the difference? In South Carolina, the state government goes to extraordinary lengths to attract and maintain manufacturing companies – even, in the case of Fuji, spending about $1 million in taxpayer money to train hundreds of workers from South Carolina at the Fuji plant in Japan. Fuji and South Carolina have made an investment in the plant and its employees. Including the recent announcement of a $100 million expansion project, Fuji has made $1.4 billion in investments in its South Carolina plant (about $130 million of that was for Fuji’s single-use camera operation.)

As a result, the residents of South Carolina are able to maintain their manufacturing jobs and investment in the economy. That means new buildings, new plants and equipment, and the continued generation of wealth. Conversely, our overall manufacturing economy has not fared well.

"For the past decade, only one out of 10 companies achieved revenue and profit growth of more than 5 percent and earned back their cost of capital," stated Bain’s head of strategy practice, Chris Zook. This lack of continued profitability has translated to a continued lack of overall capital investment.

In addition, some manufacturing companies that once contributed a large percentage of their products to the overall manufacturing economy are no longer considered manufacturing companies. For instance, IBM is no longer considered a manufacturer; they consider themselves a service provider. Their investment has been in providing a service to its customers and outsourcing the manufacturing of products. The deterioration of our manufacturing community has been so widespread that the federal administration has floated the idea of calling fast food establishments "manufacturing" as they also assemble a product.

So, what does this mean for you? What can you do to invest in your company with minimal funds?

Invest in Lean Manufacturing. Lean manufacturing processes eliminate capital and ensure that the manufacturing process is more evenly distributed. Lean Manufacturing also provides small manufacturers the opportunity to make modest investments in manufacturing cells and equipment that will allow for competitive production.

Companies need to investment in their organizations. Deferring investment development will not allow you to produce effectively. If you are not producing effectively, you cannot compete effectively.

Making an investment in the process is making a smart investment. Contact Mike Prior at the Mass Manufacturing Extension Partnership to learn how your company can become more "Lean" and make the investment in your future. E-mail [email protected] or call 508-679-0847.


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