The Future of U.S. Manufacturing: A Change Manifesto

U.S. manufacturing is better positioned today for revival than anytime since its slow and painful decline some 30 years ago.

A big reason for its new-found strength stems from changes in China. Rising wages, concerns over IP protection and increases in digital automation globally have conspired to undermine the economic advantages that China has enjoyed for years.

We believe the following additional factors will contribute to positioning the U.S. manufacturing industry for renewal:

• The U.S. is best positioned to lead manufacturing into the digital age because of its significant scale, consistently high productivity levels, unparalleled ability to innovate and receding unit labor cost. It also offers some of the lowest wages in the developed world.
• Fast-rising wages and variable quality has dulled the sheen of China’s low-cost manufacturing.
• Total cost of manufacturing is the most important metric guiding manufacturing sourcing decisions. With elevated Chinese wages and volatile commodity prices spiking input and shipping cost, the cost differential between China and other markets is rapidly narrowing and has reached or is projected to reach a tipping point in many industries where economics do not favor a low-cost factory model. Amplifying the problem is the weak IP regime in China and regional geo-political uncertainty, resulting in supply chain delays and disruptions. Therefore, production for domestic markets may relocate to home shores or shores nearby.
• Manufacturers are questioning the current wisdom of divorcing R&D from production and locating it in a cost-effective geography thousands of miles away. Early experiences indicate that production and research feed off each other, resulting in a virtuous cycle of innovation.

The future of manufacturing will be underpinned by digital-age social and mobile technologies, as well as analytics. Winning manufacturing companies must get the basics right, and policy makers must create an enabling environment to usher in the digital manufacturing age.