Toward a New Era in U.S. Manufacturing The Need for a National Vision (1986) / Chapter Skim
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1 Statement of the Problem
1 Statement of the Problem
Pages 5-30
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manufacturing simply as economic evolution, with the United States moving toward a service economy. These and other factors have been held responsible for the relative decline of U.S.
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These changes in relative manufacturing strength are occurring at the same time that many technological innovations promise to revolutionize products and processes in manufacturing. Just as major technological breakthroughs spurred industrial development in the mid-eighteenth century Astern power, new enginedriven machinery)
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Managers wiD need to manage manufacturing as a system, basing decisions on new, nontraditional indicators. Direct labor costs will decrease significantly, and the costs of equipment, materials, distribution, energy, and other overhead will grow in importance.)
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manufacturers were unchallenged in an environment In which conservative approaches to both process technology and managerial techniques produced successful results. Foreign competition was minimal, the vast domestic market encouraged product standardization and economies of scale, and the preeminence of Yankee ingenuity was unchallenged.
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In contrast, during the early to mid-19OOs, manufacturers, except perhaps for electronics and chemicals manufacturers, increasingly refined proven technologies rather than developing and integrating new and diverse technologies to accomplish, or even elim~nate, traditional tasks. This apparent trend toward a more stable, conservative approach to process technology in a broad range of U.S.
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Scientific management techniques were developed to measure, predict, and control all the aspects of production in an effort to limit change, or at least eliminate surprises, and achieve maximum productivity. Advances in production planning, project evaluation, and operations research offered new tools for maintaining stability and increasing productivity.
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Although manufacturing productivity in this country remains the worId's highest, it has been virtually equaled in recent years by Japan, France, and West Germany. Based on average hourly compensation and output per hour, unit labor costs in U.S.
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Defense production, however, accounted for more than 40 percent of that increase; nondefense output has risen less than 1 percent annually since 1979, compared with 3.5 percent annually from 1973 to 1979.6 · Recent employment trends have been unfavorable in most durable goods manufacturing industries, particularly importcompeting industries (Figure 1~. · Capital investment as a percentage of output in U.S.
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6 11 10 10 10 10 36 51 75 65 58 51 46 100 100 100 100 100 100 100 France West Germany Italy Japan Korea United Kingdom United States 11 Output per Hour France65 70 82 81 85 86 87 West Germany66 71 79 78 79 79 78 Italy56 60 70 70 71 68 69 Japan44 52 72 74 79 79 84 KoreaN.A. 15 17 18 18 17 18 United Kingdom41 43 42 43 44 45 44 United States100 100 100 100 100 100 100 Unit Labor Costs France63 103 112 92 80 74 65 West Germany85 136 157 123 114 107 95 Italy75 123 115 96 89 91 84 Japan53 92 79 77 62 63 60 KoreaN.A.
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share responsibility. Macroeconomic factors such as domestic interest rates, exchange rates, the availability and cost of labor, foreign and domestic trade policies, and the constant seesaw of business cycles all have had an impact.
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15 q Do N CD to C~ .O 4 c ~ ~3 ·C' °, ~ · ~o 2 j E ~ o ~ ~, 0 = 8 ~ ~ ~o , E ' o E !
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Statistics on the manufacturing sector tend to be inconclusive because of the complex, transient econorn~c factors that affect TABLE 6 Average Weighted Cost of Capital to Industry, 1971-1981 (in percent) Country 1971 1976 1981 France 8.5 9.4 14.3 West Germany 6.9 6.6 9.5 Japan 7.3 8.9 9.2 United States 10.0 11.3 16.6 SOURCE: U.S.
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17 the data. Other indicators, however, show that at least some U.S.
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Despite these long-term efforts, the company faced growing competition in the world power too! market from Makita Electric Works, Ltd., of Japan and lost a significant part of its market share.
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In 1984, more than 20 Japanese firms manufactured floppy disk drives; no U.S. manufacturers did so.
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Still others attributed their difficulties to the recent high value of the dollar and are looking forward to the benefits of the recent dollar depreciation. Factors such as interest and exchange rates and unfair foreign competition do have significant effects on industrial health.
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As technological developments yield effective alternatives to offshore production and conditions for foreign direct investment become more stringent, a better understanding is needed about the effects of offshore production strategies on the long-term interests of individual firms and the domestic industrial base.22 Another response from U.S. manufacturers has been based on the widely held idea that technology will solve the problem.
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The changes needed can be described broadly as a shift from the traditional management goal of maximizing stability, productivity, and return on investment in the short term to the new goal of maximizing adaptability to a rapidly changing market, with long-term competitiveness as the first priority. A number of authors have detailed the changes that are necessary in the management of the manufacturing function.24 Hayes and Wheelwright, for example, describe the needed changes as a shift from an "externally neutral" role for the manufacturing function, in which the firm only seeks to match the process capabilities of its competitors, to an Externally supportive" role, in which process improvements are continually sought and implemented in an effort to maintain a lead over competitors, and manufacturing is viewed as a significant contributor to the firm's competitive advantage.25 This shift cannot be made overnight, and it is far too easy to backslide once a new plateau is reached.
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trade deficit. Exchange rates will adjust to ensure that the United States can export manufactured goods.
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A technologically advanced manufacturing sector also would result in displacement of workers, but in a competitive, dynamic economy that should be much more successful at creating new jobs. The development of new products, technologies, and support needs would create whole new industries with job opportunities
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Changes in management, process technology, corporate organization, worker training, moti
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26 vation, and involvement, and government policies are necessary to ensure that resources flow to manufacturing. Changing traditional ideas about education, the role of workers, investment in research, development, and innovation, and overall attitudes toward manufacturing will require input and active participation from a variety of sources.
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80 C, 70 LL > IL o LU z C) 60 50 40 30 _ 20 -- - Overhead as a percentage of value added Direct labor as a percentage of value added -X~ ./ \~1 BAJA / A_ 1 1 1 1 1 1 1 1 1 1855 1870 1885 1900 1915 1930 1945 1960 1975 YEAR 2A number of papers addressing aspects of the evolution of the manufacturing environment and manufacturing management from a historical perspective can be found in Clark, Kim B., Robert H
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Manufacturing Industries. 9For a more elaborate discussion of the factors influencing managerial investment decisions, see Gold, Bela, 1979, Productivity, Technology and Capital: Economic Analysis, Managerial Strategies, and Governmental Policies.
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Economic Outlook, the International Monetary Fund estimates that if the dollar remained at its March 1986 level, the United States would still have a current account deficit of $100 billion per year. As a specific example, between September 1985 and March 1986, the dollar depreciated by about 27 percent against the Japanese yen, yet Toyota raised prices in the U.S.
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27The argument that sophisticated weapons systems require advanced manufacturing technology is made more fully in Committee on the Role of the Manufacturing Technology Program in the Defense Industrial Base, 1986, The Role of the Department of Defense in Supporting Manufacturing Technology Development Washington, D.C.: National Academy Press. 28Both sides of the argument are presented in Work in America Institute, 1985, Middle Class Shrinking as Pay Inequality Grows, World of Work Report (August)
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