Manufacturers are the Cubs of the Economy
The Business Ledger - The Business Newspaper for Suburban Chicago - May 31, 2004
Commentary by Ronald Dukes from an article written for The Business Ledger, The Business Newspaper for Suburban Chicago, May 31, 2004
Manufacturers are the Cubs of the economy. They have stepped up to the plate and met every challenge to remain competitive. Unlike the loyal throngs supporting the “next year” contenders, those who should be the biggest fans of manufacturing act more like the infamous “Billy Goat.”
Since 1990, manufacturers have increased productivity by 54 percent. So why hasn’t it been reflected in expansion, jobs, kudos from Wall Street and profitability?
A public ignoring business basics
Manufacturers must keep customers happy to survive and grow a profitable business. Today, price is the measure of satisfaction.
Customers seem unaware of the link between keeping the cost of operations to the bare minimum and the purchasing power they enjoy. Low prices and low inflation result, in part, from manufacturers’ abilities to compete by sourcing for competitive prices. Consumers might find it uncomfortable to think that prices they demand are only possible when tough measures like finding alternative sources of labor and lower-cost operations are taken.
Distribution companies marketing price, not product
The real economic effect of distribution companies escapes a public obsessed with low price. These behemoths determine the price a manufacturer will charge. Manufacturers are expected to invest in accommodations required by the distribution companies, diverting monies from growing the company to help a customer ward off overhead.
In the past, manufacturers have complied, since the accommodations seemed reasonable. However, increasing demands are causing manufacturers to ask at what point a customer becomes not only too expensive but also a threat to the company’s future survival.
A culture of entitlement and unreasonable intolerance
Manufacturers’ constituencies wail loudly when it comes to the loss of the patriarchal company, expecting profits, benefits, wage increases, and security that may have always been a bit unrealistic.
A study by the National Association of Manufacturers and Manufacturers Alliance/MAPI found U.S. manufacturers are responsible for non-production costs not borne by their major global competitors. These costs add 22 percent to unit labor costs. Corporate tax rates, employee benefits, tort litigation, regulatory compliance and energy are the areas pushing up costs and eroding competitiveness.
A singular focus on loss of jobs, not loss of ideas
Since June 2000, Illinois has lost 150,000 manufacturing jobs. Advanced technologies reduce the number of people needed. Outsourcing has shifted certain jobs to the service sector. Off-shore operations are essential to serve global customers and to control supply lines and prices. The numbers are serious. But the potential loss of U.S. manufacturing’s preeminence in innovation is a death knell, not just for U.S. manufacturing, but for the expected American standard of living.
U.S. manufacturers’ ability to lead the way in innovation has been the proverbial ace up the competitive sleeve. A recent study by economist Joel Popkin, “Securing America’s Future: The Case for a Strong Manufacturing Base,” found that during the past two years, spending on research and development increased only at half the pace seen during the previous decade.
Manufacturing generates two-thirds of all private sector research and development.Many innovations are used by other industries. And every dollar produced by manufacturing creates 67 cents in other manufactured products and 76 cents in services.
A lot of executive talent has “left the building.”And no one else is breaking down the doors to get in. Early retirements have undermined the availability and development of intellectual capital. Capable executives who should be devoting time to creating strategy, products, and productivity are now multi-tasking, spending time doing work previously—and appropriately—delegated to support staff.
The number of people considered in their prime executive development years, ages 35 to 44, is declining. According to a study by the Society for Human Resource Management, 60 percent of CEOs reported their long-range business plans don’t consider the aging of the workforce.
To stem the brain drain, manufacturers need to take radical action to get or keep retirees and their wealth of knowledge and experience, either on a full-or part-time basis. They must also devote funds and energy to recruit, train and retain talent graduating from bachelor’s and master’s programs.
However, new graduates shun manufacturing and productionrelated positions, believing they require stints at production operations located in remote or rural areas. Having to “get dirt under the fingernails” combined with the observation that the road to the top is via functions such as sales, marketing, finance or engineering are challenges that must be met to compete globally and ensure a strong manufacturing base.
Politicians fanning the emotional fire of “Me first”
Politicians readily cry “keep jobs at home,” “health benefit continuation” and other sound bites that appeal to the individual sense of well-being. Few touch upon who picks up the tab. It will soon be obvious. If manufacturers aren’t allowed to be businesses rather than support services for constituencies, we will all pay for the curse of the Billy Goats.