Small Business Labs

The Dollar, Transportation Costs and US Manufacturing

Got pointed to two interesting articles on the impact of rising transportation costs and the weak dollar on US manufacturing.  The consulting firm Oliver Wyman has a piece titled "How the Weak Dollar is Reviving US Manufacturing" that argues that rising transportation costs and the lower dollar is making US manufacturing more competitive.  Key quote:

"Where’s the business case for making car seats in China, when the cost of shipping them 12,000 miles and the redundant cost of storing and sequencing them for an assembly plant in Indiana will far exceed the savings in labor? Factor in additional savings from leaner inventories, more robust assembly processes, and the agility to more quickly respond to changes in market demand and the case for shifting most of your footprint from North America to China or India become dubious."

Related to this is an article in the Financial Times called "Oil prices force P&G to rethink supply network."  The article discusses the supply shifts P&G are doing in response to higher energy costs.  Key quote:

"Soaring energy prices are forcing Procter & Gamble to rethink how it distributes its products, with the world’s biggest consumer goods company shifting manufacturing sites closer to consumers to cut its transport bill."

The weak dollar clearly helps US manufacturing.  Also, with transportation costs rapidly increasing locating supply close to demand will become increasingly common.  Added to the cost pressure is a growing focus on reducing manufacturing and supply chain carbon footprints.  Combined these trends are helping to drive the increased competitiveness of US manufacturing. 

We've posted quite a bit on this topic in the past and we cover it in detail in The New Artisan Economy research report.

Disclosure:  We've done work for P&G in the past year.   

Small Manufacturing and Exports

Local papers often have interesting stories on local companies.  For example, the Toledo Blade has an article on small local companies exporting.  The article features Cauffeil Technologies, which supplies high quality metal processing equipment.  They are a private, family owned company with roughly $10 million in sales - half of which come from exports.  Key quote from Cauffeil's president:

"Company President Toby Cauffiel said his firm remains globally competitive because the American brand is trusted. Plus, the low value of the dollar and the global use of the English language help exports, he added.  The world is one place now," he said."

The article also quotes National Federation of Independent Business data showing that 39% of manufacturers do international business.

The Death of U.S. Manufacturing Greatly Exaggerated

In his NY Times op-ed piece The Cognitive Age David Brooks points out that if measured by output U.S. manufacturing is still world class.  Key quote:

"Instead of fleeing to Asia, U.S. manufacturing output is up over recent decades. As Thomas Duesterberg of Manufacturers Alliance/MAPI, a research firm, has pointed out, the U.S.’s share of global manufacturing output has actually increased slightly since 1980."

What has happened, of course, is that U.S. manufacturing employment has fallen substantially over the last 2 decades.  The chief driver of this employment change is not outsourcing but technology.  From the article:

"The chief force reshaping manufacturing is technological change (hastened by competition with other companies in Canada, Germany or down the street). Thanks to innovation, manufacturing productivity has doubled over two decades. Employers now require fewer but more highly skilled workers. Technological change affects China just as it does the America. William Overholt of the RAND Corporation has noted that between 1994 and 2004 the Chinese shed 25 million manufacturing jobs, 10 times more than the U.S."

 

Manufacturing Boomerangs Back To the U.S.

Article in the Wisconsin Small Business Times discussing manufacturing moving back to the U.S. from China and other place overseas.  Quote on the manufacturing boomerang trend:

"Select manufacturers in old-line industries such as investment casting, injection molding, precision machining and tool-and-die making are routinely taking business away from their Chinese competitors."

The companies profiled in this article are using technology and automation to cut production costs, increase their flexibility and speed up their product development and delivery times.  For example Signicast, who make metal components and castings, focuses on speed and flexibility.  From the article:

"Signicast’s use of automation and the four different manufacturing modules enable the company to respond quickly to new orders and to requests for changes. That speed and flexibility give Signicast a significant edge over foreign competitors.

"“Speed is everything, and it’s one thing that China can never do,” McDonald said. “Quality is one thing they can improve on. But we can, from conception, to tool up to approval, have a product run in less than nine weeks now. In China, lead time is more like 20 or 30 weeks once they have the tool built.”

Reich Tool and Design is also profiled.  They are using a niche market strategy:

"Instead of trying to compete on price, Reich Tool & Design Inc., a tool-and-die manufacturer based in Menomonee Falls, is working to develop niche manufacturing capabilities in aerospace, medical and energy exploration - areas it believes that Chinese manufacturers cannot compete."

A third company discussed in the article, Plastic Components, uses a low cost strategy:

“Our tag line is, ‘Low Cost at Home,’” Duffey said. “We try to tell people to change their mindset, that they don’t have to go to the Third World to buy parts at competitive prices. They can get them in Germantown, Wis.”

Despite the boomerang effect the majority of off-shore manufacturing is not going to come back to the U.S. But rising overseas labor and transportation costs, coupled with increased domestic use of automation and technology, is making U.S. manufacturing increasingly cost competitive.  Add to that strategies built around niche markets, customization, flexible systems and delivery speed and a number of U.S. manufacturing sectors are effectively competing with overseas competition.

I saw this on the MFGx blog. 

Instant Manufacturing and Small Business

Wired has an article called Manufacture and Sell Anything - In Minutes that discusses on-demand manufacturing.  The article covers Ponoko, Zazzle and other companies that manufacture products based on user designs.  Key quote on the process:

"Designers upload their blueprints to Ponoko's servers; when a customer places an order, Ponoko's laser cutters automatically trim wood and plastic to create the product on the spot."

The article goes on to say "Thousands are launching instant businesses" and that custom t-shirt companies like CafePress are becoming platforms that small businesses use for production.

This article is one of the first I've seen that picks up on the impact instant manufacturing and new manufacturing technologies are starting to have on small business.  These new technologies are allowing small and personal (one person) manufacturing companies to create and market unique or highly customized products efficiently.  These new capabilities are creating a wide range of new opportunities for small businesses. 

We cover this topic and its impact on small business in detail in section 2 our most recent forecast report.  Frank Pillar's Mass Customization and Open Innovation News blog is also an excellent source of information on this area. 

Shortage of Skilled Manufacturing Jobs

The CBS News blog "Couric & Co." has an interesting blog post on the shortage of skilled manufacturing workers.   The post points out that while the manufacturing sector overall has lost nearly 3 million jobs since 2001, the high skill manufacturing sector has grown 37% in that time frame.  Key quote on the need for skilled manufacturing workers:

"...90 percent of America’s manufacturers say they are short qualified workers."

The death of US manufacturing has been greatly exaggerated.  US manufacturing output is actually substantially higher today than it was 10 years ago.  However, manufacturing has changed.  It is more automated and more of the jobs require skilled workers.  While overall manufacturing employment continues to fall, high skill manufacturing is growing and many small manufacturers are participating in this growth.

Japanese Artisan Manufacturing

According to an article in The Economist, small businesses (less than 300 employees) employ about 70% of the Japanese workforce.   Small businesses also account for about half of Japan's manufacturing output by value.  The article talks about the pressures small Japanese manufacturers are facing, but also says the successful firms "combine technical acument with innovative business practices to carve out niches. 

Interesting quote from a manufacturer of industrial components:

"“We want to do business like a sushi bar: the customer is right in front of you, orders different things, and a highly skilled artisan makes it right away,” says Masahide Satoh, a senior manager at the firm."

Great description of next-gen artisans and mass customization.

Open Source Hardware and Small Business

Excellent article in Wired called "DIY Robotics - The Rise of Open Source Hardware."  Several interesting points in the article.  The first is how much easier and quicker it is to make things:

""We are starting to realize we can control a laser cutter like a printer," said Pablos Holman, a longtime figure in the hardware-hacking movement.  That means the promise of creating new physical devices as quickly as web apps are written is just around the corner. "

The second point is how straight forward the business model is for open source hardware - meaning hardware that is designed to be relatively easy to modify or hack:

"Unlike with open source software, the business model is fairly simple for open source hardware -- publish the diagrams and documentation, sell the parts in kits at a mark-up and let tinkerers assemble the final product."

The third point is how this movement is creating new small manufacturing businesses:

"... Limor Fried of Adafruit Industries, who started publishing documentation of things she built while still in school -- like a DIY cellphone blocker.  Now kit making is a full-time job and Fried's business has three employees."

Technology is fundamentally changing manufacturing and creating many new manufacturing opportunities for small business.  We go into more detail on small business manufacturing and open source hardware in our most recent forecast report.

Mass Customization, User Manufacturing and Small Business

I traded emails with mass customization guru Frank Piller this week on the topics of mass customization, user manufacturing, next-gen artisans and small businesses.  Dr. Pillar is a researcher, author and speaker on mass customization and open innovation.  He is a professor at RWTH Aachen University and is also a founding faculty member of MIT's Smart Customization Group.   He has a great blog on this subject - "Mass Customizaton and Open Innovation News". 

Frank pointed out that while large corporations have the capability and scale to offer mass customization, they often struggle with the change management processes required to make the shift from being mass producers to mass customizers.  This is where small businesses have the advantage.  They are close to their customers and have an almost "built-in" customer centricity. 

We also discussed his concept of "user manufacturing" - new infrastructures that are enabling average users to become manufacturers.  Frank pointed me to three custom t-shirt companies -  Zazzle, Cafepress, and Spreadshirt  - as examples. 

In our work we often see examples of user manufacturers that turn their interests and hobbies into small businesses.  It is interesting to see a continuum of manufacturers developing - from end users to small and personal manufacturers to big companies. 

For more information on user manufacturing (including his post on our report), take a look at the user manufacturing tag on Frank's blog.  There are a whole bunch of posts and a lot of great information. 

$2500 Cars and Small Auto Companies

The Indian company Tata annouced their $2500 auto last week.  The International Herald Tribune has an excellent article on the manufacturing changes required to make a $2500 car.  Key quote for IHT article:

"Just as Japan popularized kanban (just in time) and kaizen (continuous improvement), so Tata may export to the world what can perhaps be called "Gandhi engineering" - a mantra that combines irreverence toward established ways with a scarcity mentality that spurns superfluities."

The article goes on to talk about how Tata dramatically cut the costs of making a car.  In addition to cutting "superfluities" (had to consult a dictionary to learn this basically means "extras'), Tata also outsourced a lot of the work and used new low cost tooling and equipment.

Related to this is the recent annoucement of the Air Car by a small European auto company.  It runs on compressed air and is built in a factory that employs less than 50 workers. 

I've posted in the past on the growing number of small auto companies.  The numbers continue to grow.

Tata announcement

http://www.news.com/2300-11389_3-6225465-1.html?tag=nefd.pop

Air car

http://www.theaircar.com/MiniCats.html