The New Golden Age of Manufacturing

August 10, 2014 at 11:31 am  •  Posted in Industrial  •  0 Comments

Buoyed by the boom in shale oil and gas production, American manufacturers are riding a wave of prosperity, found Assembly Magazine’s annual State of the Profession survey. “The next 12 months will be exciting in the field of manufacturing,” says one manufacturing expert. “Companies that are well aware of the changing situations and flexible enough to adapt will be in the best position to grow and succeed.”

“Manufacturing in the United States is getting a significant boost from the shale oil and gas boom,” says Jacob Prak, CEO of Michigan Manufacturing International, which supplies assemblies, castings, stampings, machined parts, gears, bearings and other components to OEMs. “Cheaper natural gas feed stocks are making U.S.-produced plastics and other materials less expensive than in other parts of the world. This, in turn, will mean that finished products which rely on these materials will be more competitive.”

According to the Boston Consulting Group Inc. (BCG), cheap natural gas will have a huge impact on U.S. manufacturing over the next few years. “This cost advantage has already started to boost investment and employment and will persist for at least five years,” claims Harold Sirkin, a BCG senior partner.

“The energy cost advantage is amplified by the fact that overall U.S. manufacturing competitiveness is already improving, owing to relatively low labor costs compared with those of other developed economies, rapidly rising wages in China and high productivity,” says Sirkin.

“Several major forces are aligning right now that are dramatically reversing the fortunes of a U.S. manufacturing sector that many gave up for dead just a few years ago,” adds Sirkin. “The energy advantage and improved competitiveness are unique to the U.S. and are accelerating an American manufacturing renaissance.”

Manufacturers in the transportation sector, which includes automobiles, boats, car parts, recreational vehicles, trucks and locomotives, are the most bullish about the future. That’s reflected in positive news coming from Detroit. March was the sixth consecutive month that consumer spending on new vehicles increased on a year-over-year basis.

The bright outlook for the U.S. auto industry is reflected in the fact that a number of Tier One suppliers have announced plans to build or expand assembly plants. Brembo S.p.A. recently invested $115 million in its Homer, MI, brake systems facility. BorgWarner Turbo Systems is investing more than $32 million to expand its plant in Arden, NC, to meet demand that’s expected to double over the next five years. Also, Continental AG recently invested $35 million to expand its brake systems plant in Fletcher, NC.

Delphi Automotive is spending $15 million to upgrade its printed circuit board assembly plant in Brookhaven, MS. In addition, Tower International Inc. is investing $15 million to expand operations at its plant in Meridian, MS.

The Manufacturers Alliance for Productivity and Innovation (MAPI) predicts that U.S. manufacturing will grow 3 percent in 2014 and 4 percent in 2015.

“While consumer-driven manufacturing will grow at a consistently moderate rate, the industries driven by investment will grow at a higher rate,” claims Daniel Meckstroth, Ph.D., chief economist at MAPI. “Energy infrastructure and manufacturing machinery will see increases as firms replace and expand equipment.

“Aerospace will also experience a big ramp-up in production,” Meckstroth points out. “In addition, there will be growth in the construction supply chain—HVAC, wood, paint, appliances and furniture—as we anticipate both residential and nonresidential increases. The acceleration driver will be investment.”

Our [latest] survey indicates a significant shift in manufacturing footprint,” says David Simchi-Levi, a professor of engineering systems at the Massachusetts Institute of Technology and founder of the MIT Forum for Supply Chain Innovation. “[However], the fact that companies are moving manufacturing closer to market demand and others are considering such a move does not mean the end of manufacturing in low-cost countries.

“It suggests that we are in the middle of a transformation from a global manufacturing strategy, where the focus is on low-cost countries, to a more regional strategy,” adds Simchi-Levi.

According to a recent study conducted by Accenture and The Manufacturing Institute, U.S. manufacturers may be losing up to 11 percent of their earnings annually as a result of increased production costs stemming from a shortage of skilled workers.

To mitigate the skills shortage, manufacturers tend to spend more on average for training new hires as opposed to existing employees, with 55 percent spending at least $1,000 per new hire, as compared to 42 percent who said they spend at a similar level on training for existing employees. However, the study found no correlation between spending on training and impact on skill shortages.

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