The health of the US manufacturing sector has been at the top of the news agenda for some time. Factory closures are highly publicized; businesses that move their production overseas are publicly shamed; and politicians often find themselves on the defensive.
True, the United States has seen a dramatic reduction in manufacturing jobs over the past decade, and many of those jobs are not coming back. (Garment-making and smartphone assembly will likely stay in places such as China.)
Despite all the negativity, though, US manufacturing is in good shape. Industrial production remains near its all-time peak, as measured by the Federal Reserve Board, and the sector will likely continue to thrive. More companies will set up — or indeed keep — their production here as the manufacturing sector becomes more efficient, innovative, and technologically sophisticated to allow for greater product variety.
A little background: Two years ago, the MIT Production in the Innovation Economy Commission — a group that I was part of — embarked on a project seeking ways to help the United States remain a leader in innovation. We interviewed hundreds of companies, including US-based multinationals, small- to medium-sized manufacturers, foreign companies, and startups. We analyzed the challenges these firms face in bringing new ideas to market. Our goal was to figure out how they attain the right funding, the right supply chain, the right partnerships, and the right work force to move concepts from the drawing board to the final assembly line.
My role was to find out how companies decide where to locate their factories, the idea being that if we understood what companies look for in a location, we could suggest ways to make the United States a more attractive place to set up shop.
Companies have five key criteria: first, they want a manufacturing site that’s close to developers and suppliers to reduce the time from design to production; second, they want to be near technology development so they can take advantage of process innovations and facilitate product variety; third, they want proximity to their consumers; fourth, they want a place with low transportation costs to suppliers and markets; and finally, they want a location with reduced production costs, essentially where labor is cheap.
The United States wins on most of these fronts — a reality that many companies grasp. Take New Balance, for instance. Based in Boston, the shoe company has five American factories that assemble a quarter of the footwear it sells. New Balance produces a wide variety of shoes, which requires significant inventory support; being in the United States, close to its markets, enables the company to provide this support efficiently. Having plants here enables New Balance to replenish its stores quickly and gain a deeper understanding of customers’ wants and needs. The company also has access to US innovation in flexible manufacturing systems and planning techniques.
In addition, New Balance invests heavily in advanced manufacturing methods where the United States is at the forefront, including 3-D printing, a process that creates three-dimensional objects out of digital models. “We think that 3-D printing and some of the more innovative manufacturing methods, especially lean manufacturing, are really the future,” Rob DeMartini, the CEO of New Balance, told the Globe recently.
Intel, the semiconductor chip maker, is another company that famously takes advantage of US technological innovation — both in terms of how it manufactures products and in the ingenuity of the products themselves. Three-fourths of Intel’s cutting-edge wafer fabrication is done in the United States. Moreover, 75 percent of Intel’s combined R&D and capital investment is in the United States.
There’s a place for onshoring and there’s a place for offshoring. It makes sense for certain companies to make certain goods — such as chips and hi-tech sneakers — in the United States, just as it makes sense for other companies to produce other goods — apparel and narrow product lines, for instance — elsewhere. So while some industries have been largely offshored, others have great potential to thrive in the United States. The challenge for us is to make the investments to fully realize this potential.
Donald B. Rosenfield is director of the Leaders for Global Operations program and a senior lecturer at the MIT Sloan School of Management.