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back to index backAMERItalk April,  2007


Manufacturing Critical For Global Success, Indiana Expert Says

With Industry Week set to open its annual Best Plants” conference in Indiana next week, conventional economic wisdom may collectively snort: What? More rust-belt thinking?” This is hardly the case, asserts manufacturing expert John Layden, who is one of the originators of Six Sigma quality management.

According to Layden, CEO of PREVEL Consulting, the conventional economic mantra goes something like this: We need to move away from our outdated base of traditional manufacturing. We need to especially get clear of the struggling American auto industry and transform our dinosaur economy.”

Manufacturing is not only a driver of Indiana’s economy but of the entire United States, according to Layden, who draws his assertions from more than three decades of experience in Japanese and American manufacturing. He says the industry suffers from a terrible image and parts of it need some serious attention.

Still, policy makers too often focus on the former without addressing the latter.

The U.S. manufacturing industry currently labors under numerous unchallenged myths. This include the assertions that American manufacturing cannot compete with offshore entities, that manufacturing is too recession sensitive and the industry is essentially doomed to be completely outsourced beyond American borders.

Rubbish,” says Layden, who wondered aloud whether some economists actually do the math or whether they simply repeat what they read or hear. Conventional wisdom would have us all believe two things: an economy based on traditional manufacturing is a bad thing, and in the down side of the business cycle, a manufacturing-based economy is a really bad thing.”

The facts, he says, show a different picture: First, the advanced economies of the world – including the U.S., which is the largest and fastest growing– are driven by industrial production. The concept of a post-industrial age probably has its roots in a similar trend that was observed in agriculture a century ago.”

Agricultural employment in the U.S. peaked at 27 million in 1910. It has declined to less than 5 million today. Even so, agricultural output continues to grow. Layden added: We still feed a growing nation and produce huge export value. What happened was not the decline of agriculture. It was productivity improvement.”

The same scenario is occurring with the U.S. manufacturing sector. Manufacturing employment in the U.S. peaked in 1979 at 19 million. It has declined to about 14 million today. Once again, Layden shows, the volume and value of manufacturing output have increased. In fact, a large majority of the U.S. economy is based on manufactured goods.

If we look at the overall productivity gains made through technology and management-related process improvement over the past two decades, manufacturing performance is nothing short of astonishing,” Layden said.

The U.S. economy is growing faster than any other in the world. He added: This means our durable goods manufacturing sector is doing the same. Holding a constant share of that isn’t bad at all particularly considering that 80 percent of that growth came from traditional manufacturing.”

What about the hard data reporting the traditional American automotive industry is sagging?

Here’s Layden’s take: This is a classic example of confusing an industry and the companies in it. Ford and Chrysler are struggling. Toyota and Honda are not. Still, all are involved in traditional manufacturing, so the lines get blurred.”

The billion-dollar competitive win of an all-new Honda plant by the Indiana Economic Development Corporation (IEDC) in 2006 demonstrates the validity of this claim. Numerous multi-million support facilities have since broken ground or are expanding around the Hoosier region.

On April 19, Indiana Gov. Mitch Daniels announced that a $29 million project is under way to expand parts production for the new Honda facility. Layden added: We need to give up the myth that our economy is backward. We’re ahead of the game. Manufacturing leverages more value in secondary jobs than any other sector of the economy.”

If Layden’s claim is true, then Indiana is positioning itself for long-term growth.

Indiana was the only state in the nation to welcome three major automotive plants in 2006,” said Nathan Feltman, Indiana secretary of commerce and CEO of IEDC. We are now seeing further impact of our successes from 2006.”

In addition to the competitive win with Honda in 2006, Toyota announced that it would build its new Camry in Lafayette and Cummins. Toyota will also build its new family of clean-diesel engines in southern Indiana.

Collectively, according to IEDC, the three manufacturers expect to create more than 3,800 jobs and invest more than $1 billion in their new Hoosier operations.

What’s next? Layden added: The economic engine of the U.S. economy is manufacturing. For every job in manufacturing, another five to eight jobs are created directly or indirectly. An estimated 65 percent of the U.S. economy is built around manufacturing or manufactured goods.”

The appearance of the Industry Week Best Plants” conference in Indiana is no accident particularly as a high number of the selected awards will go to Hoosier-based companies. What does this reflect? Layden concluded: Whoever captures the manufacturing economy will be in control of the future economy.”

Source: MidwestBusiness.com - GAI


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