The US manufacturing sector, if it were a nation, would be the world’s fifth-largest economy and reports of its demise are premature. The reason: advanced manufacturing. Manufacturing remains the bedrock of the US economy and its laboratory of innovation.
According to figures compiled by the National Association of Manufacturing (NAM), manufacturing accounts for three-quarters of US exports and nearly three-fifths of private-sector research and development (R&D). Manufacturing accounts for 13% of US GDP and 11% of employment – figures that NAM maintains understate manufacturing’s impact because rapid advances in technology reduce the need for labour, and increasing efficiency drives lower the cost of manufactured goods.
While China has developed into a manufacturing powerhouse, producing a significant percentage of the world’s goods today, groups like NAM hold fast to US manufacturing strength. “Some 15 million people are employed directly in manufacturing jobs and another eight million work in support sectors,” says John Engler, president of the Washington DC-based trade association. “Despite a decline in industry employment over the past few decades, manufacturing remains a vital component of the US economy. Growth in manufacturing is outpacing that of the overall economy, up 5.7% over the past year.”
According to NAM figures, manufacturing now contributes about $14bn to the US economy. “Last year, manufactures produced more volume of goods than ever before in this nation’s history,” says NAM spokesman Hank Cox. “We now sell $50bn per month of manufactured goods overseas.”
Still, the fact that manufacturing employment grew by less than 100,000 last year instills a genuine, longer-term concern that the US is in danger of losing its leadership position in R&D, innovation and a number of vital industries in the coming years.
“We have some long-term problems with which we must deal,” Mr Cox says. “With manufacturing being the driving force of innovation and creativity in America, without leadership, this nation would be a much poorer society.”
Issues to resolve
Among the problems is the imposition of costs that burden US manufacturers: regulations, taxes, the lack of an energy policy, runaway litigation and health care costs. Mr Engler, who has travelled around the US, meeting with manufacturing leaders, reports of hearing repeatedly how companies’ ability to compete in the global marketplace is hindered by rising non-production costs – often because of government policies – and an inability to pass on these increases to customers, due to intense global competition.
“The personal experience of these business leaders is reflected in a study by NAM and Manufacturers Alliance/ MAPI that found that taxes, litigation, regulation, health benefits and energy prices add more than 22% to US manufacturers’ unit labour costs relative to our major foreign competitors,” Mr Engler says. “No other nation imposes such high external costs as the US. Taken together, these overhead costs offset a large part of the 54% increase in US manufacturing productivity wrought since 1990. Small and medium manufacturers, which are so vital to the American economy and their local communities, are particularly affected. Taken together, runaway costs and the inability to pass on higher costs through price increases pose a serious threat to the R&D and industrial base in our country.”
The playing field must also be levelled with trading partners, argues Mr Cox. “Free trade is good as is international commerce. We can compete with anybody but certain countries are making a hash of the rules.”
NAM contends that US manufacturing must also be stimulated with more investment in R&D, particularly for telecommunications, and more emphasis must be placed on education. “Not only do many American students lack the skills needed today for manufacturing jobs, those who have the ability to be successful are not choosing manufacturing for their career path,” says Mr Cox.
NAM and other trade-related lobbying groups play an important role in influencing Washington-based policymakers. Efforts to promote advanced manufacturing and foster new industries are under way at the state and local level.
Pennsylvania is growing a solid biotechnology industry out of strengths it already possesses in Philadelphia and Pittsburgh. In south-east Pennsylvania, pharmaceutical manufacturers and, to a lesser degree, biotechnology companies employ 84,000 people and earn double the average wage of any other sector in the region. About 2000 firms are located there, which Dennis Yablonsky, secretary of the Pennsylvania Department of Commerce and Economic Development, claims comprise the fastest growing sector state-wide. “And most of these companies are only five years old,” he says.
Pennsylvania is determined to become the leading state for biotech research and is using part of the $1.7bn (to be spread over 25 years) that it is receiving from the $246bn nationwide Tobacco Industry Settlement Fund to establish biotech greenhouses in Philadelphia, Pittsburgh and central Pennsylvania.
“The Greenhouse charter is to work with universities and bring out promising technologies for commercialisation,” says Mr Yablonsky.
In Philadelphia, for example, BioAdvance, operator of the Biotechnology Greenhouse of Southeastern Pennsylvania, has already invested more than $5.5m in 13 local companies. In early February, it unveiled its third round of investments, which provides $3.5m to seven local life sciences researchers or companies. The money comes from BioAdvance’s $20m Greenhouse Fund.
“The seed money from the Greenhouse Fund will fund and take chances on early-stage life sciences projects,” says Barbara Schilberg, BioAdvance CEO.
BioAdvance is located in Philadelphia’s University City Science Center, which bills itself as a business “cultivation” centre to enable the commercialisation of 40 new Philadelphia-based life science and high-tech companies.
Also key for south-eastern Pennsylvania is Ben Franklin Technology Partners, a statewide network that is committed to growing the regional biotechnology community through the use of regional and national resources. Ben Franklin Technology Partners is helping to position the Delaware Valley as a key biotech region.
Whereas Philadelphia draws on synergies created by the University of Pennsylvania and its Hospital of University of Pennsylvania (HUP) as well as a strong pharmaceutical manufacturing presence, Pittsburgh offers top hospitals and opportunities with the University of Pittsburgh and Carnegie Mellon University. The Pittsburgh Life Science Greenhouse is cultivating the region’s strength in medical device manufacturing and biotech research.
In the state of Washington, the Puget Sound manufacturing community, in partnership with the City of Kent and the Kent Chamber of Commerce, is exploring the feasibility of creating a Center for Advanced Manufacturing in South King and East Pierce County. The goal of the centre would be to help smaller and mid-market manufacturers make the radical change from being low-cost producers to innovative manufacturers.
Manufacturing contributes $26.6bn to Washington’s gross state product average. The region is closely tied to the aerospace industry – The Boeing Company is its largest employer. Other employers are largely associated with the Ports of Seattle and Tacoma and Seattle International Airport. This infrastructure allows Kent businesses to move millions of dollars in goods easily throughout the region, the US and the world. The purpose of the centre would be to shift South King and East Pierce County toward a more diversified, innovation-based economy, while strengthening the existing manufacturing base.
Several possibilities for the centre have been cited: to become a research institution to transfer technology to commercial applications in South King and East Pierce County; to provide a clearing house for best-practices information, offer national research, and offer a public access research library; and to be a centre for quality manufacturing.
In Arizona, advanced manufacturing hinges on a host of innovative industries. The big contenders are aerospace and defence and the sustainable systems industry.
Giving substantial weight to the aerospace/defence industry is the US Department of Defense (DOD), which continues to award defence contracts to companies such as Orbital Science Corp, Raytheon, General Dynamics and Lockheed Martin. The ongoing R&D at these companies continues to change the face of manufacturing in Arizona.
The DOD recently awarded Raytheon a $440m contract for its unmanned aerial vehicle (UAV) programme at Fort Huachuca, Arizona. The programme is exploring UAV use for border control.
“We’re really validating a very low tech architecture that can provide full situational awareness as to where all the UAVs and any other assets that you want to put into that architecture are and where their sensors are collecting information from,” says Frank Roberts, head of UAV initiatives for US Joint Forces Command’s Intelligence, Surveillance and Reconnaissance Division (J28). “One of the things that we’re still researching is what is the appropriate level of information to make available within that network to users so they can see what’s out there.”
Raytheon as a corporation has implemented a Six Sigma management style, in which executives embrace every aspect of work by using a disciplined, fact-based approach to problem solving and thinking about work and customer value. Six Sigma is used by a host of manufacturers nationwide to empower employees to identify and make changes.
General Dynamics C4 Systems, a business unit of General Dynamics, late last year signed an $830m contract with Lockheed Martin to provide the user-entry and integrated ground segments for the US Navy’s Mobile User Objective System, the US military’s next-generation narrowband satellite communications system. According to Jami McFerren, spokesperson for the Arizona Department of Commerce, the total award for battlefield communications systems for the two companies is $7bn.
In addition to aerospace and defence developments that encompass a wide host of applications, Arizona is witnessing growth in enabling technologies that are being developed in the state. For example, Oberg Arizona, one of the Oberg Industries precision companies, specialises in high-speed stamping and reel-to-reel plating. The company has been operating in the Chandler community for nearly 25 years. Oberg Arizona was recently the recipient of a Fortune 500 contract that will result in the creation of 20 new jobs, 174 production tools and the anticipated purchase of materials and supplies to manufacture internal and external lock components. These components will be shipped nationally and internationally for final assembly and packaging.
“Oberg has a history of building a trained workforce adept at using the latest equipment and technologies,” says Greg Chambers, EHS and training manager at Oberg Arizona.
The medical device industry is growing in Arizona with an emphasis on bioscience. Advanced communications and information systems are also seen as mature industries in the state. The next wave of innovation and advanced manufacturing is expected to come from Arizona’s sustainable systems industry.
According to Dr Adrian Roberts of Battelle Technology Partnership Practice, Arizona has a great opportunity in the sustainable systems sector. He is a principal investigator in the report Development and Investment Prospectus to Create A Sustainable Systems Industry in Arizona. He says: “We could not find another university system in the US with the strength Arizona has in sustainable systems. You would have to combine universities from Idaho, Washington, Oregon and the Pacific Northwest Lab to match it.”
The Battelle report envisages Arizona becoming a model international centre for “arid lands livability”, building on existing industry and university strengths, in three key areas: water management, from source to sink and back again; harnessing the sun for food, fuel, power and medicine; and sustainable manufacturing and knowledge-based renewable industries based on natural resources, such as forests, agriculture and waste products.
Arizona’s advantages in the industry are its strong university research programmes; its receptive industry; state, tribal and local governments that appear concerned and willing to do something about water, energy, forests and land; active non-profit organisations engaged in policy development; and numerous favourable climate and geographic factors.
“The next steps are to work with industry and the universities to create and implement the organisational and management structures needed for success,” says Gilbert Jimenez, director of the Arizona Department of Commerce.
Many see the building of a sustainable industry sector as a long-term proposition: the Battelle study indicated that the industry will not come to fruition for another 10 to 15 years. Some experts believe that time-line will be shorter – as indicated by activity already ongoing in the state.
Gold Circuit Inc of Chandler, for example, is operating successfully as a leading company in the field of asset recovery. In essence, it has made its business in remarketing, recycling, reselling and depositing all types of computer and communication equipment. In the past two years, it has removed equipment from thousands of sites and de-installed more than 250 locations in the continental US to make way for upgrading new equipment and the outsourcing of equipment.
With water being a key issue in such an arid state, Arizona governor Janet Napolitano plans to create a “virtual water university” to be a world leader in water research in arid areas. “The goal is that by 2006, Arizona can claim a unique ability to explore water and drought issues, propose solutions and see the results used here and around the globe,” she says. “It will allow us to have the best resource in the world, to think outside the box where water is concerned. We can become a world example of how you sustain a dynamic economy in an area of aridity and an era of drought.”
Advanced manufacturing is all about sustaining world class dynamics in today’s economic climate.