Donald Trump’s election to the presidency has put U.S. manufacturing at the center of the national agenda.
His solution to idle American factories and the loss of U.S. jobs has the wrong focus, however: trade policy. A better way to power up U.S. factories and bring jobs home would be to boost manufacturing productivity.
If you only listened to campaign speeches and media sound bites you might think that America has been “losing so bad” in manufacturing. This is wrong. In fact, there has been a recent resurgence in U.S. manufacturing.
Several factors have been responsible, including the impressive productivity of American workers and factories, which historically have produced more goods per dollar invested and hour worked than factories anywhere else. Together with rising labor costs in China and low energy costs in the United States, years of slow but steady productivity gains have made many U.S. factories among the most cost-competitive in the world — creating a total of 400,000 manufacturing jobs, including more than 249,000 that have been reshored from overseas since 2010. Every manufacturing job that returns home generates three more to support it — so, all in all, America has added over 1.5 million manufacturing-related jobs in the past six years.
But these recent gains are now being threatened — not by cheap overseas labor or rising energy prices, but by a significant slowdown in U.S. productivity growth.
Among all U.S. manufacturers, productivity increased at an average annual rate of only 0.4 percent from 2007 through 2011. Since then, the record has been even worse, with productivity declining by an average of 0.4 percent per year from 2011 through 2015.
This is happening in nearly every manufacturing sector. Only the automotive sector saw positive growth: a mere 1 percent per year. If this downward trend persists, U.S. companies won’t be able to compete globally and manufacturing jobs will start disappearing in large numbers again.
Manufacturers need a different approach. No longer should a modest 2 percent or 3 percent annual increase be acceptable; the target should be an immediate 15 percent to 20 percent “step change.”
A jump of this magnitude is possible, but requires more than the usual cost-cutting, belt-tightening, streamlining and simplifying; more than the occasional research and development success; and more than increased automation. To achieve the kind of step change that’s required, manufacturers need to be bold and aggressive in integrating advanced technology and analytics into their operations, adopting what’s now being called “industry 4.0.”
Unfortunately, most manufacturers aren’t there. In most U.S. factories, the machines don’t communicate, manufacturing lines aren’t all that flexible, and suppliers still receive orders the old-fashioned way. Imagine if machines automatically could inform suppliers when they need something. With today’s technology, they can and should, and investing in the hardware and software to enable such communication should be a no-brainer.
This is just one example. To respond to changes in demand, companies need the ability to act fast and with a high degree of agility. Digital technologies would make this possible as well.
Consider the iconic American motorcycle manufacturer, Milwaukee’s Harley-Davidson Motor Co. Using 3D simulation, visual work instructions and other new techniques, Harley can now produce customized bikes — ready for delivery to the customer — in six hours, a process that used to take 21 days. Customers can configure their hogs in the morning and ride them home from the factory in the afternoon. This is the very definition of a productivity step change and should have a significant impact on Harley’s costs and profits going forward.
For too long, U.S. manufacturers have stayed within their comfort zone, using familiar productivity-improvement tools that no longer deliver the needed punch. If companies continue doing more of the same, they’ll pay a heavy price.
As Harley has shown, new tools from the world of digital technology can reverse the productivity decline. Some companies already are using these advanced technologies to raise productivity by as much as 15 percent. Others need to follow suit.
Trade policy is neither the problem nor the solution. The best way for the United States to win is by being smarter and faster and more innovative than the rest of the world.
• Justin Rose is a partner in the Chicago office of The Boston Consulting Group and Henk van Duijnhoven is a partner in group’s Washington, D.C. office.