Future of U.S. Manufacturing to be Focus of MIT Leaders for Global Operations Meeting

The United States is a huge market that generates plenty of demand for manufactured goods. Yet, in recent years, we’ve seen less and less of that demand being filled by stateside manufacturing operations — even as production grows in countries such as China and Mexico.

However, this trend is reversible. Global manufacturing is going through a genuine transformational period driven by increased labor costs in developing countries, shifting demand patterns, heightened market volatility, the increase in the level of risks faced by many companies, and significant rises in the price of oil. These circumstances should prompt manufacturing companies to rethink how and where they make their goods.

It’s a major opportunity to return the country to an era of manufacturing growth, but the biggest hurdle may be the need for a change in thinking — a sense of urgency, an acceptance of new ideas, and an acknowledgement that aggressive programs and policies must be enacted.

Fortunately, we are not starting with an entirely blank slate. We’ve been through a similar challenge before—in the 1980s and early 1990s, when Japan emerged as a manufacturing powerhouse. The key then, as it is now, is extensive collaboration among industry, government, and academia. Here are a few examples:

Industry and Government
In the automotive industry, for example, the U.S. government negotiated a Voluntary Export Restraint program in 1981 that limited Japanese exports to the U.S. to 1.68 million cars annually and compelled Japanese companies to open factories in the U.S. In 1987, Congress funded a consortium that encouraged American semiconductor manufacturing companies, software vendors, and government agencies to work with suppliers on ways to improve the performance of their equipment.

Academia
In response to the earlier manufacturing challenges, the Massachusetts Institute of Technology (MIT) teamed up with several U.S. manufacturing companies in 1988 to establish a unique graduate program focused on developing leaders who would help strengthen the U.S. manufacturing industry in the face of emerging global competition.

Today, again, government, industry and academia need to pool resources together to rebuild the nation‘s manufacturing competitiveness. Indeed, the government is already taking action in response to the current situation. President Obama announced the Advanced Manufacturing Partnership, co-chaired by MIT President Susan Hockfield and Dow Chemical’s Andrew Liveris, to offer recommendations on restoring U.S. manufacturing competitiveness. And in a recent State of the Union address, Obama called for policies to help create American manufacturing jobs, including trade-enforcement measures, business tax breaks, and worker training programs.

All of these efforts must recognize that:

• Emerging markets contribute more and more to a typical company’s revenue.

• Manufacturing investments naturally flow to locations in countries where financial incentives—chiefly in the form of tax policies—are substantial.

• Companies compete on cost and responsiveness, and this balance shifts dramatically when labor costs rise and the locus of demand changes.

• Local talent and skills are essential to productivity and innovation. Long-term depletion of manufacturing skills will make it hard to reverse the trend.

• R&D incentives from the U.S. government must be tied to manufacturing operations. Otherwise, whatever is developed with taxpayer money could easily be moved to lower-cost manufacturing regions.

• Dynamic supply-chain-management capabilities are now essential. Successful U.S. manufacturing companies must be able to respond quickly to demand changes, cost increases, and economic and political shifts.

With a collaborative national effort based on these factors, the U.S. can still reestablish worldwide manufacturing prominence.

In recognition of this opportunity, the MIT Leaders for Global Operations (MIT LGO), is bringing together on May 8-9, 2012, thought leaders from industry, academia, government and labor to address the future of manufacturing. Through this conference, MIT LGO aims to accelerate national discussions about reinventing the U.S. manufacturing industry and address the current challenges in global operations, current and future workforce development issues, opportunities for new government policies and the impact of new technologies.