The Case for ManufacturingManufacturing Momentum

SCOTT PAULPresident, Alliance for American

Manufacturing

Key Manufacturing Indicators• Auto/Light Truck Sales strong• New Single Family Home Sales/Starts/Permits are up since

2009 but only ~50% of 1990-1999 average• Real Fixed/Equipment Investment rising• Balance of International Trade (-China) improving• Industrial Production Index still below 2007 levels but rising• Capacity Utilization at 76.1%, well below average• ISM PMI is 56.2 (positive all but 1 month since ‘10)• New Manufacturing Orders at pre-recession levels• Manufacturing employment is up 4% since 2010, but flat

for past 18 months.

Dayton Area Manufacturing

Key Manufacturing Trends

• Energy Boom• Auto Industry Strength• The “Cloud” and Broadband• Additive Manufacturing• Reshoring

Is It Time to Rethink Your Manufacturing Strategy?

For the past 10 years, China was the answer to many manufacturing questions.

That's no longer automatically the case.

MIT Sloan Management Review, Winter 2012

Measuring Costs of Offshoring

60 percent of U.S. manufacturers, when calculating costs, use rudimentary tools that ignore 20 percent or more of the total cost

Archstone Consulting, 2009

Economics of Reshoring

• U.S.-made products are 35% more expensive than Chinese products in the Chinese market

• U.S.-made products have an average 10% total cost advantage in the U.S. markets (using 2009 Chinese wages)

Strategic Calculations for Reshoring

• Innovation: connection between ability to innovate and proximity to production

•Mass customization: Additive manufacturing and other trends require proximity to customer

•Environment: life-cycle cost equation may be a stronger factor in future. Proximity matters.

•Strengthening supply chains: When OEMs reshore supply chain proximity can/should follow.

Is Reshoring Happening?

• 34 percent of companies with $1b+ sales considering it (MIT Forum for Supply Chain Innovation, 2012)

• ~50 percent of companies with $10b+ sales said they were considering it. (Boston Consulting Group, 2012)

• 40 percent of manufacturers had reshored some work (MFG.com survey, 2012)

Case studies: reasons for reshoring

1. Higher foreign wages and currency values.2. Lower foreign quality leading to high warranty costs and

rework.3. Delivery times are too long.4. Freight costs are rising.5. Travel costs, travel time, onsite audits prohibitive6. Inventory costs are too high7. Total costs are rising.8. IP is being stolen or at risk.9. Communications are difficult.10. Image and brand impact of Made in USA

Top industries reshoring (so far)

1. Electrical Equipment, Appliances, Components

2. Transportation Equipment

3. Machinery

4. Fabricated Metal Parts

5. Plastics & Rubber

6. Computers and Electronics

7. Furniture

High Profile Reshoring Cases

• General Electric• Apple• Google• (Wal-Mart)• Ford• Airbus• Toshiba• Lenovo• NCR• Flextronics

Reshoring From Where?

1. China (at least 60% of cases)2. Mexico3. Japan4. India5. Taiwan6. Philippines

Reshoring to where?

• South and Midwest represent over 50% of cases.

• Top states: California, Ohio, North Carolina, Illinois, Texas, Michigan, Tennessee, Georgia, Kentucky

Reshoring…and exporting?

U.S. manufacturing sector could capture $70 to $115 billion in annual exports as a result of

significant cost advantages over Western Europe and Japan

Boston Consulting Group, 2013

Behind the numbers

• Adjusted for productivity, U.S. labor costs projected to be 15-35% lower than Western Europe and Japan by 2015 for many products

• Prices for natural gas are projected to be 60-70% lower

• Electricity is projected to be 40-70% cheaper in the U.S.

Industries poised to grow

• Transportation equipment• Chemicals• Machinery• Computers• (Petroleum and coal products)• Electrical equipment, appliances, components• Primary metals

Potential Jobs Impact

• 600,000 to 1.2 million direct manufacturing jobs by 2020

• 1.9 to 3.5 million indirect jobs• 2.6 to 4.7 million total jobs• Lower unemployment rate by 2 to 3 percent• Diversify export mix (energy, commodities,

food, aerospace, scrap)

The Case for Manufacturing

• Middle Class Jobs: 38% wage premium for new manufacturing jobs over rest of private sector

• Innovation: manufacturing contributes outsized role to R&D and patents

• Exports: manufacturing accounts for >60% of US exports

• Value added: no sector has manufacturing’s “ripple effect”

Questions/Discussion

Keep in touch:americanmanufacturing.org@ScottPaulAAM on Twitter

spaul@aamfg.org

Manufacturing Momentum

Applied research organization

Second in the U.S. in funded materials research

Winner of three R&D 100 Awards

Over 450 research staff

Average annual revenues: $90M

Core Technical Areas

Materials & Processes

Mechanical & Structural Technologies

Energy & Environmental Technologies

Sensor Systems & Signatures

Human Performance

Federal R&D Funding

Industry R&D Funding

Future Innovators and Inventers

NSF Science & Engineering Indicators 2012

Source: The Kauffman Foundation

Manufacturing Careers:The Future Begins Now

presented by:

Alan Shaffer

President

DAYTON PROGRESS CORPORATION

Manufacturing MomentumOctober 23, 2013

Dayton Progress CorporationWe are based in West Carrollton, Ohio and are the largest manufacturer of precision tooling for metal stamping & forming in the world.

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67 years old, founded in 1946

10 factories in North America, Europe and Asia employing 1,000 people

13,000 customers in 51 countries

Product Precision of .0002” (1/10th the diameter of a human hair)

We train all employees and pay 100% for college tuition and books

Owned by MISUMI Group, Inc. $1.8 billion sales Japanese company

Foreign companies think the U.S. is a great place to manufacture. You should, too!

• 61% of all American companies acquired by foreign businesses are manufacturers.

Made in America, Again

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August 2011 • Americans out produce Chinese 4 to 1:

• 17.6% of global manufacturing is by 1.3 billion Chinese.

• 18.2% is by 0.3 billion Americans.

• China labor cost is rising 15% to 20% per year.

• By 2015 the cost to produce in large China cities will be only 10% to 15% below U.S. costs and 25% above Mexico cost.

• Transportation costs are rising, making it cheaper to manufacture at home.

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Housing Construction Is Forecast to Recover

2011

Annual U.S. New Housing Starts

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Forecast by MAPI October 2011

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Vehicle Sales Are Forecast To Recover

2011

U.S. Light Vehicle SalesMillions of Units

0

2

4

6

8

10

12

14

16

18

20

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Un

its

- m

illio

ns

Forecast by MAPI October 2011

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New C.A.F.E. standard for MY2025Announced by President Obama 07.29.11

1. Fleet MPG must double by 2024, to 54.5

2. All vehicles require redesign and weight reduction.

Source: The Whitehouse

A Huge Industrial Stimulus Was Launched 7.29.11

But I heard there are fewer manufacturing workers now and outsourcing is killing jobs?

• Yes, there has been outsourcing of manufacturing work since 2000, but productivity is the biggest reason for fewer jobs.

• 100 years ago 70% of Americans worked on farms. Now less than 3% do and we feed 300+ million Americans and a significant % of the rest of the world. Productivity!

1. With the advent of CNC, modern machinery, tools, tool setting & fixturing, programming systems and automation, the American manufacturing worker has significantly increased their productivity.

2. Starting around 2000 we also outsourced the most manual manufacturing jobs.

There are 2 reasons

American Manufacturing Worker Productivity Is Soaring

Sal

es p

er W

ork

er

If U.S. manufacturing was a country it would be the 10th largest economy in the world.

Opportunities

• Significant demand for manufacturing employees

• Not enough willing candidates with skills or ability to learn

600,000 open positions in manufacturing in the US*

And yet we have a 7.5% national unemployment rate**

In Ohio 869,000 workers ages 16-24 have a 15.7% unemployment rate**

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*Deloitte / Manufacturing Institute 2012**Bureau of Labor Statistics

There is a career awareness and preparedness gap

Diverse careers in clean technological workplaces

Manufacturing & Engineering• Controls Engineer

• Machinist

• Maintenance Mechanic

• Press Operator

• Quality Technician

• Manufacturing Engineer

• Tool & Die Maker

• Welder

• Programmer

• Production Supervisor

• Process Engineer

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Business & Support• Accountant

• Estimator

• Human Resources

• Plant Manager

• President

• Procurement

• Scheduling

• IT

• SalesAnd many, many more!

Working with your brain, not your back

The #1 Issue in American Manufacturing is the Next Generation

Workforce: How to Hire, Train & Retain?

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2,500 manufacturers / Average 40 employees each

100,000 workers – 14.1% of region workforce

$4.5 billion payroll – 17.4% of total region

$32 billion annual revenues

Manufacturing In The Dayton Region

• By 2016…o …30% of Ohio’s manufacturing workers eligible for retirement

• Tomorrow’s manufacturing workers…o …Are currently in 6th through 12th grades

• Among 18-24 year olds…o …Manufacturing ranks last among industries for careers*

o Low career awareness + wrong career image

Workforce development is needed now

42*Deloitte, Manufacturing InstitutePublic’s view of manufacturing today

Manufacturing careers meet a need

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Outcome of U.S. Students Entering High School*:

~ 10% will drop out (could later earn a GED)

~ 10% will enter Vocational Technical Training (they’ll be fine)

~ 30% will graduate into the workforce with no career training

~ 50% will go to college

~ Half will drop out

~ Half will graduate with a degree

~ Only half will earn a degree that can merit a job with an income that can pay off student loans. Half will not.

* Approximate national figures from National Center for Educational Statistics

What happens to these 78%?

Student debt is crushing the next generation of adults: $25,000 average per student

$800 billion credit card debt

$900 billion student debt

Most Americans

<30% of Americans

Delaying starting familiesDelaying buying a houseand shrinks the size ofhouse you can buy.

Making fun things in life like vacations difficult

This is the 1st generation to have student debt

The death of U.S. manufacturing is a myth

12 million Americans produce nearly 20% of the world’s goods used by 6.5 billion people.

These 12 million Americans enjoy some of the highest levels of income and benefits in America.

Why don’t students know this until it is too late to for them to consider and prepare?

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Compensation in manufacturing is superior

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2011 Average Incomes - All Ages / All Jobs*

$23,400

$33,500

$41,921

$54,700

$66,756

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000

U.S. High School Drop Outs

U.S. High School Graduates

All Other Ohioans

All Americans with 4-Year Degrees

Ohio Manufacturing Jobs

The highest-paying, high benefit jobs not requiring a college degree are a national secret!

*Ohio Department of Labor, US Department of Labor

Questions?