PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
Forget the Rust Belt -- the U.S. is back as the world's manufacturing powerhouse. Advances in manufacturing technology have produced increases in industrial productivity that contributed immensely to the past nine years' steady economic growth. And the dividends extend beyond the traditional measures of productivity. Today's products are more durable, use less energy, and often cost less than they did a decade ago. The savings translate into billions of dollars in additional disposable income for consumers.
That's the message of Don F. Carlson, president of the Association for Manufacturing Technology, who asserts that "the Old Economy is the New Economy -- it's a distinction without a difference." To prove the point, the AMT recently set out to quantify the benefits of advanced manufacturing to the U.S. economy.
AMT's study, prepared by Washington-based economic consultants, Joel Popkin & Co., looked at savings from just two product categories -- automobiles and refrigerators -- as well as eight industries that supply the tools and parts to manufacture durable goods. It found unmeasured contributions of improved manufacturing that averaged nearly $200 billion per year over the past five years -- a total of nearly $1 trillion. "A lot of benefits have been overlooked." says Carlson. "We just uncovered the tip of the iceberg."
Alan Hall, contributing technology correspondent to BusinessWeek Online, spoke with Carlson about the study. Here are edited excerpts from their conversation:
Q: We keep hearing about the New Economy, but a recent study by the Federal Reserve Board says that only half of the recent gains in productivity can be attributed to computers and information technology. Where's the rest?
A: It comes right from the factory floor. The pressure for global competitiveness has driven producers of every product to look at what they are doing, and how they are doing it, to become more efficient. Productivity gains in durable-goods manufacturing averaged 4.2% annually between 1992 and 1996, while nondurable goods remained flat.
Q: But isn't durable-goods manufacturing what we know as the Old Economy?
A: Being labeled the Old Economy has been frustrating. A computer is a powerful tool, but a computer never made anything -- it's simply an enabler that has to translate to a manufacturing process. Nothing happens until that information reaches the factory. The Old Economy is the New Economy. Manufacturing has played a key role by providing better products at lower costs. Today's manufactured products contribute to the economy by benefiting consumers and producers.
Q: Why has manufacturing's contribution to the nation's prosperity largely gone unrecognized?
A: For a couple of reasons. First, manufacturing has not had the glitz and glamour that has been associated with computer-type industries. Second, manufacturing today is high tech but has not been recognized because it has been a transformation of existing products rather than "new" products.
Q: Has there been a revolution in manufacturing?
A: It's not a revolution but a continual process that has gone on year after year after year and has allowed manufacturing to reinvent itself. It's hard to put a finger on any single item, but it all wraps into what we call "advanced manufacturing technology." Much of the improvement comes from innovations in machine tools and related manufacturing technology.
Q: What's the upshot?
A: Products last longer, function more efficiently, and are far more dependable. Today's producers are using statistical process control and other process tools to build products more profitably. They have invested in manufacturing technology as they have recognized that they can't build tomorrow's products with yesterday's tools.
Q: What is a machine tool?
A: It's a mechanical tool that cuts, shapes, or otherwise transforms, material into parts that allow other things to be made. These can be other machines, or parts for products. They perform a variety of processes, such as metal cutting, metal forming, grinding, water-jet cutting, and laser processing. Machine tools are at the base level -- without them you do not have any products.
Q: I thought machine shops were drafty sheds with oily floors covered in metal cuttings.
A: Not any more. Machine tools are increasingly tied to computer technologies, -- from design, to engineering, and manufacturing -- to form a combined system that produces goods more quickly, and with greater accuracy. Most people would be astonished to see a modern machine shop. It's like a giant video game that goes right from a design to a finished part.
Flexible machine tools, which have a carousel fitted with different types of cutting tools, can shift from one part to another on the fly. A manufacturer can run any mix of parts with no loss of efficiency, no downtime for changeover. "Just-in-time" means "produced on demand." The Boeing 777 set a record in aircraft for time-to-market and low development cost. No paper drawings were ever made. All the manufacturing data was downloaded directly to machine tools.
Q: Then why do we hear so little about machine tools?
A: Machine tools are a relatively small industry with enormous leverage. Total U.S. consumption amounts to only $7 billion to $8 billion a year, spread across hundreds of small entrepreneurial companies that keep coming up with new ways to do things and make products faster. The value of parts and products produced directly, or indirectly, on machine tools would include virtually all manufactured products.
If you were to take away the leading company that makes tools for automotive drive trains -- which, with sales of about $500 million a year, is big by machine-tool standards -- there would be a major negative impact on automobile production. People who say it's the Old Economy can't be further from the truth.
Q: Can you give me an example of an innovation in a familiar product?
A: Sure. Take the refrigerator. It's the biggest energy user in a household. But 10 years ago, a new compressor, called the scroll compressor, was introduced. Its internal vanes are very sophisticated in shape and made to tolerances so close, it only became possible a decade ago.
The result is that refrigerators today are 30% to 40% more efficient than they were then. Extend that over 120 million households, and the energy savings are huge. This saved consumers $20 billion in electricity costs during 1997 alone. And those savings go right into consumers' pockets in the form of disposable income for the family.
Q: That's impressive. But energy savings aren't usually counted in the traditional method of calculating productivity as a unit of output per hour of labor. Are the economists missing something?
A: Yes, a lot. The way manufacturers are doing things is just not comparable to what they were doing 10 years ago. Practices such as lean manufacturing, and improved supply-chain management, eliminate whole layers of indirect labor. An auto today, for example, is not the same. It is 50% more fuel efficient, safer, and more durable. Quite simply, the level of value has been rising.
On the economists' side, it's hard to quantify some of the savings. I was talking to a vice-president from a major farm-equipment manufacturer, and he said they, too, were doing things that aren't measured. They redesigned a harvesting machine, and the number of bushels per acre shot up 15% to 20%. "Everyone thinks it's because of better seed, pesticide, and things like that," he said. "But farmers aren't growing anything differently. We developed equipment so farmers aren't leaving it on the ground for the crows."
Q: Why are products better?
A: They are better because components are better. Parts today are made to ever more stringent standards. When you buy a car now, you practically don't have to open the hood for the first 100,000 miles. Car maintenance costs dropped 28% between 1985 and 1998, saving consumers $21 billion in 1998 alone. And that's reflected in the warranties you get.
Q: What have been the benefits for consumers?
A: Advances in machine tool technologies have made it possible to improve quality dramatically and build better, longer-lasting products at lower prices. Our recent study shows that while the consumer price index increased 73% between 1982 and 1999, the price index for durable goods increased only 35%. Durable goods prices actually declined between 1996 and 1999, saving consumers $101.3 billion.
Q: How about manufacturers?
A: We found that the rapid gains in labor productivity generated $618 billion of output between 1992 and 1998. Productivity increases saved $24.3 billion in payroll costs in 1997 and $80 billion between 1992 and 1997 in eight key industries that rely on machine tools: auto parts, aircraft engines and parts, engines and turbines, metal foundries, fabricated structural metal, other industrial machinery, construction and mining equipment, and farm and garden machinery.
Q: And, last, what's the impact on the nation's economy?
A: The U.S. is back on track as a global manufacturing powerhouse. From the Rust Belt days of the early 1980s, the quantity of manufactured goods exported from the U.S. grew nearly 12% annually between 1986 and 1992, while those of leading global competitors lagged. The dramatic turnaround in manufacturing fueled America's economic expansion during the 1990s.
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
