[lbo-talk] US manufacturing sector

(Chuck Grimes) cgrimes at rawbw.COM
Sat Jan 12 14:39:44 PST 2008


``The best metric to judge the accuracy of the notion that the US doesn't do mfg anymore is the US share of world mfg output or value added. According to the World Bank, it only fell from 24.6% in 1982 to 23.8% in 2004...'' Seth Ackerman

``Here are some WB stats on mfg share of GDP. The U.S. has fallen harder, starting from a lower level, than the other countries...'' Doug

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I couldn't begin to figure out how to realistically reflect what I see in the shop everyday. I assemble, modify and repair manual and power wheelchairs. I get a pretty accurate impression of what this particular manufacturing sector looks like. I would say there is only one entirely US made manufacturing company in the whole businessq, which is small and clunky and makes everything that goes into their product. All the rest are either mixed or entirely manufactured off shore, yet all these companies are technically considered US manufacturers. I will bet they are all included through some gross sales figure.

However the reality on the ground is quite different. The basic frames for high end manual and power products of the two big manufacturers, Invacare and Quickie Designs (Sunrise Medical) are US fabricated. The reason is that their plants are set up to do metal shaping, some production tooling, and production welding, followed by power coating. During the 90s I've visited the QD plant outside of Fresno and knew one of their engineers. Until the early 90s QD products were entirely a US manufactured, start to finish. Since then they have slowly converted to a mixed system of US and offshore output. Invacare started down the mix domestic-outsource road five years eariler. Invacare is located in Cleveland and they tried Canada, Mexico, UK, and Germany at first and has since switched to Mexico and China.

All of both manufacture's lower priced product lines are wholly fabricated in either Taiwan or mainland China and secondariy Mexico, shipped to the US and then distributed. You can tell this by the kind of cardboard used, as well as the style/quality of manufacture and of course the insane mix of metric and US nuts and bolts and other attachments.

All the sophisticated electronic gear is also completely off-shore, some in New Zealand, the rest in China. All of the electro-mechanical devices, which means motors/gearboxes and actuators (linear throw) are off shore. All their fiberglass parts (shrouds, covers) are off shore as are all their vacuum formed, extruded, and molded plastic parts, and all of the miscellaneous hardware, i.e. nuts and bolts. The latter all involve nasty, environmental hazardous processes and by products. Chrome and plating are all off shore, hence the ubiquity of Mexican and Chinese hardware. These days, most hardware is not chrome or zinc plated, but still produced elsewhere. The whole high-tech look of black metal is a direct consequence of heavy metal contamination in plating manufacture.

In other words it is almost impossible to figure out how much of a product that goes out the door of either of these manufacturers is actually manufactured in the US.

Does it matter? Most definitely yes it matters a lot. Every one of these parts areas was at one time fabricated in the US by smaller companies who handled the speciality production systems and had contracts with the larger manufacturers. Imagine some thing like all the different smaller companies contracted by the auto makers. A similar distributed system was in place in the durable medical equipment industry. First off, almost all the jobs required skilled labor in production and fairly sophisticated assembly (quite likely unionized). All of that distributed system went off-shore in the early to mid-nineties.

How it works now. I got to see this current system just last week, when I visited a new start-up company in SF who `make' a bicycle attachment for high end sport and manual chairs---you steer and pedal with your hands. They had a great machine shop, cad systems, testing rigs, and lots of space in an old print shop in downtown SF. They design their equipment on cad, then machine the proto-types, and assemble a few, test them, and polish the design. They must have a local welding shop build the proto-type tubing frames for them, because they only had a mig and small wire welding set-up, and no heli-arc machines (used for aluminum, stainless, high grade steels).

Once the proto-types reach production quality, they contract out all the manufacturing, including assembly and have finished product shipped back here. Meanwhile they run mostly an internet ordering system. The entire company personnel are five engineers with computers and their really nice hi-tech shop. They are on a NIH grant, so my guess is their salaries, equipment, and rent are covered. They have a city permit to be a manufacturer in downtown SF, which is a hard thing to get from the city hall these days. Statistically they will show up as a US manufacturer in DME.

The heavy move to service sector is reflected on the other side of the business, the medical billing industry. Every chair, every model, every attachment or modification, and every part in every repair must have a listed code associated with it, and payment is made through this coding system. Unlisted codes are manual billed and usually appealed several times. These are all Medicare codes and they are the entire billing industry standard. Whatever Medicare does, all state Medicaid programs as well as dozens of private healh plans follow.

Dwayne wrote a funny post on the state of US manufacturing by looking at his desk with his computer, cell phone, and other gizmos on it. Basically nothing in sight or in the other rooms were made in the US. I did something very similar about ten years ago as a joke on lbo. Nothing has changed on the home front (my computer, car, photo-system, are all Chinese or Japanese respectly), and my work day typically brings yet another advance in the drive to outsource almost every week.

In the last four years both major manufacturer's tried to outsource their customer service systems. Judging from the accents I would India. Both cases were a disaster because the outside contracters didn't have enough detailed information to answer calls, take orders, and sort through purchase order mistakes. Both manufacturers have since switched to on-line ordering systems, but many equipment and parts orders require so much detail in specification, that I never order a part on-line. I always need to phone the customer and techical service reps.

So I would say for every statistic of US manufacture, start by multiplying by something less than 1, like .7 or .6 and then use the result. The rational is that only about 60 to 70% of what is listed as US manufacture is US manufacture. The rest is simply outsourced and comes in the factory off the back loading docks.

This is a great system for business, engineering, and high tech specialities, and a terrible system for the machinists, mechanics, and assembly workers. Good for the few, bad for the many.



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