July 24, 2003
Editor's note: This article discusses the final three of six factors contributing to the current state of manufacturing — technology investment, the elimination of industrial arts programs, and the lack of industry leadership — with a focus on California manufacturing. Part I, which appeared in the July 10 issue of thefabricator.com, discussed global competition, high business costs, and supply chain management and consolidation.
The manufacturing industry crisis, which continues unabated, is a unique economic environment that can be likened to The 100-Year Flood caused by The Perfect Storm in terms of its destructive potential. Why The Perfect Storm? One tumultuous economic event never would have had such lasting or dramatic effect on California's diverse manufacturing economy. However, a confluence of economic factors has created an economic flood of historic proportion.
As noted in Part I, six major factors, when considered collectively, have devastated the California manufacturing industry and have caused fundamental changes in the subcontractor base in the state. Factors four through six are:
4. Technology Investment. The time and cost required to implement mechanical, process, electronic, or software upgrades have thwarted manufacturers' ability to modernize. The essential need to upgrade and to change continually is contrary to the traditional cultural characteristics of small and midsized manufacturers.
Modernizing programs, such as implementing an ERP system, can take over a year and hundreds of hours to complete. Essential programs, such as lean manufacturing or ISO 9000, take so long to implement that most firms that have not begun the process already will not be able to complete the technical/cultural upgrades soon enough to benefit from the investment.
Technology has a tremendous impact on a company's viability, as evidenced by the following facts:
5. Systemic Elimination of Industrial Arts Programs. Historically, general high school programs included introductions to the industrial arts that provide the feeder system for manufacturing employment. Today a successful school is measured by test scores, not by the students' abilities to enter and succeed in the work force. As an example, California's high schools have less than 25 machining programs. Clearly, we have lost our link to the skilled talent necessary to keep up with our foreign and domestic competitors. Without young, mechanically astute workers flowing into the trades, our manufacturing base does not have the ability to implement the rapid change in technology necessary to compete.
Furthermore, the smaller manufacturers are left with the bottom percentage of job applicants who do not have the educational background (math and science skills) necessary to add value to the ever-increasing efficiencies of the modern manufacturing workplace. Some frightening facts illustrate the seriousness of the skilled labor shortage exacerbated by the demise of vocational programs:
The following quote regarding the state of education is from the May 24, 2002, Sacramento Beeeditorial: "I am a counselor in an inner-city high school of about 2,800 students. I continue to marvel at the ignorance of our policy-makers. They are dismantling the general high schools and trying to create a minor league for the universities."
6. Lack of Industry Leadership. The factors contributing to the Perfect Storm have intensified because of a lack of cohesive leadership from the manufacturing stakeholders. The manufacturers' entrepreneurial and independent natures have been both strengths and weaknesses in determining the future of manufacturing. Their strength lies in the determined spirit to perform better, faster, and cheaper than any other competitor, qualities that have made our manufacturers the best in the world.
This strong independence and competitive mindset become a weakness when various factions of closely related industries form special-interest groups, which create separate yet interrelated agendas opposed to pro-manufacturing policies. These conflicting agendas alter the public perception of manufacturing and affect the public policy agenda as it applies to manufacturing.
The lack of cohesive, effective leadership is illustrated by the following:
Without cohesive, effective leadership, none of the other five factors contributing to manufacturing's economic crisis can be resolved.
Considering these factors and trends, it is clear that the future is going to be quite different than the past. Small manufacturers that currently represent 98 percent of the California manufacturing base are going to face dramatic downsizing to compensate for the trends and their effects. The contracts the small manufacturers traditionally received are staying at midsized manufacturing firms that have the capital, personnel, and resources necessary to service the customer. The trickle-down work load is drying up as the marketplace consolidates and improves production efficiencies.
Every large storm alters the landscape and creates a new environment. Effective public policy that addresses the factors contributing to this Perfect Economic Storm and the 100-Year Flood in Manufacturing will play a significant role in determining how many firms will survive and thrive. In California, the business-regulatory climate will play a significant part in a company's decision to stay put or move to a greener, more manufacturing-friendly pasture.