Remaking 'Made in America'

What Advanced Manufacturing Means for the U.S. Economy

---

The Zimmer plant that Mike Hawkins (Ph.D. '06) steps into today is far different than when he started with the company as a rookie bench chemist in 1980.

Then, the medical technology company's factory floor was filled with workers polishing prosthetics by hand and each milling machine was manned by a single person. Today, robots complete tasks once only possible by hand labor. And high-speed computerized technology means a factory employee oversees not one, but up to five machines at a time.

Thirty years ago, a day's work for one factory employee might have resulted in 10 prosthetic joints; now, the same amount of manpower produces 100 units per day, each one more precise than if it had been made by hand.

"The pace of sophistication has accelerated," said Hawkins, vice president of corporate research at Zimmer. "Technology is driving productivity, but it's also advancing accuracy, which is a competitive advantage."

In many ways, the Zimmer plant illustrates the hoped-for future of American manufacturing as a whole: greater automation, increased accuracy, higher productivity in a high-tech industry. It's the kind of factory setting that policymakers point to when they discuss the need for America to remain competitive in its production capabilities, even as the country has lost a third of its manufacturing jobs in the past decade.

Economists disagree on how big of a role manufacturing will play in America's future, both in terms of jobs and output, as the U.S. economy continues its decades-long transition to a service base. Most concede that the low-wage jobs making low-tech products have disappeared for good. However, it's clear that manufacturing still plays a vital role in the U.S. economy, providing nearly 12 million jobs and representing up to 60 percent of U.S. exports, according to federal economic reports.

Is manufacturing destined to become a stepping stone in America's evolution, contributing a significant but smaller piece of the economic pie? Or does it hold the keys to a resurgence of American enterprise, even in industries many considered long ceded to China and other developing countries?

What is the future of "Made in America"?

Revolution: Part I and II

To answer what the future of manufacturing in America might look like, it's worthwhile to trace the arc of its development by taking a look at the past.

"The truth is, manufacturing as an industry is always changing," said Mike Molnar (EMBA '02), chief manufacturing officer at the National Institute of Standards and Technology and director for the Advanced Manufacturing National Program Office, two efforts created by the federal government in the past year to support the growth of domestic manufacturing.

He pointed to a recent special report on manufacturing and innovation published in The Economist (April 21, 2012), which characterized three revolutionary ages: The first was in Great Britain in the late 18th century, when the cotton mill replaced the hundreds of weaver cottages and essentially became the first factory. The second was ushered in by Henry Ford in the early 20th century, when he introduced the moving assembly line and the age of mass production.

It's worth a pause here, because this is the age that most Americans tend to identify manufacturing with—the "Golden Age" of basically 1950 to 1973, when heavy manufacturing led to the greatest growth in the U.S. economy in history.

"During that period, there was growth not just in production, but in real household incomes, which gave rise to a burgeoning, powerful middle class," said Jeff Bergstrand, Notre Dame finance professor and economist. "And more than that, there was a sense that all of America shared in the economic boom, with the assembly line tethering us like an anchor to shared prosperity."

It was a time when American ingenuity and productivity propelled manufacturing forward; however, it also was a period when many of the country's biggest competitors—Japan, Germany, Britain and France—were leveled by World War II, noted Bergstrand. "Today, not only are all of those countries competing against us, but so are China, India and other countries in South America and Africa—countries with very large and growing populations," he added.In the next four decades and continuing to present day, the greater reality of the global economy permanently altered the manufacturing paradigm, said Bergstrand. Foreign countries began building their own factories to compete with American manufacturers. U.S.-based companies became multinational in scope, opening factories abroad where labor costs were cheaper, customer bases were expanding and material resources were readily available.

From 1973 to 2000, employment in manufacturing remained fairly stable, even as the percentage of manufacturing workers in the total workforce declined. But from 2000 to present, the U.S. lost a third of its manufacturing employment. And even though the economy added 325,000 manufacturing jobs from January 2010 to December 2011—about a 3 percent increase over two years, according to the 2012 U.S. Economic Report of the President—the "gain" flattens out to the same share of U.S. manufacturing jobs when figured against the total private employment added.

On the face of it, then, manufacturing is still far from a rosy picture of recovery. But Molnar and others say, wait. There's a third revolution in the making.

The Digital Age

A person only needs to pick up a smart phone to realize how digital technology has comprehensively and fundamentally transformed everyday life.

The Digital Age, which started in the 70s and accelerated in the 90s, incorporates information and communication, and provides a general descriptor for the rapid evolution of technology in daily life. It has been a game-changer in areas such as media, music and retail in the past decade.

The digital impact on manufacturing is just as dramatic, and stands to usher in the third revolution. As the Zimmer plant illustrates, advanced manufacturing techniques that utilize robotics and other applications of digital technology have transformed the factory to a modern version that is highly automated and likely to contain more computer screens than wrenches. The advanced technology also makes it much more possible for a manufacturer to "mass customize" a product—or to easily and cheaply make design changes to suit a particular market without a need for a vast retooling.

Taken together, these advanced manufacturing technologies could mean advancements in not just the production of high-tech products, but also low-tech products now made in a high-tech way. These run the gamut from jet aircraft made by Boeing, to MasterLock's fairly simple combination locks.

"We have a real perception issue in the United States that manufacturing is dirty, dark, dangerous and disappearing," said Molnar. "Visit any modern manufacturing plant today to see a very different environment marked by technology and high skilled workers continuously looking to improve. And the most significant improvements are in game-changing transformational or ‘disruptive' technologies."

The term "disruptive technologies" was coined by Harvard Business Professor Clayton M. Christensen in his seminal book, "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail." As a simplistic definition, disruptive technologies refer to innovations that not only create a new market, but eventually displace an earlier technology.
One of the better known examples was Ford's introduction of the mass-produced Model-T. The assembly line technology allowed for the production of cars that were affordable by the average person. In turn, the innovation displaced the horse-and-buggy mode of travel and revolutionized personal transportation.

Examples of innovations in manufacturing are numerous, but a few are considered truly revolutionary:

• Digital manufacturing: This emerging technology is also known as "3D printing," which involves taking a scan of an object—including one with an intricate design and moving parts—and precisely replicating it by building and fusing layers of a polymer material. The process is being used for rapid prototyping at a low cost, which tremendously lowers the barriers to product design, allowing small manufacturers—even individuals at all levels of the supply chain—to participate. There already are desk-top models of 3D printers available, starting at around $1,300.

While the technology is still considered in its early stages as a large scale production process, it has been used in the production of specialized auto parts, hearing aids and iPhone covers, to name a few examples. There are databases of 3D representations of objects ranging from toys to high-end light fixtures that can be downloaded and printed on demand.

• Biomanufacturing: The term generally refers to the use of microorganisms to perform specific industrial or manufacturing processes. It's been used to produce an array of products including certain drugs, synthetic hormones, flu vaccines and genetically altered bacteria used to clean up oil spills. The technology not only allows for rapid customization and mass-production—critical in the development of a vaccine in the event of a disease outbreak, for example—but it also provides new ways to innovate existing products.

• Nanomanufacturing: Nanotechnology refers to the development of new materials or structures on a nano-scale that can be used in making coatings and surfaces for products in a variety of industries. Nanomanufacturing offers the possibility of using these new materials in the place of heavy materials that are difficult and expensive to ship and handle, while producing a product that's superior in strength and durability, as well as creating new materials altogether. Nanomaterials are being used in miniature batteries, biomedical products, packaging films, components of armor and even parts of automobiles.

At present, the technology is still very expensive, said Steven Schmid, associate professor of Aerospace and Mechanical Engineering at Notre Dame. "A strong argument could be made that this is a disruptive technology waiting to happen."

Why America?

But does this third revolution necessarily sharpen America's competitive edge? Perhaps the best answer is to say that it could—if America can position itself in some key areas.

For one, given the global economy, manufacturers will need to identify areas where the United States can specialize to take advantage of its competitive strengths.

Certain industries in the U.S. fall squarely into this category. "Every country needs to focus on where their core competencies are," says Jerry C. Wei, associate professor of management at the Mendoza College of Business. "What is the industry in which they have the most potential to lead globally?" In the U.S., these industries include medical technology, automobiles, aerospace, defense technology and alternative energy technology such as wind turbines.

Another U.S. strength is its long history as a leader in many industries that are driven by technology, said Kenneth W. Henderson, associate director of the Center for Sustainable Energy at Notre Dame and department chair of chemistry and biochemistry at Notre Dame, where he does research in the area of renewable energy production. "The biggest advantage the U.S. has is a technical advantage."

It's generally accepted that a closer proximity between innovation and production is critical to developing new strategies for future innovations. Wei said that some of the companies that outsourced their "headaches"—or problems such as labor issues—also have found that they outsourced their opportunity to learn from their mistakes. Some companies such as Intel more recently have moved some production operations and jobs back to the U.S., a trend called "in-sourcing" or "reshoring."

The reshoring trend is supported by decreasing wage differentials between developed and developing countries. Paired with America's high rate of productivity (output per worker), this means that labor costs are growing less important in the decision of where to locate factories.

It must be noted here, though, there is a large and lively current debate among economists and other experts about how productivity is calculated, and whether America's greater productivity rate is actually responsible for manufacturing job loss. While a full exploration of the topic is outside the scope of this article, suffice it to say that many experts—including Mendoza College's Bergstrand and Wei—conclude that reshoring will not be a viable trend for America.
There's yet another argument in favor of the resurgence of American manufacturing: To put it simply, the country needs a strong manufacturing sector.

A recent Brookings Institute report, "Why Does Manufacturing Matter? Which Manufacturing Matters?" said manufacturing "provides high-wage jobs, commercial innovation (the nation's largest source), a key to trade deficit reduction, and a disproportionately large contribution to environmental sustainability." In short, the sector provides a better opportunity for wealth generation through higher wages on average and historically accounts for more innovation than the service industry.

"One look at the demographics projected for 2020 and beyond and the impetus to expand U.S. advanced manufacturing becomes clear," said Notre Dame's Schmid. By 2020, the number of U.S. workers per retiree, a ratio that is now 5-to-1, will drop by more than half, hitting a low of 2.2 workers per retiree, making wealth-generating economic sectors all the more critical to hold the economy up. "We are going to have very few workers and very many retirees," he said. "The population demographics force the country as a whole to pursue wealth-generating industries."

But promoting the resurgence of American manufacturing will take a dedicated national strategy that includes efforts by government, academia and private enterprise, he added. There are a number of efforts under way. In an effort to bridge the gap between R&D and manufacturing, research groups such as the Midwest Institute for Nanoelectronics Discovery bring businesses and research institutions like Notre Dame together to exploit new technologies.

Still other initiatives reach out to businesses directly, including the National Innovation Marketplace, a new online database of more than 2,000 resources that businesses can use to help bring emerging technologies to market. Events such as the International Manufacturing Science and Engineering Conference, sponsored by the American Society of Mechanical Engineers and to be held at Notre Dame this coming June, create opportunities for industry and research experts to collaborate.

Warning: skills gap ahead

If the future of "Made in America" is to be high-tech manufacturing, there is a daunting reality that goes along with that: The U.S. hasn't held the advantage in high-tech manufacturing over its global competitors in years.

America lost 28 percent—687,000 jobs—of its high-technology manufacturing jobs over the past decade. The trend follows as the nation's rapidly shrinking lead in science and technology in the global marketplace was accompanied by a toll on U.S. high-tech jobs, according to a recent study released by the National Science Board (NSB), the policy-making body for the National Science Foundation.

Countries including Germany, Korea and Japan now surpass the U.S. in rankings of research-and-development intensity in the manufacturing sector, a strong indicator of where job-creating innovation lies, according to the National Science and Technology Council.

While it's possible that America may regain its edge by searching out those niches where national technological know-how and resource availability would maintain domestic manufacturing activities, the biggest challenge may come from a different direction altogether: the lack of skilled U.S. workers needed to fill the more complicated manufacturing jobs out there.

According to a study of manufacturing employers conducted by Deloitte last year, 67 percent of surveyed companies reported moderate to serious shortages in skilled workers needed to fill manufacturing jobs, with particularly high deficiencies in industries such as aerospace, defense and medical devices. Deloitte estimated that there are approximately 600,000 unfilled jobs at high-technology manufacturing facilities in the U.S. because of such a shortage in skilled labor.

"One of the biggest things I hear right now in talking with managers is that they need to hire workers, but they cannot find the workers with the right educational skills," said Bergstrand. "We may not in the foreseeable future get down to 5 percent unemployment because we don't have enough well-educated people willing to go into high-technology jobs.

Molnar of the National Institute of Standards and Technology agreed with the future challenge in closing the skills gap, but takes an optimistic view of what that might mean for the employment picture.

He sees promise that manufacturing will be a more attractive area for job-seekers in the future—offering higher wages, a good work environment and interesting work, as it sheds its stereotypic "dirty, dark, dangerous and declining" image.

"We need to change manufacturing's image to what it really is—sustainable, smart, safe and surging," said Molnar.

Managing Editor Carol Elliott contributed to this story.