Evidently, America isn’t in IKEA’s manufacturing future …

Going, going, gone …

Over the past several years, the political mantra has been that jobs are now coming back to the United States – particularly manufacturing ones.

That may well be. But this past week we’ve learned that IKEA plans to close its last remaining U.S. production facility.  The iconic home furnishings company has announced that it will be closing its manufacturing plant in Danville, Virginia by the end of the year.

The Danville plant makes wood-based furniture and furnishings for IKEA’s retail store outlets in the United States and Canada.

The reason for the plant closure, as it turns out, is a bit ironic. According to IKEA, high raw materials costs in North America are triggering the move, because those costs are actually significantly lower in Europe than they are here.  Even accounting for other input costs like labor that are higher in Europe, shifting production to Europe will keep product prices lower for U.S. retailers, IKEA claims.

So much for the notion that imports from Europe are overpriced compared to domestically produced ones!

The Danville plant isn’t even that old, either. Far from being some multi-story inefficient dinosaur left over from a half-century ago, the manufacturing facility opened only in 2008, making it only about a decade old.  At its peak the plant employed around 400 people.

IKEA made staff cuts or around 20% earlier in the year, before following up with this latest announcement that will wipe out 300 more jobs in a community that can scarcely withstand such large economic shocks.

With the closure of Danville, IKEA will still have more than 40 production plants operating around the world. It employs around 20,000 workers in those plants (out of a total workforce of ~160,000, most of which are employed in the company’s vast retail and distribution business activities).

So, it doesn’t appear that IKEA will be exiting the manufacturing sector anytime soon.  It’s just that … those manufacturing activities no longer include the United States.

As a certain well-known U.S. political leader might say, “Sad!”

3D printing: The newest market disrupter?

3D printing was in the “popular press” a few weeks back when there was a dust-up about plans to publish specifications online for the manufacturing of firearms using 3D technology.

Of course, that news hit the streets because of the hot-button issues of access to guns, the lack of ability to trace a firearm manufactured via 3D printing, plus concerns about avoiding detection in security screenings due to the composition of the pieces and parts (in this case, polymer materials).

But 3D printing should be receiving more press generally. It may well be the latest market disrupter because of its promise to fundamentally change the way parts and components are designed, sourced and made.

3D printing technologies – both polymer and metal – have been emerging for some time now, and unlike some other technologies, they have already found a highly receptive commercial audience. That’s because 3D printing technology can be used with great efficiency to manufacture production components for applications that are experiencing some of the hottest market demand – like medical instrumentation as well as aerospace, automation and defense products.

One the baseline benefits of 3D printing is that it can reduce lead times dramatically on custom-designed components. Importantly, 3D printing requires no upfront tooling investment, saving both time and dollars for purchasers.  On top of that, there are no minimum order requirements, which is a great boon for companies that may be testing a new design and need only a few prototypes to start.

Considering all of these benefits, 3D printing offers customers the flexibility to innovate rapidly with virtually no limitations on design geometries or other parameters. Small minimum orders (even for regular production runs) enable keeping reduced inventories along with the ability to rely on just-in-time manufacturing.

The question is, which industry segments will be impacted most by the rise of 3D printing? I can see ripple effects that potentially go well-beyond the mortal danger faced by tool and die shops.  How many suppliers are going to need to revisit their capabilities in order to support smaller production runs and über-short lead-times?

And on the plus side, what sort of growth will we see in companies that invest in 3D printing capabilities?  Most likely we’ll be seeing startup operations that simply weren’t around before.

One thing’s for sure – it will be very interesting to look back on this segment five years hence to take stock of the evolution and how quickly it came about.  Some market forecasts have the sector growing at more than 25% per year to exceed $30 billion in value by that time.

Like some other rosy predictions in other emerging markets that ultimately came up short, will those predictions turn out to be too bullish?

Are U.S. warehouse jobs destined to go the way of manufacturing employment?

Even as manufacturing jobs have plateaued or fallen in certain communities, one of the employment bright spots has been the rise of distribution centers and super warehouses constructed by Amazon and other mega retailers to accommodate the steady rise of online shopping.

In my own region, the opening of Amazon distribution centers in Maryland and Delaware were met with accolades by local business development officials, who figured that new employment opportunities for entry level workers would soon follow.

And they have … to a degree. But what many people might not have expected was the rapid rise of robotics usage in warehouse operations.

In just the past few years, Amazon has quietly gone about purchasing and introducing more than 30,000 Kiva robots for many of its warehouses, where the equipment has reduced operating expenses by approximately 20%, according to Dave Clark, Amazon’s senior vice president of worldwide operations and customer service.

An analysis by Deutsche Bank estimates that adding robots to a new Amazon warehouse saves approximately $22 million in fulfillment expenses, which is why Amazon is moving ahead with plans to introduce robots in the remaining 100 or so of its distribution centers that are still without them.

Once in place, it’s estimated that Amazon will save an additional $2.5 billion in operating expenses at these 100 facilities.

Of course, robots aren’t exactly inexpensive pieces of equipment. But with the operational savings involved, it’s clear that adding this kind of automation to warehousing is kind of a slam-dunk decision.

Which helps explain another move that Amazon made in 2012. It decided to purchase the company that makes Kiva robots — for a cool $775 million.  And then it did something else equally noteworthy:  it ceased the sale of Kiva robots to anyone outside the Amazon family.

Because Kiva was pretty much the only game in town when it came to robotics designed for warehouse pick-and-ship functions, Amazon’s move put all other warehouse operations at a serious disadvantage.

That in turn created a stampede to develop alternative sources of supply for robots. It’s taken about four years, but today there are credible alternatives to Kiva brand robots now entering the market.  Amazon’s uneven playing field is getting ready to become a lot more level now.

But the other result of this “robotics arms race” is the sudden plenteous availability of new robot equipment, which companies like Macy’s, Target and Wal-Mart are set to exploit.

The people who are slated to be the odd people out are … warehouse workers.

The impact could well be dramatic. According to the Bureau of Labor Statistics, there are nearly 860,000 warehouse workers in the United States today, and they earn an average wage of approximately $12 per hour.

Not only is the rise of robot usage threatening these jobs, thanks to the sharp increase of minimum wage rates in areas near to some major urban centers is putting the squeeze on hiring from a wholly different direction. It’s a perfect storm the seems destined to blow a hole in warehouse employment levels in the coming years.

Thinking back to what happened to manufacturing jobs in this country, it’s seems we’ve seen this movie before …

Manufacturing in America: It is poised for a comeback?

American Made Movie (Documentary)On Labor Day weekend, the documentary film American Made Movie opened in theatres in key cities across the country.  And for a change, this film doesn’t chronicle the decline of American manufacturing, but instead its potential for rebirth.

Directors Vincent Vittorio and Nathan McGill have produced a film that’s both realistic and optimistic – two words that aren’t often used in conjunction with one another when the topic is manufacturing.

The directors don’t shy away from the facts:  U.S. manufacturing jobs shrinking from ~$17 million to just ~$12 million in the past 20 years due to technology, global competitiveness and outsourcing.

But there are signs of recovery.  At least the anectodal evidence for it is strong.

In August, Wal-Mart organized a manufacturers’ summit which was attended by ~1,500 people including U.S. and foreign-based companies, Department of Commerce and Federal Reserve officials, and eight state governors.

At this meeting, Wal-Mart affirmed its commitment to buy $50 billion in additional American-made products over the next 10 years.  GE, Element and other companies also announced plans to boost domestic manufacturing activities.

These developments aren’t merely patriotic or altruistic — although there may be some of that factoring into the decision.

In fact, with Chinese labor costs rising 15% to 20% each year, that country’s labor cost advantage is narrowing compared to the United Sates.

Harold Sirkin of Boston Consulting Group points out that factoring in raw materials and other costs, China maintains only a ~3% lead on product costs.  Add in transportation costs from Asia, and the “Made in America” alternative takes on new validity.

“We are at an inflection point,” Sirkin has stated, noting that the United States is now competitive with China.

GE’s chief executive officer Jeff Immelt echoes these sentiments, contending that on a relative basis, America has never been more competitive thanks to technology and improved productivity.

“High transportation costs mean you want to be closer.  It’s not just pure labor arbitrage,” Immelt notes.

As for productivity, the mere three hours it takes to assemble a GE refrigerator in America makes its total cost lower than a similar Chinese or Mexican-made models destined for the American market, according to Immelt.

I like what I’m hearing about the coming resurgence in American manufacturing … but I think we’ve heard this prediction before. 

The film directors discovered this inconvenient issue when traveling the United States and visiting manufacturing plants from large cities to small towns:  There’s a sizable gap between what manufacturers need in human capital, and the ability of the labor force to meet those requirements – whether it be older workers, or young workers right out of school.

Vincent Vittorio and Nathaniel McGill, movie directors
“American Made Movie” documentary film directors Vittorio and McGill.

“We need to provide the apprenticeship training necessary for a new generation of American workers to grow as fast as our technology is changing,” the documentary movie directors contend.

That may be happening at some technical colleges and a few community colleges across America.  But it’s not happening nearly enough if, like me, you hear constant complaints from manufacturing execs about the disconnect between the lack of (even basic) job skills and (increasingly sophisticated) job requirements on the manufacturing line.

Maybe it’s time to look harder at appropriating pieces of the German/Austrian apprenticeship model, wherein talented students are plucked from high school and placed with manufacturing firms for on-the-job training in lieu of college.

In such environments, a structured program of learning and training provides the roadmap for successful transition and integration into the job force.

An apprenticeship may not seem as “classy” an accomplishment as a college diploma.  But a college diploma doesn’t mean nearly as much these days.

What once was a sure-fire ticket to a career has given way to an environment in which half of all new college graduates are unemployed, underemployed, or working jobs for which their degree is irrelevant or unnecessary.

To that half of the young labor force, the near-100% placement/success rate for apprenticeships must seem awfully attractive now.

What are your thoughts about a coming manufacturing renaissance in America?  Please share your comments here.

Over-Hyping the “Made in China” Situation?

Made in China ... as threatening as we think?“Made in China” aren’t the most welcome-sounding words to American workers these days. Many of us believe that the plethora of goods it manufactures means the People’s Republic of China is grabbing scads of U.S. jobs as well.

Recent reports about Apple’s scads of assembly facilities in China only add fuel to fiery debate … and at least one presidential candidate is making the loss of manufacturing jobs a key component of his campaign rhetoric.

So I was surprised to read the findings of an analysis performed by economists Galina Borisova Hale and Bart Hobijn which contends that goods and services from China accounted for only ~2.7% of personal consumption expenditures in the United States in 2010.

What’s more, less than half of that amount reflected the actual cost of Chinese imports. The remainder went to American businesses and employees transporting and selling the products carrying the “Made in China” mark.

The report, which draws on data published by the Bureau of Economic Analysis, U.S. Census Bureau, the Bureau of Labor Statistics and other sources, states that total U.S. imports in 2010 amounted to about 16% of total Gross Domestic Product.

More specifically, imports from China amounted to ~2.5% of GDP. Moreover, nearly 90% of consumer spending in the United States during 2010 was on American-generated products and services.

Of course, services – which comprise about two-thirds of total spending – are mainly produced locally. And when we consider items like automobiles and electronics, the picture is different: One-third of U.S. consumption on durables goes for goods that are made outside the country.

It’s not hard to guess which products are the ones most likely to be imported from China; they’re primarily electronics, furniture, clothing and shoes. Offshore sourcing is most pronounced in apparel and shoes, where more than 35% of U.S. purchases in these categories were of items labeled “Made in China.”

No wonder so many clothing mills in America have gone the way of the dodo bird.

Without dismissing the impact of overseas manufacturing on manufacturing jobs in the United States, the broader statistics suggest that any long-term drop in American manufacturing employment is due to more factors than merely Chinese labor competition. Undoubtedly, advanced manufacturing technology and productivity gains per worker have a lot to do with it as well.

It looks like the “Made in China” debate may be another example of how the issues and challenges we face in the world are rarely ones of “black and white” … but rather “shades of gray.”

3D Printing: Will it “change everything” in manufacturing?

Objects and components made using 3D printingThe Economist magazine published an article earlier this month about an increasingly popular technology that may irretrievably alter the world of manufacturing. Known as “three-dimensional printing” or “additive manufacturing technology,” it’s expected to dramatically impact manufacturing industries.

The technology makes it possible to “print” three-dimensional objects, components or assemblies from a digital file, utilizing several different materials with differing mechanical and physical properties in a single-build process.

The way this is done is by building up the object gradually by depositing material from a nozzle, or by solidifying thin layers of plastic or metal particles using glue droplets or focused beam technology.

[If you’re having some difficulty wrapping your head around the concept, this short tutorial/demonstration using a Z Corporation 3D printer will serve as a good introduction.]

At present, the 3D process is possible using certain materials such as plastics, resins and metals, a precisions of ~0.1 millimeter. And while it’s been primarily the preserve of academicians and laboratories up until now, experts believe the technology is now poised for commercial success as 3D printing capabilities continue to improve and costs decline.

In fact, significant growth has already been observed over the past seven or eight years — and now a “race to the bottom” with pricing is beginning to pick up steam. To wit: A basic 3D printer-fabricator costs less today than a laser printer did in 1985.

With the manner in which this technology is developing, there’s really no end to the possible products that can be made. Small components, automotive parts and a host of other products will all be fair game in the coming years.

3D printing technology is even being studied by biotechnology companies for use in computer-aided tissue engineering applications wherein organs and body parts are created using 3D inkjet techniques. Living cells are deposited onto a gel and slowly built up to form 3D structures.

And what also makes all of this potentially revolutionary is that harnessing the technology does not have to happen only in a conventional “factory.”

Think about it. Small parts can be made by a machine that’s the size of a desktop printer. With such equipment available, no longer will manufacturers need to rely on OEM suppliers here or offshore to supply parts and accessories. And they can make as many or as few as they need, so the old notion of a large production line starts looking increasingly irrelevant.

There are additional benefits of this technology that industry watchers note. Product prototyping is expected to become easier, faster and cheaper than ever. Companies can “test and tweak” components with their best customers, making adjustments to the design until things are perfected – all in a finely controlled environment where there’s no such thing as wasted inventory or “wish and wait for” parts coming from outside or offshore.

Waste and scrap materials are slated to be far less, too, as 3D technology uses only just the amount of material needed to construct each part.

Thinking beyond the production-centric aspects, other implications for manufacturing businesses are big. Reducing barriers to entry for manufacturing, 3D printing may well promote more innovation than ever before. The ability to produce items without needing the full force of a factory behind them will be a huge benefit to inventors, entrepreneurs and start-up operations, because product development, beta testing and first-run production will cost less and present lower risks.

Will the flexibility to design and produce components that the 3D technology allows mean that there’ll be less need to look to offshore suppliers for cheaply manufactured products? We can’t know for sure, but the prospects that a shift in manufacturing activity from the Far East back home is certainly tantalizing.

As with any new innovation, there are potential downsides and possible “unintended consequences.” For one, intellectual property may become much harder to protect … after all, when an object can be described in a digital file, it becomes much easier to copy and distribute.

But one thing is definite: 3D printing is a topic that’ll be front-and-center in the coming years as we sort through the opportunities and the implications.

It’s Official: Older Cities Take a Beating in the Latest U.S. Census

Abandoned housing stock in Flint, MI
2009 street scene in Flint, Michigan.

While there’s been evidence of significant shifts in U.S. population growth over the past decade, the decennial census performed earlier this year gives us an opportunity to learn precisely what’s been happening and end some of the “speculation.”

And now, with the U.S. Census Bureau releasing its preliminary population reports, we’re seeing how this has played out in cities across the country. While it’s true that the American population has grown pretty steadily at about 2.5 million people per year, some areas have grown much faster than others as a result of being better positioned through the education of their workforce and/or their business- and technology-friendly environments.

Alas, other areas haven’t merely stagnated, but actually lost residents because of failing industries and unattractive business climates, sparking net out-migration of their residents.

Interestingly, many of the cities in the “industrial heartland” of America have managed to stay on the positive side of population growth – even if just barely. But some cities have experienced such hardship that their populations have dropped dramatically in the past decade.

New Orleans tops the list … and who’s surprised about that? After all, Hurricane Katrina effectively robbed the city of one-third of its residents – with most of them electing not to return after establishing new livelihoods in Houston, Shreveport, and other localities further yon.

But New Orleans surely represents a “special case” if ever there was one. Other cities have suffered greatly due to their dependence on industries that took a beating over the past decade. And really, any city with a major focus on traditional manufacturing saw thousands of jobs disappear.

According to the U.S. Bureau of Census report on the nation’s largest cities — ones with 100,000+ population — the seven experiencing the biggest percentage declines in population over the past decade are:

1. New Orleans, LA – Dropped by ~129,000 to ~355,000 (-27%)
2. Flint, MI – Declined by ~13,000 to ~112,000 (-11%)
3. Cleveland, OH – Fell by ~45,000 to ~431,000 (-10%)
4. Buffalo, NY – Dropped by ~22,000 to ~270,000 (-8%)
5. Dayton, OH – Declined by ~12,000 to ~154,000 (-7%)
6. Pittsburgh, PA – Dropped by ~22,000 to ~312,000 (-7%)
7. Rochester, NY – Declined by ~12,000 to ~207,000 (-6%)

[I was a bit surprised to see Detroit missing from this list. After all, it’s the poster child for urban decay and depopulation. But Detroit’s population percentage decline was actually smaller than the cities above, and it remains the nation’s 11th largest city. However, the 2010 census will likely show that its population has fallen below 800,000 for the first time in nearly a century – and the figure is even more startling when you realize the city’s population was nearly 2 million as late as the 1950 census.]

Unfortunately, the negative implication of population declines in these proud American cities go far beyond the loss of social prestige and political clout.

Once decline sets in, it can go on for years. The loss of residents contributes to a drop in tax receipts and the subsequent curtailing of social services ranging from police and sanitation to schools and recreation. Home vacancy rates say volumes about the precarious position in which the cities above find themselves – they’re above 15% in every single case (and sometimes dramatically higher).

Confronted with such a reality, too often the result is more people fleeing the urban core, creating a continuing downward spiral that seemingly has no bottom. Representative examples of where this sorry state of affairs can end up can be found in two smaller but particularly grim urban communities: Camden, NJ and Chester, PA.

From the outside looking in, it’s difficult to accept these population reports … and it seems like people should step in and do something – anything – to arrest the decline.

And in the abstract, it’s only natural to feel that this is what should happen. But in the “real world,” who are going to be the ones to step up to the plate and expose themselves (and their families) to the harsh reality of urban pioneering?

Would I do it? Would you?

For most of us, the answer to that question falls into the “life’s too short” category.