Two rules of rebounding

Depending on who you talk to, the state of American manufacturing is either robust or just a bust. The numbers are all over the board. Manufacturing production was up 5.1% in 2004, and has been on a steady rising since the third quarter of 2003. Orders for durable good, which spiked in the first quarter of 2004 then plunged, have made another steady climb and are up 9.3% for the year. Capacity utilization, another bellwether of the industry, rose 3.8% in 2004 and is now up to almost 78%.

Yet consumer confidence fell 8% last year, though much of that can be attributed to a one-month jump in confidence in January of 2004. Yet the widely quoted University of Michigan index struggled to stay above 95 (on a scale of 100) throughout last year.

Has confidence failed to keep up with the real growth in manufacturing? Have the impact of foreign trade issues – especially with China – overwhelmed the real truth about the U.S. manufacturing sector?

Perhaps the place to begin the discussion is with productivity and quality. It is in these two areas where U.S. manufacturers have found the greatest success in the past few years. In recognizing the need for both internal as well as international reforms, manufacturers have shaken off the impact of layoffs and sought improvements in productivity. Some of that is technologically driven, of course, but all the technology in the world cannot offset the innate intelligence of the American manufacturing worker.

We’ve gotten smarter about how we do what we do, and in that, we’ve raised productivity. Those are figures the National Association of Manufacturers are happy to tout.

“Overall productivity has now exceeded 4% for three years running. This is unprecedented,” noted NAM chief economist David Huether. “In fact, since (the U.S. Department of) Labor started keeping productivity records in 1947, no single decade has included more than one year of better-than-four-percent productivity growth.”

Productivity is the place to start any economic recovery. It is not just people working harder, but working smarter. It is the culmination of manufacturing leaders at every level of the plant – from CEOs to engineers to line workers – understanding that the rebounding growth of manufacturing is a group project, and an individual one.

As Huether also notes, that group effort keeps a lid on inflation at a time where energy costs and other inflationary pressure have dulled what might be an even more rousing recovery. “While real hourly compensation for workers has continued to rise, efficiency gains have held unit labor cost increases near zero for the last three years. And this has kept the overall inflation rate in the business sector below 2% despite recent surges in energy and commodity prices. Without this boost in labor productivity, inflation would be a much bigger worry,” Huether said.

That’s the continuing challenge for manufacturers now. China will be a problem for as long as it takes for the economic, political and social pressures to level the playing field. It’s an issue that seems to dominate our thinking some days, and some of it is with just cause.

Yet the real issue is how well we do what we do. At the end of the day, we must hold to a fundamental truth that our manufacturing skills – our quality control, our innovation, our expertise, our workers – can match anyone’s on the planet.

In basketball, a fast break is triggered by a rebound. The first two rules of rebounding is to get good position and keep your eye on the ball. Those seem like good rules for plant managers to follow as well.

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