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Midwest Manufacturers Fight to Stay Competitive in Global Marketplace

November 29, 2007 at 6:25 PM EST
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In the second of a series of reports on America's response to globalization, Paul Solman reports on how some Midwestern manufacturers work to bridge the gap with foreign companies and fight to keep U.S. companies relevant in the changing global marketplace.
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PAUL SOLMAN, NewsHour Economics Correspondent: In Milwaukee, the annual Wisconsin Machine Tool Show, with this year’s display of equipment to boost U.S. productivity, help our manufacturers compete globally.

Distributor Mike Weller.

So who do you represent?

MIKE WELLER, Machine Tool Distributor: I represent Mighty USA, the–

PAUL SOLMAN: Mighty USA?

MIKE WELLER: Mighty USA.

PAUL SOLMAN: How much more American can you get? Actually, though…

MIKE WELLER: They’re an importer based in California named for machine tools from Taiwan.

PAUL SOLMAN: So you could say, for half a century, Mighty USA in Taiwan has been making the real USA less mighty in manufacturing, an increasingly familiar story.

MIKE WELLER: I sold nothing but American-built machines tools 15 years ago, and I loved it. I was representing Americans, selling to Americans. I felt proud about what I was doing.

PAUL SOLMAN: Do you feel a little, I don’t know, guilty that you’re not supporting Americans, but people in Taiwan?

MIKE WELLER: Well, yes, I do feel a little guilty from the fact that I’ve had to shift gears to make a living and provide for my own family.

PAUL SOLMAN: The story we’re about to tell, however, might help lift Mike Weller’s guilt by allowing him to sell American machine tools once more, because the cost gap between “Made in America” and “Made Abroad” is shrinking, due to steps U.S. firms are taking and larger global forces.

At first glance here in Milwaukee, Wisconsin, once the pride of the rust belt, it’s a little hard to believe. The place where they made Schlitz, the beer that made Milwaukee famous, is now an office park. Pabst Blue Ribbon has been reduced to rubble, hard times for the city of foam and chrome.

U.S. companies must adapt

Dan Luria
Michigan Manufacturing Technology Center
It's not imaginable that you could continue to let a sector decline at that rate without having severe consequences for the rest of the economy. It's small, but pivotal.

PAUL SOLMAN: But U.S. manufacturing isn't dead yet, not in Milwaukee, not in the rust belt, not in the U.S. as a whole. It's still 12 percent of the economy, 10 percent of jobs, well-paying -- averaging some $70,000 a year -- and manufacturing accounts for two-thirds of U.S. exports, keeping us the world's top manufacturing exporter.

Yet it's lost more than five million jobs in the past decade alone.

DAN LURIA, Michigan Manufacturing Technology Center: It's not imaginable that you could continue to let a sector decline at that rate without having severe consequences for the rest of the economy. It's small, but pivotal.

PAUL SOLMAN: It's also savable, say Professor Dan Luria and his colleague, Joel Rogers, because the gap with lower-cost foreign competitors is now down to just 17 percent and could be largely eliminated with just two changes by U.S. manufacturers. First...

JOEL ROGERS, University of Wisconsin: Do something on your use of materials. Reduce their cost, make the materials lighter, et cetera, the products lighter. And most immediately under the control of the firm, do something on productivity, individual worker productivity.

PAUL SOLMAN: Indeed, some Wisconsin companies are already closing the gap, first, by reducing material costs.

TERRY HANSEN, Ultra Tool President and Owner: We can help our customers design products that eliminate cost and waste.

PAUL SOLMAN: Terry Hansen of Ultra Tool makes parts for Harley-Davidson, like this motorcycle footboard.

TERRY HANSEN: These are the three pieces of the original assembly. This is the final assembly of the same configuration.

PAUL SOLMAN: So these guys go like that?

Harley asked them to cut costs on the chrome.

TERRY HANSEN: We came back and we said, "Look, we can make this out of stainless and eliminate all these pieces and do it just one piece." This is the key component, the fact that we were able to put this hinge and holes assembly into the base material and eliminate these extra parts.

PAUL SOLMAN: And yet this will function at least as well as that?

TERRY HANSEN: Yep, or better.

Productivity must rise

Mike Klonsinski
Wisconsin Partnership
The adage "Time is money" is true. Lean is about speed, it's about getting rid of waste. We help take those lessons from one place to the other.

PAUL SOLMAN: Next way to close the 17 percent gap with low-cost competitors? Increase productivity.

TERRY HANSEN: So this is a good part at the end, and this is how it looked when it was failing.

PAUL SOLMAN: The R&D on this dishwasher kick plate used to mean spending money to make it, to test it, losing that money if the part failed. But computers can now simulate what will happen before the part is built.

TERRY HANSEN: So we're looking at a program, a software program that is showing what would actually happen in a production sense in the tool, in the dye. And in this case, it's showing a failure.

PAUL SOLMAN: That's the purple ... bleeding?

TERRY HANSEN: That's the purple. Yep, yep, it's going to get worse. We can use this, and we can say, "All right, let's not build this. Let's modify it before we even get out to the shop."

PAUL SOLMAN: Thus saving Ultra Tool and its customers weeks of wasted work. Can't other rust belt companies simply adopt this off-the-shelf software?

TERRY HANSEN: Yes, they could. But do they? But will they?

PAUL SOLMAN: Well, the point is that they're starting to, with the help of government, in this case, the state of Wisconsin. Extension agents like Mike Klonsinski are spreading best practices from firm to firm, the Johnny Appleseeds of "lean manufacturing."

MIKE KLONSINSKI, Wisconsin Manufacturing Extension Partnership: The adage "Time is money" is true. Lean is about speed, it's about getting rid of waste. We help take those lessons from one place to the other, and it's a way for us to help the whole region get better.

Weak dollar to the rescue

Dan Luria
Michigan Manufacturing Technology Center
Now the dollar has already come down more than 10 percent against European currencies, and recently it's come down almost 8 percent against the Chinese currency.

PAUL SOLMAN: But, it turns out, it's not just what U.S. industry can do for America and our competitiveness. It's what global economic forces are already doing to close the cost gap in manufacturing. One is a weaker U.S. dollar.

DAN LURIA: Now the dollar has already come down more than 10 percent against European currencies, and recently it's come down almost 8 percent against the Chinese currency.

PAUL SOLMAN: It's come down even more in the weeks since we interviewed Dan Luria. A lower dollar, of course, would mean lower prices for U.S. goods in countries with strengthening currencies, thus increasing U.S. sales abroad. It would also make their goods more expensive here. But by cutting imports and boosting exports, U.S. manufacturing would come out ahead.

Another force working in our favor: wages are rising in China and elsewhere, further closing the cost gap. Then there's regulation, an extra expense here to protect our workers, protect the environment.

But, again, the developing world is under pressure to catch up. Just think of Japan 40 years ago -- a low-wage, much less regulated competitor -- and Japan today, with wages and rules equal to, if not greater than, ours.

Supply chain now more important

Joel Rogers
University of Wisconsin
Manufacturing is part of the whole innovation cycle in the U.S. The reason why you get new products generated is you're involved in some way in trying to make new products.

PAUL SOLMAN: But the most important factor of all in the cost-gap shrinkage may be least widely publicized: the growing global importance of what's called a short supply chain. Matt Levatich manages the thousands of different parts Harley buys from suppliers. The shorter the supply chain, the better, he says.

MATT LEVATICH, Vice President, Harley-Davidson: Sometimes things go wrong in production, right? We need to be able to respond quickly. You know, we have thousands of employees that are producing motorcycles, and every part has to be right every day.

And if there's an issue, we have not just our own factories that might go idle for a while, while we get it solved, but the suppliers and their suppliers, if we're not producing, you know, so forth. So the stakes are quite high.

PAUL SOLMAN: As Harley supplier Terry Hansen reports, if he's producing in China...

TERRY HANSEN: If there's a hiccup, if the boat sinks, now you've got a major gap in production.

PAUL SOLMAN: Well, it's not going to sink, is it?

TERRY HANSEN: They do. They lost a whole shipment of parts, cause they sank, the boat sank, or the containers fall off the boat.

MATT LEVATICH: What if there's a transportation disruption within China and the product can't get to the port? How do you even solve that problem if there's no airport where the parts are being produced?

PAUL SOLMAN: And what about a bio-threat, SARS, avian flu?

MATT LEVATICH: All kinds of issues. What if there's a dozen containers of components that have a quality issue or were made with lead paint, right? What do you then? The longer the supply chain, the more complex it is, the more issues and factors that have to be evaluated, and the more unknowns.

PAUL SOLMAN: So a shorter supply chain is simpler, more flexible. And the more transportation costs rise with the price of energy, the cheaper it will be compared to importing from great distances. We saw evidence at the machine tool show.

MIKE WELLER: That machine there is probably $35,000, $40,000 just to get it to port from Taiwan.

PAUL SOLMAN: But it was here, so you could argue that if machine tools like this one are still being shipped from Taiwan to Milwaukee, the cost gap sure hasn't closed yet. But, next booth over, this machine tool, which cost just $5,000 to make it to Milwaukee. How come?

MACHINE MANUFACTURER SPOKESMAN: The machine is made in our factory in southern California.

PAUL SOLMAN: In fact, the more we researched, the more we heard about work brought back from China. Wisconsin manufacturer Jor-Mac, for example.  To its surprise, 20 percent of its work has been won back from China in just the past two years.

Thank goodness for this trend, say manufacturing's supporters.  Making things, especially life's necessities, is essential to any economy, they claim. We don't have to rely on other countries. We keep good jobs for many of the three-quarters or so of us who don't finish college, although fewer jobs, of course, as automation marches on. And we remain innovative, the key to staying globally competitive.

JOEL ROGERS: Manufacturing is part of the whole innovation cycle in the U.S. The reason why you get new products generated is you're involved in some way in trying to make new products.

DAN LURIA: How long do you think the Indias, and the Chinas, and the Malaysias, and the Polands, and the Czech Republics are going to be content to just be the people who do the underpaid, simple tasks? They're producing more engineers than we're producing. They're going to learn how to do it.

PAUL SOLMAN: So no matter how mundane a product might seem, from a motorcycle under seat or dishwasher kick plate to a seed planter or striker assembly for a hand grenade, the making of it cheaper, faster, closer to home has a host of benefits for the U.S. economy, benefits we'd lose with the death of American manufacturing, but that we may not have to lose, if the reports of that death are, indeed, greatly exaggerated.

JIM LEHRER: On our Web site, we are launching "Paul Solman's Business Desk," where you can submit questions to Paul on economic and business news. You can find that and watch Paul's first report on Midwest manufacturers at PBS.org.