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What really is behind the decline in the number of U.S. manufacturing jobs?

by Stephen Hawley Martin
for Virginia Business
February 28, 2006

For more than 10 years, manufacturing companies around the globe have been changing the way they work. Most people employed in service industries may have barely noticed, but this transformation has resulted in huge benefits for almost everyone. It's a primary reason that labor productivity has been up about 4 percent annually in recent years and the prices of manufactured goods have remained steady, or even dropped.

The enormous shift in how products are made has its origins in the 1990 publication of a book called “The Machine that Changed the World” about the Toyota Production System. It has taken longer than authors James P. Womack, Daniel T. Jones, and Daniel Roos thought it would, but what they predicted is now in sight: the end of mass production. Lean manufacturing is taking its place.

Smart manufacturers no longer build goods to forecast and store them in warehouses waiting for them to be sold, tying up capital and taking up huge amounts of space. Like Dell Computer, they wait until they have an order in hand, and then they assemble a product quickly, using continuous flow, lean manufacturing techniques.

News articles that lament a decline in the number of domestic manufacturers tell only a portion of the story when they focus on jobs heading overseas. It is true that in the new, global economy outsourcing production to other countries has become commonplace. What these articles fail to recognize, however, is that workers' wages are but a small part of the manufacturing cost equation. And they overlook that the elimination of jobs isn't all caused by outsourcing. You see, the waste inherent in the old mass manufacturing system is enormous. Lean manufacturing simply requires fewer people to produce a similar number of goods.

Old techniques typically require enormous amounts of inventory in the form of work-in-progress, inventory that takes up expensive space and ties up capital. Building to forecast means gambling corporate dollars by making products without being certain someone will buy them. And it requires investments in warehouses to store them. When forecasters are wrong, goods often are sold at a loss, if they are sold at all. Imagine, for example, how much less a product in the electronics industry is worth six months to a year after it is made.

Lean manufacturing eliminates this waste. For a variety of reasons, a lean operation typically turns out higher-quality products than its mass manufacturing cousin. It almost always requires 25 to 40 percent less direct labor. It uses about half the floor space because no room is required for work-in-progress. Warehousing costs are cut to the bone because finished-goods and parts inventories are normally reduced from several months' to a few days' supply.

American manufacturers that caught onto this some years ago have now adapted to new methods. They are able to compete in the global marketplace no matter in what country or location their products are assembled. Dell Computer, for example, builds products all over the world, including the United States. So does Toyota.

Why hasn't every American manufacturer made this shift? The biggest problem is easy to identify but difficult to overcome. People in middle management and in supervisory positions often must shift from a "command and control" mentality to that of "team leader." If they don't, the lean model won't work. Those who have been operating in the command and control mode all their lives usually find this difficult. For many it may be impossible. Often, top management may find it quicker and easier to scrap a factory and start over somewhere else, perhaps in another country or another state, than to spend time and money teaching old dogs new tricks.

In traditional factories, people come in two varieties: managers and workers. Lower-level managers in particular often are assertive, aggressive, and can even be intimidating. They play the role of taskmaster and relish being on a higher plane than the workers they supervise.
On the other side of a huge chasm are workers, who are generally are regarded by managers as unfeeling and unthinking robots. They typically do one particular job, and only that job, all day long. Naturally, they tend to be extremely frustrated. Chances are, all a robot worker will do is the minimum necessary to keep a paycheck coming.

This "us against them" setup is inefficient and often counterproductive, but in a traditional mass manufacturing business it works because employees are not required to think. But a lean manufacturing operation cannot function this way. Workers must be able to change jobs or tasks and move from one assignment to another to meet the day's production requirement. Because the hierarchy has been eliminated and no supervisor is breathing down their necks, they must use their heads, make decisions and solve problems in consultation with other team members.

Imagine how much better any business would run, how waste could be eliminated and things would hum along, if everyone felt important and that their contribution mattered. Imagine if they each felt a sense of ownership and responsibility. Imagine if all employees in a company were considered integral members of the same team and in a position to make vital contributions. This is the reality of a lean enterprise. But it cannot be achieved if old-line managers are allowed to stand in the way.

Studies show that workers in a lean enterprise are happier with their jobs than those in traditional businesses. And why wouldn't they be? They are no longer robots. The only downside, and whether it is a downside depends on your point of view, is that there are fewer of them. When a factory is fully lean and operating at its former capacity, it often will have 40 percent fewer employees. Unfortunately, this part of the story is all that normally makes it into print.

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Stephen Hawley Martin is a former principal of The Martin Agency in Richmond and the author of more than half a dozen books including his newest, Lean Enterprise Leader: How to Get Things Done Without Doing It All Yourself. He is editor and publisher of The Oaklea Press, a book publishing business dedicated primarily to helping business executives increase productivity.