America’s golden age of manufacturing may have faded, but factories remain a relevant part of the economy, making products and employing workers.
By John Crawford
During World War II, American manufacturers served as the backbone of the country’s war efforts. They supplied soldiers and sailors with everything they needed, from tanks and guns to planes and ships, to rid the world of Hitler.
The father of Susan Dacey, MBA’80, was one of those manufacturers, running a plant that developed and produced bomb fuses. In later years, though, Ralph Dacey grew dismayed as America’s manufacturing might slipped away. An industry that once produced an arsenal to free the world from oppression became replaced by a vast service economy. “We can’t all be shining each other’s shoes,” he would say.
Susan Dacey, now CEO of Industrial Polymers and Chemicals, the Shrewsbury, Mass.-based company that Ralph began in 1959, shares her dad’s sentiments. Her company makes a fiberglass reinforcement for abrasive cutting and grinding wheels. It is a tangible product, she says, and that’s what manufacturers provide.
Much has been said about the decline of American manufacturing. In 1990, manufacturing as a percentage of GDP stood at 16 percent. Two decades later, that percentage fell to about 11 percent. Consequently, according to the U.S. Census Bureau, the number of Americans working in manufacturing dropped from 17.6 million to 11.5 million during that time. “Large-scale manufacturing has been declining for 25 years, and it’s unlikely to come back, at least not in the traditional form we know,” says Sebastian Fixson, assistant professor of technology and operations management.
When Americans think of the country’s golden age of manufacturing, they think of the auto plant job with union wages that enabled someone to buy a house, raise a family, and live a comfortable life. “We can no longer say there will be a nice job waiting for you on the assembly line,” says Kent Jones, professor of economics and the Kevern R. Joyce Term Chair. “We can’t replicate that. Trying to recapture the past isn’t going to work.” Recognize that today’s service economy isn’t a bad thing, Jones says. Think about the many people working in health care, education, and high-tech. Transitioning to an economy dominated by these types of jobs is the normal path that nations take as their citizens’ standard of living increases, Jones says.
FINDING THE RIGHT WORKERS
All and all, business at Niagara Transformer Corp. is going well.
The Buffalo, N.Y., maker of power transformers exports to 82 countries, and its products can be found in diverse markets, including steel mills, mines, gasoline refineries, utilities, and chemical companies. This diversity ensures that if one or two markets have a down year, Niagara’s business won’t be affected too severely.
Niagara also keeps ahead of cheaper overseas competition through what it considers superior customer service. If a customer calls on a Sunday with a problem, that call connects to the personal cell phone of Niagara’s president, John Darby, MBA’89, and the issue is addressed immediately. “You do that for somebody, and they aren’t asking about the price next time,” Darby says.
One challenge Niagara does face: finding enough skilled employees. Niagara isn’t alone. The unemployment rate may hover around 8.5 percent, but according to an October survey by Deloitte and The Manufacturing Institute, American manufacturers have 600,000 unfilled positions because of a lack of qualified workers.
The growing sophistication of American factories contributes to this shortage, demanding workers who are more technologically literate and thus harder to find. Fewer domestic college students are studying engineering, compounding the problem, while visa restrictions limit the number of foreign engineers who can come to the U.S. “To me, that’s insane,” says Kent Jones, economics professor. “Our economy has always benefited from immigrants.” Because of these hurdles, many of Niagara’s competitors employ engineers offshore. “If you don’t grow engineers, you get what you need elsewhere,” Darby says.
Illustrations: Jon Reinfurt
Besides, everything isn’t doom and gloom in U.S. manufacturing. Despite overseas competition and the recession, manufacturers are finding ways to set up shop in the U.S. and make it work. They have found niches by making high-quality products, going green, focusing on local markets, or tapping into a growing demand for American-made items. They may not be massive companies employing thousands of people, but on a smaller scale, they’re proving that manufacturing is still a relevant part of the American landscape.
The Local Advantage
Depending on the industry, location can be a powerful asset for a manufacturer. Consider Bilco Brick in Lancaster, Texas. Thanks to the simple fact that its namesake product is heavy and expensive to move, Bilco enjoys a big local advantage. Ship bricks too far domestically, much less internationally, and a manufacturer soon eats into its profits. “The weight kills you,” says Randy Colen, MBA’86, Bilco’s president.
When Bilco’s machines are humming, the manufacturer’s 100,000-square-foot facility can crank out some 150 million bricks a year. Unfortunately, because of the recession and the toll it has taken on homebuilders—Bilco’s main customers—the company is producing only 24 million to 30 million bricks annually. “When all the pistons are running, the profit margins can be huge,” Colen says. “But when you’re not running on all pistons, the margins are terrible.” The 150-employee company, though, refuses to stand still and has diversified its business. Besides bricks, it now makes stone facade, steel products for leveling and fixing foundations, and green sand for golf courses. “I’m hanging on,” Colen says. “This is the worst economy in 70 years. You’ve got to be creative.”
Dacey’s Industrial Polymers and Chemicals also has a local leg up, being that its fiberglass products have a limited shelf life and are best used within three months. That puts its Chinese competitors at a disadvantage. “They have a hard time getting to market in a timely fashion,” she says. The cost savings from buying overseas are also disappearing. Ten years ago, if Industrial Polymers spent a dollar to manufacture an item, customers could buy the Chinese equivalent for just 30 cents. That figure has risen now to about 75 cents, which doesn’t include freight costs.
Still, manufacturing in America is challenging, says Dacey. “I have a hard time thinking of advantages,” she says. “Being close to market is one of the few.” Dacey cites the usual drawbacks: regulations, costly health insurance, relatively high wages. Like Bilco Brick, Industrial Polymers took a hit in the recession, suffering a 25 percent drop in sales between 2008 and 2009. Uneasiness about the future lingers. “I’m not hiring new people because I don’t know what’s going to happen,” Dacey says. Overall, though, business at the 60-employee company is good. “It was pretty bad, but we have come back,” she says. “It’s getting there.”
Mack Molding appreciates the significance of a local advantage. In the early 2000s, as many competitors migrated overseas, the supplier of contract manufacturing services and molded plastic parts developed a new business model, doubling down on its identity as an American manufacturer since 1920. “An honest look in the mirror resulted in two separate but connected strategies,” says Ray Burns ’74, president of Mack’s southern division.
With factories in the Carolinas, Mack’s southern division invested in large-part markets, such as those for heavy trucks, utility vehicles, and large-screen TVs. These parts not only are difficult to manufacture and ship from overseas but also serve a robust customer base in the American Southeast. Meanwhile, Mack’s northern division, which has four locations in Vermont and Massachusetts, expanded its position in the medical market. The division’s focus became high-quality, highly configured, lowvolume products that aren’t easy to manage offshore. These products also have a vibrant customer base in the northeastern U.S.
The plan paid off for the company of some 1,600 employees. “That strategy has worked for us over the past 10 years and continues to work for us today,” Burns says.
A Quality Product
Focusing on quality allows some American manufacturers to differentiate themselves and fend off competitors. For Zildjian, a cymbal maker of about 150 employees based in Norwell, Mass., quality trumps everything, says Samantha Zildjian ’11. She’s the 15th generation involved in the centuries-old family business. Her mother, Craigie Zildjian, a member of the 14th generation, is the manufacturer’s CEO.
Zildjian’s cymbals may be banged on by some of the biggest names in music, but like any manufacturer, it faced challenges with the recession. The company has tweaked its business, beginning to sell digital cymbals, offering products through Best Buy instead of just traditional music stores, and bringing automation into its plant to streamline operations.
One change the company won’t consider is making its cymbals overseas. Zildjian offers a premium product at a premium price, so it needs to keep a close eye on manufacturing. No “dud” cymbals can be sold, especially when Chinese cymbals continue to improve. “It wouldn’t make sense to move,” Samantha says. “Our quality would go down if we outsourced.”
Keeping manufacturing in-house also allows Zildjian to protect the alloys used in its cymbals. Amazingly, the alloys have been a secret for nearly 400 years, since Zildjian was started in Constantinople in the 17th century.
Selling and making quality products is also the mission of Ball and Buck. In its Boston store, it stocks American-made clothing brands, as well as its own growing label of clothes and accessories that come from factories across the U.S. Its leather goods are made in Connecticut, its bags in New Jersey and Minnesota, its button-down shirts in Arkansas, and its T-shirts in California. “The stuff in our store is made by craftsmen,” says Mark Bollman ’10, Ball and Buck’s president and co-founder.
Classic American apparel, such as Red Wing shoes and Pendleton shirts, is experiencing a resurgence lately, and Ball and Buck joins an influx of newer businesses channeling that old-school look and quality. “There is a niche in the market now that is very pro-made in the USA,” says Bollman, but he concedes that the movement only goes so far. Many people still don’t care where their clothes are made and don’t realize that seemingly traditional American companies like L.L. Bean and Levi Strauss manufacture overseas. “Our job is to educate consumers,” he says.
Buying quality American products comes with a price. A button-down shirt that costs $50 to make in the U.S. could cost just $5 to produce overseas. “No question. It’s a drastic difference,” he says. But the higher quality shirt will last longer, Bollman says, and he believes consumers will take the long view when shopping. All his products come with a lifetime guarantee. “People should be thinking two steps beyond after they swipe their credit card,” he says.
Transparency and Going Green
Eric Hudson, MBA’92, also believes consumers will seek out a well-made American product, especially when customers agree with a company’s values. “I think consumers remain committed to companies that have a social mission and that provide jobs in the U.S.,” says Hudson, founder and president of Preserve, a Waltham, Mass.-based company that turns recycled plastics into kitchenware, tableware, and personal care products.
Preserve partners with local manufacturers to make its products. Offshoring such work and shipping goods thousands of miles wouldn’t fit the image of a green company. “That’s not what Preserve is about,” Hudson says. Not offshoring does mean somewhat lower profits. “Our COGS [cost of goods sold] is likely higher than if we manufactured overseas,” he says. “Our margins are likely smaller. But the positives outweigh the negatives.”
Despite lower profits, San Francisco-based clothier Taylor Stitch also has found a way to manufacture in the U.S. Like Ball and Buck, it’s an outfitter inspired by classic American brands. “We make it work by selling mostly direct to consumers and managing our input costs to the best of our ability,” says Mike Maher ’07, Taylor Stitch’s co-owner and co-founder, along with Barrett Purdum ’07 and Mike Armenta. “We also have become less concerned with taking extremely high margins and focus on making the best product possible.”
Through their retail store, Maher and his partners sell Taylor Stitch and other brands, almost all of which are made in the U.S. Maher chalks up the increased demand for American-made products not only to a desire to support domestic jobs, but also to a concern for sustainability and labor issues. Customers want to know about factory conditions and about the materials going into the wares they buy. “It’s a transparency thing,” Maher says.
If Maher wants to check on the production of Taylor Stitch’s clothes, he doesn’t have far to go. Its ready-to-wear shirts and jeans are produced in factories just 10 blocks or so from its store. Maher stops by three to five times a week to make sure all is running smoothly. He relishes the quality control. “If you make 1,000 shirts far away and 800 come back screwed up, it’s not easy to have that fixed,” he says.
The factories that Taylor Stitch works with may not be big. They may not be teeming with assembly line workers churning out cars or TVs. But when Maher walks into those factories, he sees people working. He sees people cutting, sewing, and making tangible things. “We will proudly continue to make products here in the U.S.,” Maher says.