US manufacturers know how to win. Here's their secret.
US manufacturers can thrive, just look at Tesla and, now, Apple. The trick is for US manufacturers to find the natural advantages that the US offers.
Let me tell you something about Americans. We like to win. No, we love to win. And in our minds at least, we do it all the time.
But these days, when it comes to manufacturing, we've been doing less winning than we like. We really hate losing, but it sets us up for the one thing we might like nearly as much as we like winning: a comeback.
The first time I heard a Chrysler ad say, "This was once a country where people made things. Beautiful things. And so it is again," I saw a room full of men trying not to weep at an SUV commercial. Chrysler (or more accurately Wieden+Kennedy) knew what they were saying with that one.
And they weren't far from the truth. This is what American manufacturing is today: a chance to combine two things that we as Americans love very much – winning and making a comeback.
How we don't do it
To explain how we do this thing, let me start with what we cannot do. We cannot out Shenzhen the Shenzhenese.
In that large Chinese manufacturing center, the minimum wage is $2.14 an hour. That wage gap continues right up the salary scale. A well-educated employee with the equivalent of a masters degree making an average wage in Shenzhen would take home just over $16,000 a year.
Our big American manufacturing comeback won't be fueled by competing on labor costs with the world's manufacturing centers.
How we do it
The formula is simple. We figure out what competitive advantage "made in America" gives us, and we capitalize on that advantage.
In practice, it can be complex. Usually, that advantage comes from more than one thing.
Take Tesla Motors. What did Elon Musk find in America that he couldn't find in China, India, Germany, or Japan? Quite a bit, actually. Tesla gets to be right in the middle of Silicon Valley's culture of innovation that fits right in with a car that's out to reinvent the car industry.
They get access to the valley's seemingly endless troves of venture capital - along with investments from the federal government (which also likes to see a good old-fashioned American comeback, all the better if it's a green one). And the state also happens to have an empty auto manufacturing plant that was more or less cast off by Toyota and General Motors.
Apple is another example. For a while now, every iPhone or MacBook the company has sold boldly claims that it was “Designed by Apple in California,” followed by the less bold “Assembled in China.” This year, that’s expected to change for at least the company’s iMac product line.
The American advantage to Apple’s product line is a bit less obvious than for Tesla. In many senses, Apple is responsible for Silicon Valley’s culture of innovation, and it’s hard to think that there’s much room for improvement in the tech giant’s legendary logistics. The real benefit is probably a mix of the good PR the move will generate — Apple’s gotten plenty of heat over conditions at its Asian manufacturing partners — and savings in the cost of shipping iMacs across an ocean or two.
But I'm not telling you anything new about Tesla or Apple. So let me instead talk about a company that you've probably never heard of – because, honestly, what this company makes isn't nearly as sexy as an iPhone or a roadster that can beat the pants off a Ferrari.
How it's being done at [P2]
It's my company, Precision-Paragon, which makes commercial and industrial energy-efficient lighting fixtures. You've never heard of [P2], as we call it, because unless you own or manage a large warehouse, retail site, or office building, you've never had a reason to buy what it makes at its California, Wisconsin, and Florida plants.
If you visited the Orange County, Calif., manufacturing facility, for example, you'd see a man welding in one corner. In the center of the manufacturing area, workers feed sheet metal into machines that bend, cut, and stamp it into the shape of fluorescent lighting fixtures. Off to one side is a clean room where workers attach LED optics to circuit boards – a cutting-edge process and product. Near the plant's shipping dock, there's something that would have made Henry Ford's heart skip a beat: two honest-to-goodness assembly lines, turning individual components into finished fluorescent and LED fixtures. All of them made right here in America.
So how has [P2] managed to keep its manufacturing plants stateside? By finding a market niche that could only be filled with domestic manufacturing.
Most energy-efficient lighting is built in the same way that most every other product is. Someone, somewhere, estimates the demand for a product. It's manufactured, put in inventory somewhere, then pushed by a sales and marketing apparatus until either demand or inventory is exhausted. Repeat ad nauseam.
At [P2], there is no inventory. The machines on our factory floors don't start running until a customer places an order. And no two orders are the same. Every product is made to order for the building it's going to be lighting.
Manufacturing energy-efficient lighting isn't unique. The fast turn-around custom process is.
Now, it's certainly not impossible to custom manufacture lighting fixtures overseas, but it wouldn't be convenient, and it would take a long time. Nearly all of [P2]'s fixtures are installed in buildings in the United States. Instead of being shipped from Asia or Europe or South America, [P2] orders are usually made at the factory closest to their final destination, and shipped at most a few states away.
This, combined with our company's size (we’re small by lighting industry standards) lets us promise our customers to "deliver an order in less time than it takes the big guys to get back to you with a quote."
That’s not to say there isn’t a downside: We’ve lost many sales because we didn’t have an inventory of fixtures ready to go out the door. But we’re OK with that. The strategy seems to be working. In 2012, we had our biggest year ever, shipping out enough energy-efficient lighting to save American business’s $82 million a year in energy costs by reducing their energy consumption.
It looks like it’s working for Tesla, as well. The automaker announced this month its first quarterly profit: $11.2 million, after an $89.9 million loss a year earlier.
How you can do it
You want to succeed in American manufacturing? Figure out what you have that Shenzhen doesn't.
Naysayers will tell you that by being in a niche, you’re missing out on the larger market share. Yes, your niche will mean that you’re not competing for the entire market right away. It’s going to be a while before there are as many Teslas on the highway as there are Toyotas. But does that mean that Elon Musk should start cloning Toyotas instead of building Teslas? Of course not.
Elon Musk figured out that nowhere else in the world had Silicon Valley and an empty auto plant in the same state. Apple figured out that even the most streamlined logistics operation in the world can benefit from “Made in America.” [P2] figured out that you couldn't build and deliver custom lighting in a decent time frame without building it next door to your customers.
What can you figure out?
– Michael Doyle is vice president of sales and marketing for Precision-Paragon, based in Yorba Linda, Calif