The October 20th issue of Welling@Weeden, a newsletter circulated only to high impact institutional investors, has an interview of David Levy of the Jerome Levy Forecasting Center titled It’s Only Just Begun. It primarily discusses the impact of the reduction of home prices, especially when non-traditional mortgage vehicles are involved. However Mr. Levy also makes some interesting non-housing-related predictions, one of which is…
Manufacturing, not this year, not next year, maybe not even in five years, but over the next generation, we’re going to see reviving in the U.S. as labor costs become much less important and logistics, proximity to markets, become dominant factors.
I seriously doubt that Mr. Levy knows anything about lean manufacturing. In fact, there are only two or three Wall Street analysts that really understand lean, one of which is our friend Cliff Ransom. But Mr. Levy could be correct if, and it’s a relatively big if, manufacturing executives wake up and begin analyzing their processes instead of chasing low labor costs around the globe.
Lean manufacturers know that the impact of internal wasteful processes is often far greater than the labor cost discrepancy between the United States and the developing world. However proximity to markets is a valid reason to build plants overseas… and for overseas manufacturers such as Toyota to build plants in the United States. In fact, the value of being closer to the customer more than offsets increased labor costs, regulatory costs, energy costs, and legal costs… all the areas that NAM insists are serious competitiveness burdens.
In any case, there are going to be a lot of bloodied and battered, if not outright killed, manufacturers before this revival occurs. Completely changing your business model and continuously searching for internal waste is often a radical process change… which takes more guts than most manufacturing execs have.