Tag Archives: manufacturing

Buffalo’s Mittelstand

9 Feb

The general post-Super Bowl consensus is that the commercials sucked, except, perhaps for this one:

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Imported from Detroit. Catchy, right? Chris Byrd, Broadway-Fillmore advocate and general Buffalo booster, summed up the feelings of plenty when he said he wished Buffalo had such an ad.

The commercial reminded me, though, of how Buffalo, probably through accident, or at least necessity, took a different path from Detroit some time ago, and how we will be better off for it. Fifty years ago, Detroit and Buffalo were muscular brothers towering astride Lake Erie between them, cranking out cars and steel and prosperous lives for millions of workers. Bethlehem Steel failed faster and harder than the American car industry, but Buffalo’s current manufacturing prowess, a legacy of the worker boom, positions us in fine global company. 

It is a myth that American manufacturing output has fallen along with manufacturing employment. In fact, we still produce as much as China, India and Brazil combined, a sum that accounts for 20% of the world’s capacity and hasn’t changed in 40 years. But the sector’s impact has shrunk as a percentage of the US economy: it is down to 11% of our GDP, and is only 9% of our employment and dropping, as outsourcing and productive technologies continue their advancement.

Contrast the United States with the world’s current economic darling: Germany. Manufacturing still accounts for a full 25% to 30% of their GDP (depending on the fact sheet one checks), and 12% of employment. And while globalization has affected Germany as well, it has largely been for the better, through planning, culture and geographic luck. The great savior of German manufacturing is the mittelstand, small and medium sized family owned firms that specialize in and dominate their niche markets. 70% of German manufacturing employment is at mittel firms, and they have taken advantage of globalization by making machines that make other things. As The Ecomomist notes: “If a particular job can best be done by a machine, then the chances are that the machine in question was built in a small town in Germany.”

Chinese factories are humming with equipment made by small German firms. The machines themselves were probably constructed in part in Czech or Poland, where labor is cheaper but supply lines are far denser and parent company influence is stronger and more proximate than General Motors’s Michigan-Mexico chain. Yet, the Mittel-Management trend – focusing on slow growth, family firms, industry specialization, business to business sales and international exports – is not confined to Germany. It is spreading to Harvard Business School, Silicon Valley and the industrial Midwest.

Image courtesy apiheattransfer.com

And in this way, Buffalo resembles Germany more than the greater United States. Despite the rise of the health care industry and business back off services, manufacturing still accounts for 11% of Buffalo’s jobs. That’s twice as many as our growing financial sector, and three times as many as work for state government (including UB). International exports account for 11.8% of our region’s GDP, compared to 9% nationally. And like Germany, Buffalo is not dominated by huge companies that boom and bust. Detroit still suffers from going as the Big 3 go. We made the painful transition from such corporate dependence, and now Tonawanda, Buffalo, Lackawanna, Niagara Falls, and Cheektowaga are full of companies you’ve never heard of, employing 50- 200 workers each, making heat transfer coils, laminates, valves, shelving and storage units, conveyor belts and air separation equipment. Yes, we are still home to GM, Ford, Delphi, and Moog. But there are far more K-TECHs, Audubon Machineries, Kraftwerks, and AirSeps, and they increasingly represent the future of American value-added manufacturing.

Why? Because the challenge for all manufacturers is to reduce the cost per unit of production, and mittel firms leverage their expertise to move than statistic beyond simple labor costs.  In Italy, where the mittelstand exist as textile firms, much cloth production was outsourced to Romania, where labor costs were lower. New factories were established, and after much diligence, the quality of cloth at the Romanian factories was equal to the Italian. The cost per unit was higher, however, and many jobs are now moving back to Italy. Why? The machines at the Romanian factories would often break, requiring costly repairs and many hours of lost production. The Italian workers, using the same machines, had such expertise that they could anticipate breakages – a change in pitch, a slowing of a system – shut the machines down to prevent damage, and then fix them themselves. High quality cloth, higher labor costs, lower cost per unit, ultimately higher productivity. This is how the United States, and Buffalo, compete with China in the 21st Century.

It goes without saying that Buffalo can do better to encourage, reinforce and reinvest in this trend. Our school’s BOCES programs are larger and more comprehensive than most, but still not the equal of the German Gymnasium system. Whether by planning or accident, Buffalo is well positioned to emulate a global leader.

Quirks of History?

23 Aug

America has many images of itself that inform the national character, that define how we see ourselves. Two of the most enduring involve industry and farming: our Great Plains are the Breadbasket of the World, and America’s Manufacturing Might is unrivaled.

These ideas have become such a part of the national character, that we are willing to spend an incredible amount of money to protect that image even as it increasingly becomes untrue. The American Farmer feeds the world. The Middle Class, under assault from all sides, was created through the hard labor of American factory workers. This is who we are.

But what if those two circumstances were a quirk of recent history, and not the enduring legacy of our nation?

Plains & Cars

The Economist has run two unrelated stories recently about farming and Blue Collar America that point to these phenomena. Let’s first examine the American farmer.

When settlers first began to push west through the Louisiana Purchase, they skipped the future Iowas, Nebraskas and Dakotas because they were the Great American Desert. Dry, dusty and unfit for farming, settlers were willing to cross the Rockies by foot and wagon to make it to far lusher Oregon and California. Only in the 1910’s-20’s, with the technology finally available to drain the Ogallala Aquifer for irrigation, was the area suitable for farming. But even so, some rainfall was still required, or you ended up with the drought-caused Dust Bowl of the 1930’s.

However, it turns out that the Dust Bowl is the historic norm, not the outlier. Recent research of the Canadian Great Plains show that the 20th century has been unusually wet, a blip on the radar of climatologically history. Even without the effects of climate change, the Great Plains should be getting drier in the future. They already are in Canada, where rainfall is off 40%. With the Ogallala scheduled to be dry in the next several decades, is the large industrial farm of the Great Plains a coincidence?

The second quirk is American manufacturing. While the US has had a manufacturing tradition since the Industrial Revolution, our global dominance in manufacturing, and the stable middle class that went with it, may be an accident of history. Our primacy peaked in the 1950’s and 60’s, in the boom that followed the Second World War. The Economist points out that in the mid-1950’s, Detroit had the highest median income and highest rate of home ownership of any American city. Now, of course, Detroit has lost half its population, and leads many other categories, all in the negative.

Richard Florida, at his Creative Class blog, shows how net private job growth in the US in the last decade is 0. However, within that number, each industry has faired differently. Manufacturing is off 3.7% for the decade, while the auto industry is down 6.7%. Other creative industries, like healthcare, consulting and education, have grown. Of course, this is just a continuation of wage stagnation in blue collar industries since Jimmy Carter, and movement of the global industrial base to Mexico, Korea, China, Japan and Europe.

In this country we bemoan the loss of manufacturing like it is our country’s birthright, or historical destiny. In truth, however, the union-created manufacturing-based middle class was an unsustainable flash in the pan, not a long term move. Here is the central point: US manufacturing was king when it was the only industrial power globally. The destruction of Germany and Japan left the US the only game in town. The Korean War decimated that country shortly thereafter. GM, Ford, Bethlehem Steel and others could afford to be as inefficient, pension-generous, and mismanaged as they wanted to be when they had no competition. But our primacy truly lasted for two decades, and we’ve been spending the last 40 years wondering where it went, and trying to get it back.

What does this all mean? America may have a short history, but we still manage to misunderstand it, or over-extrapolate it. Two of the major production sectors that define our national identity are unsustainable at best, or an accident at worst. The sooner we recognize that the sooner we can 1) create a sustainable identity for ourselves, and 2) formulate public policy to support it. The current system of bailouts and subsidies to artificially sustain an anachronistic vision isn’t working.

Innovation

30 May

According to Autoblog, Honda is selling a crazy amount of Civics lately because they get great gas mileage. By contrast, the hulking Ridgeline and new Pilot aren’t expected to sell quite as well.

Later this year, Honda is expected to add another 2,000 jobs as it begins to build Civics in Indiana, as well. That plant will be Honda’s seventh in North America. Honda has sold 34,163 units of the Civic in North America through April of this year, which is 8.2% more Civics sold on average per day than in 2007. For comparison’s sake, Toyota has sold 32,435 Corollas, Ford has sold 23,850 Foci and Chevy has sold 18,636 Cobalts so far this year.

By contrast, domestic automakers are pretty much caught off-guard by the sudden demand for fuel efficiency over body-on-rail behemoths.

In the article, Autoblog said that the switch from building Ridgeline/Civics would be “effortless”. The first commenter called bullshit,

Effortlessly? Do you work for Honda PR?

No, I’m quite sure there will be quite a bit of money and effort going into this

The responses pretty uniformly reply, yes effortlessly:

By pressing a switch the programs for the robots change, the track system gets narrower, the arms get closer and production changes from a Pilot to a Civic. Ive seen it done.

10 years ago a flex plant was one where two vehicles off of the same platform were built simultaneously, like a Camry or Avalon or Silverado and Tahoe. Now you can get completely unrelated in every possible way vehicles made on the same line.

and

About 10 years ago they began redesigning all of their assembly lines to be able to assemble any model that is currently in production, so that they can do exactly what the article discusses.

There are still logistics involved, but nothing like the wholesale re-configuration that would be required in a traditional older style plant.

and

So much for “Buy American”. Ford and GM are firing American workers, while Honda gives them jobs back. “Support America, buy Japanese” should be the new slogan.

You get the idea. There’s also an interesting discussion about legacy costs for US manufacturers versus merit pay employed by Japanese non-union shops.

“Made In America” – Town Hall Meeting in Buffalo

30 Nov

On Thursday Night, John Ratzenberger, host of The Travel Channel television show “Made In America” was in Buffalo at Ani DiFranco’s “Babeville” to discuss the slow death of America’s manufacturing base. WNYM was on hand to record the full event and we’d like to present it in its entirety.

Rather than boiling the issue of America’s decline as a producer of goods down to an anti-union/pro-union discussion, I’d like to point you in the direction of a comment made by BuffaloHodgepodge in this thread last week. I think it’s a good place to start the discussion…

For better or for worse, the issue actually has very little to do with either the manufacturer or the worker. It’s all about the consumer. The day consumers start lining up to spend 30-70% premiums on goods that are exactly the same except a “Made in the USA” label on it is the day consumer product and textile manufacturing returns onshore.

Or, a creative firm needs to create a luxury brand that allows it to serve a niche, profitable market at a higher price point. Appealing to patriotism has consistently failed as a marketing strategy – as shown by the Big Three automobile manufacturers since the 1980s.

What are your thoughts?