State of Manufacturing Base Is Cause for Concern

One lesson that we learned from the “Buy America” debate last year was the need for a thorough and detailed discussion on a national level about the state of the U.S. industrial base, particularly the capabilities of American industry to manufacture sophisticated components for weapon systems.

The Buy America provisions passed by the House of Representatives as part of the Fiscal Year 2004 Defense Authorization Bill ultimately were defeated, given the strong resistance from the Bush Administration and defense industry leaders, who successfully argued that protectionist laws only would hurt the competitiveness of the industry and the ability of the Defense Department to obtain state-of-the-art technology from the most competitive suppliers.

The problem that needs more analysis and concerted action, however, is the decline in U.S. manufacturing capabilities.

If the decline continues, it could have an impact on our ability to access competitive sources in the military market. A strong industrial base is essential to competitive sourcing and a cornerstone of national security. The state of manufacturing capabilities in the United States today gives cause for concern about the health of those manufacturers that produce highly sophisticated weapons and components for the armed forces.

In objecting to the Buy America legislation, the Administration acknowledged the need to take a detailed look at the U.S. industrial base, its critical capabilities, and its ability to meet demands for advanced military technology and components at competitive prices.

What we are seeing today is that large defense firms gradually are outsourcing much of their manufacturing business. Most manufacturing now is done by small and medium-sized enterprises. Large manufacturers have downsized their workforces and are outsourcing production of final parts and components.

Mark Huston, of the National Center for Defense Machining & Manufacturing, points out that these smaller manufacturers typically lack the resources to invest in research and development. “The technologies they use today in many cases are not even state-of-the-market, let alone state-of-the-art,” says Huston.

His organization, NCDMM, has worked with defense contractors to help them upgrade outdated technology, improve processes and incorporate new tooling.

In recent years, says Huston, “we’ve fallen behind the curve.” A lot of know-how was lost as people retired, companies went out of business and cut back investments in R&D.

Government programs designed to fund advances in U.S. manufacturing technology—such as Mantech, the Advanced Technology Program and the Manufacturing Extension Program—are helpful, but their budgets have been shrinking. “It’s not sufficient to close the gap we need to close here,” says Huston.

The numbers are sobering. According to the Association for Manufacturing Technology, as of August 2003, the manufacturing sector had sustained 37 consecutive months of job losses. More than 2.7 million manufacturing jobs disappeared in the United States during the three-year period beginning in mid-2000.

The impact of these changes can be seen most clearly in the loss of traditional machine tool companies, says AMT. More than 30 closed shop between January 2002 and July 2003, representing nearly 10 percent of the companies in the entire industry.

As we try to envision what lies ahead for the defense industrial base, one thought that comes to mind is that we cannot continue to lose ground, and get to the point where we cannot manufacture critical items that the military services require for their weapon systems.

The debate that surrounded the Buy America bill—and the resulting studies—should prompt us to take a hard look at our manufacturing capabilities, and see what can be done to increase competitiveness in this vital industrial arena.

The bottom line is that the United States has to have machine tools, technology and manufacturing capability to remain internationally competitive. Protectionism is not the answer, but there is a compelling case to be made that both the federal government and the private sector need to step up their investments in manufacturing technology, so we can stay on par with countries such as Japan, Germany and China, which is poised to become the world’s manufacturing powerhouse of the 21st century.

One area that needs more investment is “smart machines.” AMT notes that the most promising manufacturing technologies involve machines that can “think” and quickly produce parts to exact specifications, without unscheduled delays over extended work cycles.

The United States, to be sure, is achieving key breakthroughs in smart technology, but our competitors are investing heavily and gaining ground.

We may not be in a crisis yet, but there is enough evidence to suggest a crisis may not be far off, when the dependence on foreign suppliers for critical manufacturing technologies may reach an uncomfortable level. Pentagon officials repeatedly have assured Congress and others that the Defense Department is satisfied with the capabilities of the U.S. industrial base and that, in cases of emergency, they would be able to obtain domestic sources for items currently bought from foreign vendors.

Clearly, buying American products for the sake of buying American is not the answer, if U.S.-made technologies are not the latest and greatest. That would not help us. But given the increasing sophistication of military technology and the expectation that the demand for high-tech weapon systems will grow, a major deficit in U.S. manufacturing capabilities cannot be ignored. The risk of failing to take action would be, regrettably, to lose the edge on the battlefield.

An adios to manufacturing heads up.....

Really?

U.S. Economy: ISM Manufacturing Index Rises to Two-Decade High
Bloomberg ^ | 02/02/04 | Bloomberg

"U.S. Economy: ISM Manufacturing Index Rises to Two-Decade High Feb. 2 (Bloomberg) -- An index of U.S. manufacturing rose to a two-decade high in January as factories boosted production to replace depleted inventories and meet improving demand."

"The Institute for Supply Management's factory index last month increased to 63.6, the highest since 1983, from 63.4 in December. It's the eighth straight month the index has been greater than 50, signaling expansion. Construction spending rose in December for a seventh straight month and consumer purchases rose, separate Commerce Department reports showed."

"The pace of growth in the last six months of 2003 was the strongest in almost two decades, causing inventories to drop to record lows. Reduced stockpiles and rising sales suggest that factories will ramp up production."

"Economists had expected a reading of 64 in the factory index, based on the median of 57 forecasts in a Bloomberg News survey. U.S. Treasuries fell in New York, with the benchmark 4 1/4 percent note due in November 2013 falling 1/16, pushing up the yield a basis point to 4.14 percent at 10:38 a.m."

"The January reading was the highest since 69.9 in December 1983. The Tempe, Arizona-based, group surveys more than 400 companies in 20 industries, including clothing, printing, transportation, furniture and plastics. Manufacturing accounts for about one-seventh of the economy."

"The new orders index, which accounts for about a third of the total, slipped to 71.1 from 73.1 in December. The production index, a gauge of work being performed, also rose to 71.1, the highest since 80.6 in December 1983, from 69.2."

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