US manufacturing can recover from two “lost decades” but must embrace technology and boost worker skills, according to a report by consulting company McKinsey & Co.
“After a surge of growth in the late 1990s, the US manufacturing sector has experienced two decades of erosion in many industries,” McKinsey Global Institute, the company’s research arm, said in the report’s executive summary. “Growth in overall US manufacturing has been slowing for two decades, with little net increase during the most recent decade.”
Manufacturers responded by “cutting costs, whether that meant offshoring work, squeezing suppliers, reducing wages and benefits — or going out of business altogether,” McKinsey said. Production workers in manufacturing have had inflation-adjusted annual wage growth of 0.1% since 1990, according to the report.
Manufacturing companies need to “step up their game,” McKinsey said. “New technologies will play a large role in determining whether they can compete.”
The sector is grappling with Industry 4.0, where digital data and is shared and “connected” devices are managed by smartphones and tablets. The goal is to improve efficiency and reduce downtime for maintenance Some industries, such as aerospace, are embracing additive manufacturing, where parts are printed from a digital design.
Manufacturers have “real and substantial” opportunities “but the United States will have to make up lost ground,” McKinsey said. The company said under a best-case scenario, the value of US manufacturing could increase by $530 billion, or 20%, above current trends, by 2025.
‘Up Their Game’
McKinsey said changes are necessary to have a chance at that $530 billion.
Many plants have outdated equipment “the workforce is aging, and firms are staying alive only by cutting costs and putting off investment,” according to the report. “No one should underestimate the effort it will take to turn things around.”
“The US manufacturing sector’s relatively slow pace of digital adoptions has been a drag on its productivity performance,” McKinsey said. “Industry 4.0 can help companies up their game.”
The consulting company also said manufacturers need to be more proactive in boosting worker skills.
“Workforce apprenticeships will need to be a greater part of the solution,” McKinsey said. “Apprenticeships that pay trainees while they learn on the job are widely available in countries such as Germany and Switzerland, and the model is finally gaining traction in the United States.”
McKinsey also urged original Makers of original equipment manufacturers (OEMs) need to improve relations with suppliers. “Over time, seeking out ever-lower bids from suppliers produces diminishing returns,” according to the report.
OEMs should identify which suppliers provide the most critical systems, the consulting company said.
“Instead of just monitoring” key suppliers, McKinsey said, OEMs “could solicit their ideas, invest in their capabilities, and build trust to create preferred relationship.”