Manufacturing in the US: Past the Point of No Return?

I started my career at Motorola in the early 90s in its semiconductor division (which was later spun off and became ON Semiconductor). I was a packaging engineer on a team called PRISM, which stood for “People Reaching Out for Innovation in Semiconductor Manufacturing.” Yes, it was a long winded name, but we also had an audacious mission: to develop a highly-automated semiconductor packaging operation leveraging the most advanced manufacturing automation technology available at the time.  

The longer-term goal was to bring semiconductor packaging operations, which was predominantly done in Asia, back to the United States (and other regional markets) in order to be closer to our automotive OEM customers. Being closer would result in shorter lead times, help us respond to demand changes (and quality issues) faster, and enable faster innovation cycles between R&D, manufacturing, and our customers. However, to achieve this goal, we had to reduce the cost of packaging in the U.S. significantly to compete with Asia’s low labor costs, hence our focus on using advanced manufacturing automation technology.

To make a long story short, we were successful for a while, but Motorola ultimately moved production back to Asia because that was still the center of the semiconductor packaging universe.

Fast forward a couple of decades and history repeats itself, this time at Adidas. As reported by Reuters last week, “Adidas plans to close high-tech ‘robot’ factories in Germany and the United States it launched to bring production closer to customers, saying on Monday deploying some of the technology in Asia would be ‘more economic and flexible’.”

According to the article:

The Adidas factories were part of a drive to meet demand for faster delivery of new styles to its major markets and to counter rising wages in Asia and higher shipping costs. It originally planned a global network of similar factories.

The German sportswear company did not give details for why it was closing the facilities, which have proved expensive and difficult to extend the technology to different products.

It seems that despite the continued advancements in automation and robotics, the offshoring of manufacturing to China and Asia continues. 

Coincidently, the Wall Street Journal published an article this weekend entitled “Innovation Should Be Made in the U.S.A.” The authors, Sridhar Kota and Tom Mahoney, argue that “offshoring by American companies has destroyed our manufacturing base and our capacity to develop new products and processes” and they believe “it’s time for a national industrial policy.”

Since my job at Motorola was to bring new products from R&D to volume production, this section from the article caught my attention:

In terms of long-term competitiveness, the biggest strategic consequence of this profound decline in American manufacturing might be the loss of our ability to innovate — that is, to translate inventions into production. We have lost much of our capacity to physically build what results from our world-leading investments in research and development. A study of 150 production-related hardware startups that emerged from research at MIT found that most of them scaled up production offshore to get access to production capabilities, suppliers and lead customers. 

Kota and Mahoney go on to state that “unless something is done, the weak U.S. industrial commons [the ecosystem of engineering skills, production know-how and comprehensive supply chains] will continue to create incentives for American companies to manufacture offshore, innovate offshore and weaken national competitiveness. A strategic and coordinated national effort is needed that moves beyond tax and trade policy, which, so far at least, has not resulted in an American manufacturing resurgence.”

The authors propose several actions and policies to address this problem, including requiring “any licensee of federally funded research results to manufacture at least 75% of the value added in this country, with no exceptions and no waivers.”

(I encourage you to read the full article for more details on their perspective and proposed actions.)

Over the past three decades, supply chains have become more global and fragmented, with offshoring and outsourcing (the two are not the same) becoming more prevalent. How long would it take to rebuild “the ecosystem of engineering skills, production know-how and comprehensive supply chains” in the United States to bring manufacturing back? Would consumers be willing to pay more for certain products in the interim? Will Wall Street and investors, with their short-term focus on quarterly results, support or penalize companies redesigning their supply chains? Are we past the point of no return?

This is a complicated topic with many questions and perspectives. What are yours?