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Rob Spiegel
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Changing manufacturing costs
Rob Spiegel   3/20/2012 8:01:32 AM
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Looks like most of the Linkedin discussion tended against government support for manufacturing. The rush to overseas manufacturing seems to have slowed in recent years for a number of reasons -- rising labor and shipping costs as well as production and supply difficulties. There's also a recent trend toward keeping manufacturing closer to the end consumer. High volume, low mix products, however, will probably continue to go to the cheap-labor markets. Not much would stop that.

williamlweaver
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Platinum
Predator / Prey
williamlweaver   3/20/2012 8:44:09 AM
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Alex, I am really enjoying the free course in Game Theory currently being offered by Stanford. Their initial overview describes the optimization of behavior of both Predator and Prey in the standard Predator/Prey model. In all cases, both Predator and Prey benefit from being active -- moving around, looking for opportunities and avoiding pitfalls. In all cases being inactive and staying put gets a low score. Recall the advice given to wilderness trekkers in the event they get lost -- stay put and the rescuers will find you. When the search party is a Predator, that is precisely the wrong advice. 

Government involvement in technology can benefit Exploration in the form of No-Strings-Attached Grants: Gifts to enable innovators to move around Steven Johnson's "adjacent possible" and explore. All other forms of Government involvement, such as loans, tax-credits, and especially regulations, have the effect of controlling behavior and restricting "movement" within the arena of ideas. Regulations are particularly onerous, as they force both Predator and Prey to stay put. In the model of free-market capitalism, that simply means both Predator and Prey are now susceptible to attack from more agile Predators -- a role presently filled by overseas competition. 

 

Alexander Wolfe
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Blogger
Re: Predator / Prey
Alexander Wolfe   3/20/2012 8:58:07 AM
Bill, a very cogent explanation of the process in play here. Games theory offers a great way to analyze these things. As you indicate, the predators are roaming free. The thing of which I dispair is that, regardless of your opinions on regulation, the "prey," as represented by our legislators, are unlikely to ever to anything to address the intrinsics of the problem. At times they will pass laws and regulations, but they'll be disconnected from other laws -- i.e., no coherent overall strategy -- and they'll often be introduced/passed more for show than for any effect.

Charles Murray
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Blogger
Re: Predator / Prey
Charles Murray   3/20/2012 7:42:19 PM
Alex: I believe our country gets long-term benefits from, as you've described it here, funding of research, science, technology, engineering and mathematics. I get worried, though, when our government officials start picking winners in private industry. As Jon Titus points out, their track record with Solyndra and Ener1 would suggest that they're not particularly well-qualified to be doing that.   

jts4545
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Iron
Re: Predator / Prey
jts4545   3/21/2012 1:42:43 AM
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Right now, the prime predator is China. Flooding the U.S. with inferior goods. Especially in machine tools. Features are often so inferior, they cannot be considered "agile manufacturing". Deliberate attempt to cripple U.S. industry at all levels. From home workshop to the biggest corporations. Management of U.S. companies dealing with China do not seem to see the inferiority of the Chinese tools or just don't care. Not useful to those in business or those at home trying keep things running. Some protection from bad Chinese products and underselling of U.S. business is in order.

apresher
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Washington Support Manufacturing
apresher   3/20/2012 3:57:55 PM
Alex and William,  Couldn't agree more. The real challenge is how Washington can support manufacturing while avoid the pitfalls of the law of unintended consequences. It is a critical problem to solve.

Mydesign
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Platinum
Open market
Mydesign   3/21/2012 3:41:26 AM
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1 saves
Yes, we have to keep options the open. Free or open market is a good for all sort of business, especially in an economic slowdown time. This may help the companies to make use of maximum benefits and hence in turn a superior quality product at an affordable price.

ChasChas
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Platinum
playing field
ChasChas   3/21/2012 10:32:35 AM
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Patrick Dixon has it right. The government should protect our rights and property.  In so doing this, the present government needs be a better watchdog by keeping the politcal and financial playing fields more level. The rest should work itself out.

Rob Spiegel
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Blogger
Re: playing field
Rob Spiegel   3/21/2012 2:27:06 PM
I agree, ChasChas, but keeping the playing field level when we're competing with countries that receive heavy assistance from their governments. There is now way a democratic system like our would ever be able to match the government involvement of non-democratic countries such as China. So the playing field in many ways will never be level.

BillFZ1
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Gold
get out of the way
BillFZ1   3/21/2012 2:55:27 PM
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Rob, I respectfully disagree. The playing field can be leveled, or at least close to by having the non-technical goverrnment politicians get the heck out of the way of american manufacturing. I live in California where the effect of too much government is obvious. People and manufacturing simply move away. The federal government needs to get a clue from this. Interfere too much and ANY company will go off-shore. Monitor an industry but don't interfere and production will return. I have personally seen a repetitive job leave a manufacturer I was working at durring the 1970's. It went to Singapore. That same manufacturer brought the job back to the US to have a more responsive manufacturer and make less scrap! Now it is likely that the return would not happen because of stifling goverment regs.  Bill J 

Rob Spiegel
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Blogger
Re: get out of the way
Rob Spiegel   3/21/2012 3:22:50 PM
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BillFZ1, I wasn't thinking in terms of government regulation so mush as government support for business. But you have a good point. Certainly China does not face nearly the same level of regulation as we see in North America and Europe. 

Dave Palmer
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Platinum
Re: get out of the way
Dave Palmer   3/21/2012 3:42:54 PM
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@Rob: Actually, there is tremendously more bureaucracy and regulation in China than there is in Europe or North America.  In spite of the reforms of the past couple of decades, it's still a socialist country with a centrally planned economy.  China ranks far lower on the World Bank's ease of doing business index than the United States, Canada, Mexico, or any European country except Greece.  Companies don't move to China because of the ease of doing business; they move there because of low wages.

Rob Spiegel
User Rank
Blogger
Re: get out of the way
Rob Spiegel   3/21/2012 3:49:06 PM
Good points, Dave. What I was talking about is the lack of restraints on manufacturing, particularly indigenous manufacturing. While there are environmental regulations on manufacturing, they are not enforced. There is also very little enforcement of IP regulations. Those two areas alone give China an advantage we can't match.

Greg M. Jung
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Platinum
Re: get out of the way
Greg M. Jung   3/22/2012 10:03:54 PM
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As someone who has both benefited and suffered from Chinese outsourcing, I have mixed feelings about the subject of government intervention.

First, I do agree that the playing field is not level between China and the US and overall these rule differences allow significant advantages for them.  In addition to more relaxed EPA and IP regulations, they also have different safety, healthcare, etc. requirements for their workers.  Some American factories have tried to respond to this challenge by using better Design for Manufacturing techniques into their products and by designing their products to be assembled using more robotic automation (to reduce costly direct labor times), but sometimes this disparity is still too great.

Second, I do agree that certain commodity products that are not strategic to our country's best interests need to go to China.  However, the problem was how RAPIDLY this was done.  When entire market segments moved to China too quickly, the sheer number of American workers that were displaced and unemployed was not healthy for our economy.  In hindsight, I believe that our government should have slowed down this inevitable displacement so that the typical American manufacturing worker had more time to retrain and re-educate themselves for the new workplace.

Finally, in many cases that I have been involved with, the hidden and unintended costs and risks of going to China were not properly and accurately factored into the cost-decision model by the CFO's and Accountants and in actuality, going to China was not that cost-effective to begin with.  In other words, by the time you factor in cost of higher defect rates, higher freight costs to overnight parts to keep the line going, hiring an additional Q/A inspector both state-side and abroad, and losing 30% of customer base due to perceived quality issues, the real cost savings (or losses) are not the same as the original calculations. I have seen products go out and then come back because of this.  I think the company decision-makers need to carefully calculate ALL costs before deciding to go off-shore. 

On the other hand, I've been involved with outsourcing programs which were a great fit and became a win for everyone, so under the right circumstances it works well.  In closing, make sure all factors - different rules, unintended consequences, etc. - are considered when making decisions in this area.

Rob Spiegel
User Rank
Blogger
Re: get out of the way
Rob Spiegel   3/23/2012 12:11:55 PM
You know, on your second point, Greg, it is surprising there wasn't more of a shock to the economy during those years. We had our dot com crash and we have the financial meltdown, but the rush to China manufacturing did not have a noticiable affect on our economy. 

As for an unlevel playing field, while it doesn't feel right, it's something we're accustomed to. We experienced the same thing with many, many trading partners before China. There are not many trading partner we have that don't receive government supports for business that are far greater than anything we're willing to do to support our own industry.

warren@fourward.com
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Platinum
Re: get out of the way
warren@fourward.com   4/20/2012 5:28:12 PM
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I have no mixed feelings about government getting involved in manufacturing.  What's next?  Perhaps a Department of Manufactuting with billions and billions of dollars in their budget increasing each year, with thousands and thousands of bureaucrats who have never manufactured telling companies what to do, what to produce, how to do it their way, and myriads of other hassles we can't even dream of.

No, keep the government out of my business, my home and my life as much as possible.  I know how to run my life and my business and I don't need the feds to help me out.  Name one thing the federal government is good at besides killing people?

Ann R. Thryft
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Blogger
Re: get out of the way
Ann R. Thryft   3/21/2012 3:54:58 PM
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It's possible Rob meant something different by regulation--Rob?--but I have to agree with Dave on this one. China has what is probably the most massive bureaucracy in history. From the social systems standpoint, I find it amazing that it works at all. Why? Because as bureaucracies become larger they become more complex for a given size than for the previous given size of the social system they oversee, and therefore require a higher density of bureaucrats to population (I notice that the link Dave gives demonstrates this principle with actual numbers over China's history). But with that increased complexity, as in any system, comes less efficiency. So the bureaucracy itself becomes harder top administer, it takes longer to communicate among its elements, it takes longer to get things done. That may be one main reason why so many political systems become dictatorships or oligarchies at some point, just to stay funcytiooning. In addition, China has massively more regulation to help that bureaucracy keep everyone in check.


Tim
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Platinum
Re: get out of the way
Tim   3/24/2012 8:22:03 PM
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There is a lot of bureaucracy in China, but in China there are a lot of ways to get around the bureaucracy.  This is where the eneven playing field comes into play.  On my last trip to Asia, several people were arrested for running an illegal mining operation that had collapsed.  The mine was running for several years and employed over 100 employees.  Basically, it was running on "incentives" that were given to local and national officials to look the other way for major safey violations and poor working conditions.  If a mine could operate for this long, I can only imagine the amount of companies manufacturing goods bound for the US operate totally outside of the existing Chinese bureaucracy.

JoeG
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Iron
Re: get out of the way
JoeG   1/3/2014 2:07:39 PM
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The premise of the question "should" government......is wrong from the start. The question should be does government have the ability to help manufacturing? Or for that matter the ability to do a fraction of what it attempts.  

I started my career with one of the big three auto companies in 1978. The car quality was terrible. The routine for buying a new car was, take it home and make a long list of dings, rattles, and needed adjustments. Then your new car sat in the dealer for days as you continue to make payments for a car you could not use. Fast forward about 10 years. I had nothing go wrong with the same brand for 36,000 miles. The only significance to that minor problem was that is made me realize how far this US auto maker had come with improved quality.

There was no competition during my early days in the US auto industry. One brand was as bad as the other. GM would announce a price increase, next day Ford, then Chrysler, and then finally American Motors. The shocker one year was when Chrysler announced it would not raise prices after GM and Ford had done so.

Management could not see an iceberg on the horizon in broad daylight if it were painted hunter orange and the unions created iceberg faster than cars. The inefficiencies and lack of productivity was astounding and obvious even to a green kid just out of school. I believe the breakeven point was ~95% of production capacity. This leaves little room when an economy slows.

We used a non-union drafting department in those days. My experiences with this company trained me to expect a drafting request to take days if not weeks. One day I submitted a drafting request and I had the drawings for review by noon the next day. Obviously this was the new guy. In a month or so he was as "fast" as the rest.

An office door had a broken door check that allowed blasts of cold winter air in. For weeks we requested it be repaired. After long delay a small army of union workers arrived, inspected the door then left with the door check still not working. Our crack team of design engineers took out a secret tool, aka a screw driver, and fixed the door in minutes. The manhunt for the non-union worker who had the audacity to fix the door was magnitudes greater than the effort to fix the door.

When Deming first came to the US auto industry management was clueless. Dr. Deming stated that 94% of problems were caused by the system not the workers. Management controls the systems. Who wants to hire someone who will tell you how bad of a job you are doing. Why bother "who wants a Japanese car?"

The Japanese did not listen to Deming due to an enlightened culture but because they had their collective backs to the sea. By the late '70 and early 80' the Japanese had the US auto industry in the same precarious situation. Suddenly the US embraced Deming's teachings.

"Absolute power corrupts absolutely." This comes in many forms. Unions that can place impossible demands on a company, management that can ignore problems due to a captive market, and worst of all a government that is completely out of control and mad with power will destroy an economy.

We had the first two going strong up until the 80's. The free market corrected that to a great extent. Now we have government that is addressing issues that 1) they have no authority to address, 2) are wholly incapable of addressing - that is why the US Constitution forbids them from doing 90% of what they do daily.

The Apollo program and WWII are often used as shining examples of government involvement. So other Federal Government programs must be good – wrong! First the act of war is one of the few things the Federal Government actually should be involved with. Apollo was an extension of the Cold War. Both had a specific short term goals - win and land respectively. Few expect or desire a war to be perpetual. Even the Hundred Years' War eventually ended.

Any program or effort that is expected to be perpetual better have a method to keep it in check. Industry is full of competitors. Government is not. In fact it is much worse. Businesses create products to fill needs and after time they create needs to be filled, smart phones as an example. If there was no perceived benefit the company would have to respond. They could not continue to do the same thing let alone more of the same. Those who have are soon gone.

Government programs purport to solve a problem or reach a goal, win a war, land on the moon. Terms of surrender cap one and photos and videos concluded the other. The vast majority of government programs turn from solving problems to being a convenient method of employment with no checks against run-a-way demands. The only completion is an invading nation and I addressed that above.

When a problem is solved or task completed a company must change. My time in weapon systems saw the end of the cold war. The division I worked in had 28,000 people when I started. Last I checked it employed less than 8,000. If there was a way to get government programs to work like this I would hold out some hope for government involvement.

In conclusion, if industry needs educated workers they should fund local colleges or in-house programs. If the programs don't work end the financing. If they solve the problem adjust the financing as needed.

Turn this task over to government and it eventually becomes a make work program.  The same problems remain and likely get worse and billions are wasted on unproductive programs used to buy votes.

Cabe Atwell
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Blogger
Re: get out of the way
Cabe Atwell   5/28/2014 2:34:36 AM
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With Detroit all but decimated and the constant overseas shipping of factories, maybe it is time for DC to take a hand in manufacturing. Will they? Probably not, unless manufacturers get their own high-priced lobbyists.

ChasChas
User Rank
Platinum
Re: get out of the way
ChasChas   3/21/2012 4:12:40 PM
 

So when the playing field is not level, our companies climb to the top of the other side and roll crap down on their own people and country. Freedoms (like free trade) cannot exist without some code of ethics. So we trade with the unethical nations and unethical companies from our own country.

Now we want to bribe our own companies to stay here. This may help "free trade", but fair trade is long dead. What happened? Free trade by definition implies fair trade or it would not happen.

BillFZ1
User Rank
Gold
Re: get out of the way Drinkin' the Kool-Aid
BillFZ1   3/21/2012 6:54:20 PM
ChasChas,

Did you roll over and fall asleep in 1920? In current US manufacturing the problem we have is the tail wagging the dog much too often. Is it ok for the government to screw all of Chryslers bond holders to make it "fair?" While there are occasional corporate transgressions in the United States potential penaltys make those things bad for business. The things I'm talking about are EPA regulations that change so often that manufacturers are involved in a game with loaded dice. In California doing business exactly thart same way you did before January first could land an honest small businessman in jail. Planning for the future is the key to progress, and if you can't plan you will fail.  The question I always ask is how many employees do you have to have before you become an "evil corporation" worthy of being screwed? 20? 100? 1000? Many of the largest and best corporations treat their employees BETTER than average, only to be labled enemy by the US government because they won't spend themselves into oblivion. I still say, "get out of the way." Bill J

ChasChas
User Rank
Platinum
Re: get out of the way Drinkin' the Kool-Aid
ChasChas   3/21/2012 8:31:21 PM
I understand BillFZ1. I am mainly talking about trading with SE Asia. We are against a wall. Remember the adage that if trade doesn't cross borders, troops will. So we still should trade with them.

I agree with you. the goverment needs to get out and do what it was created to do, nothing more.

Accusing your fellow citizens of playing Rip Van Wrinkle doesn't help. Try Dale Carnegie next time.

BillFZ1
User Rank
Gold
Mistaken direction
BillFZ1   3/22/2012 11:51:34 AM
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Chas,

Accept My appologies. I misconstrued your comment about dealing with foreign governments to mean that our own wasn't involved enough. I agree about many govenments being overly involved in day-to-day work. In my defense I am a working engineer dealing with the problem of government regulation changes, and their unintended concequences every day. The frustration level "out there" is getting to near a breaking point for my taste. My own frustration included. My company does business with firms in China and I agree that there everyone is looking over their shoulder to see what the government rep has to say. In my experience that can work both ways. At times the goverment official wants an extra fee, (read bribe), before you can proceed. Other times they will uproot an entire village because that is the location they desire for their new factory. In the past American firms could expect some intrusion, but could still plan 4-5 years ahead. Lately knowing what will happen 4-5 days ahead can require a prescience. Bill J 

Rob Spiegel
User Rank
Blogger
Re: get out of the way
Rob Spiegel   3/22/2012 6:43:05 PM
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The bribing is another form of the uneven playing field. I would guess our domestic manufacturers are given plenty of incentives to locate their manufacturing outside North America.



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