BY PATRICK McLAUGHLIN
Attendees of the Wiring Harness Manufacturers Association’s (WHMA; www.whma.org) 2006 annual conference, held March 22-24 in Indianapolis, heard about more than the latest in connectivity, wire stripping, and marking technology. While information on those critical areas was available to conference attendees, in-depth and practical information about the realities of manufacturing in the United States and overseas today was also presented.
Bill Canis of The Manufacturing Institute, which is part of the National Association of Manufacturers (NAM; www.nam.org), delivered the keynote address, “The Future of Manufacturing,” in which he focused on the important role manufacturing plays in the U.S. economy.
Following Canis’ speech was a counterbalance seminar that provided hands-on advice for organizations that either have or are considering establishing manufacturing operations in China. In some ways, the back-to-back topics of U.S. and Chinese manufacturing epitomized the business issues facing wiring harness manufacturers today.
U.S. manufacturing challenges
Canis’ keynote summarized, and he frequently referenced, the findings of the report, “The Profit Squeeze for U.S. Manufacturers,” published in October 2005 by NAM and Manufacturers Alliance/MAPI. That study closely examined five major manufacturing industries: fabricated metal products; machinery; electrical equipment, appliances, and components; motor vehicles, bodies and trailers, and parts; and chemicals.
The report finds an unprecedented 67% drop in profits from historic norms for more than half of manufacturing. Furthermore, only 38% of this profit falloff stems from the business cycle recession. The other 62% of profit drop can be attributed to:
- Health care and pension costs;
- Rising commodity and energy prices;
- Exchange rate adjustments stemming from the valuation of the U.S. dollar.
Manufacturing organizations in this country face a myriad of other challenges, and Canis had a laundry list of them. For example, the price of natural gas has more than doubled since the 1990s. Productivity gains have been, for the most part, offset by increasing costs imposed by federal and state governments. And contrary to popular opinion, he says, the U.S. spends a greater share of gross domestic product on pollution abatement than other countries, including European countries widely recognized as being more eco-friendly than the U.S. Litigation costs add roughly $233 billion to the cost of doing business each year, he points out.
His list continued, but the theme was apparent: Inexpensive labor in developing countries is not the primary reason why so many manufacturing jobs are going overseas.
Relief from legislators?
NAM has several suggestions-most of them for federal and state governments-to restore profitability to U.S. manufacturing operations. Among them are tort reform, legislation to assure reliable and affordable energy (i.e., allow more drilling), use of the tax system to encourage increased research-and-development efforts, incentives to attract scientists and engineers, the end of currency manipulation, enforcement of China’s World Trade Organization commitments, reduced tariffs on U.S. exports, and steps to ensure an adequate supply of skilled workers (strengthened implementation of the Workforce Investment Act), greater emphasis on math and science in schools, and new manufacturing-career educational focuses for students.
Canis emphasized that the health of the manufacturing industry affects all Americans, and cited supporting statistics. For example, manufacturing a dollar’s worth of goods generated an additional $1.37 in other economic activities; approximately 14 million manufacturing jobs create an additional six million jobs in sectors such as retail, wholesale, and finance; and manufacturers are the leading investors in R&D, accounting for 57% of all U.S. private-sector R&D.
Overall, Canis’ address drove home the idea that America’s manufacturing industry is fundamental and vital to the nation’s economic stability. The forces driving jobs out of the country go significantly beyond low wages. And many of the manufacturing industry’s ills can be remedied or exacerbated based on legislative action as well as domestic and foreign policy stances.
The China connection
The “yang” to Canis’ “yin” came in the form of a series of presentations collectively titled, “Developing Offshore Sources For Fun and Profit.” The inclusion of “fun” in the title was admittedly tongue-in-cheek, as the presenters told of their experiences establishing and maintaining profitable overseas operations-particularly in China.
Norman Sagon, principal of NFS Sales/Marketing Group based in Scottsdale, AZ, described the “who/what/where/why/how” of offshoring manufacturing processes. He said the prime candidates for offshoring are medium to large wiring harness and cable assembly makers that face challenges from large customers with substantial long-term product programs. In particular, these organizations could gain efficiency by offshoring the production of wiring harnesses, cable assemblies, and subcomponents that represent a significant product sales volume and reflect high direct hourly labor rates, and/or extreme amounts of manual handling processes that cannot be automated.
Companies considering offshoring, he says, must determine the actual importance of product lines under consideration for offshoring. Essentially, can the company afford to lose the product lines or their accounts for them, and keep the manufacturing process domestic?
The “where,” to no one’s surprise, is China. Sagon says a partnership with a Chinese contract manufacturer provides the most competitive package. Organizations known as wholly owned foreign entities (WOFE) are preferred over Chinese government-owned facilities, because generally WOFEs have greater and more diversified capabilities than government-owned facilities.
Finally, the “how” is a significant matter of its own. Sagon recommends dedicating a senior member of the company who will be tasked with visiting WOFE companies. Also, he says, when possible, enter into a signed non-compete agreement with the manufacturer.
These two presentations were among several others that made up the 2006 WHMA annual conference. Other sessions covered such topics as the A-620 Requirements and Acceptance for Cable and Wire Harness Assemblies standard, the industry’s competitive dynamics, and market forces affecting the industry.
Accompanying the conference program was an exhibition of companies that serve the cable and wiring harness manufacturing trade.
WHMA’s 2007 annual conference will be held April 11-13 in San Jose, CA.
