BRAVE NEW WORLD

The U.S. manufacturing and distribution supply chain is the most advanced and successful in the world. It is the reason for our economic strength, and its flexibility and innovation spawn new technologies and whole new industries and provide us with a strong national security.

These are also the reasons that the U.S. remains the world's largest manufacturing nation, with a fairly steady 20 to 25 percent of worldwide manufacturing since 1990. In the last decade, the rise of new manufacturing centers around the world, especially in China, significantly altered many manufacturing supply chains.

Now the dynamic behind the manufacturing supply chain is shifting again, as rising energy costs make the shipment of parts and goods destined for the U.S. market more expensive. Containers that once cost $3,000 to ship from China to the west coast now cost as much as $8,000. In addition, concerns about product quality and safety are also causing some manufacturers to rethink their outsourcing strategies. Some companies are returning production to the U.S. because of these concerns.

These are not the only forces changing the perspective for manufacturers and suppliers. The U.S. dollar has fallen by more than 20 percent against major currencies since 2002 and has now returned to its level of the mid-1990s, back before Asian financial problems and the bursting of the tech bubble. China has (at last) let its currency rise in a managed float, leading the yuan to rise by 22 percent since July 2005. (Editor's note: for more on the latest update and analysis of our currency crisis, read "Show Stopper: The Demise of the Dollar" in the October 2008 issue of Fabricating & Metalworking magazine.

These exchange rate shifts have opened the door to almost unprecedented export opportunities for U.S.-based manufacturers. Many companies have seized these new opportunities to become exporters – many companies for the first time – leading to such strong growth in the export sector that it not only offsets the economic decline in housing, but it is also the major pillar in supporting U.S. economic growth.

The business world has certainly changed because of these factors. And manufacturers are beginning to see that we have a new opportunity to strengthen manufacturing as a result. A recent survey of North American manufacturers by The Manufacturing Institute and Deloitte showed that executives in the U.S., Canada and Mexico are very upbeat about their competitiveness.

Over 40 percent of the U.S. manufacturers said they are more competitive today than their primary global rivals – and here's the good part – nearly 60 percent of them said they would become even more competitive over the next five years.

That's the good news.

The other side of the coin is that to take advantage of these new opportunities requires some new strategies for many manufacturers, especially small and medium companies. Forging New Partnerships: How to Thrive in Today's Global Value Chain is a report that we undertook with RSM McGladrey that brings out four major supply chain challenges:

? Lean manufacturing and innovation. An Industry Week survey of manufacturers shows that 80 percent of large manufacturers use lean manufacturing and Six Sigma, but only about 50 percent of small and medium companies (SMMs) use these techniques, and 22 percent of the SMMs use no improvement methodology at all.

Embracing an innovation business model will keep manufacturers from stagnating and becoming commodity players. Tapping into the renewed interest in green buildings and processes is another opportunity where U.S. companies often have an advantage.

? Exports and international sales. Exports have increased by 38 percent since 2004 and offer a vast new market for every U.S. manufacturer. Yet one-third of all SMMs make no sales outside of the country and a whopping two-thirds export less than 10 percent.

Getting a foothold in overseas markets requires some new skills and approaches, but it has a significant payoff. With the right products and quality, today's exchange rates make U.S. products more competitive around the world than ever before.

? A skilled workforce. Half of the manufacturing workforce will turn over in the next decade as Baby Boomers retire. Attracting new workers and filling these vacancies is one of the most important strategic decisions for any employer.

Yet manufacturers face not only a shortage of skills needed in their plants, they are also pushing against an unfavorable and outmoded understanding about manufacturing that turns too many young people away. Successfully addressing these dual challenges in their communities gives executives a competitive advantage.

? The right financing. Surveys show that one-third of small and medium company executives do not use a range of state and federal financing options, either because they don't know about them or they choose not to tap them.

The U.S. Export Import Bank, for example, is mandated by Congress to increase its support of export financing for small and medium manufacturers. Investments in plant and equipment can be less expensive when companies use tax credits and industrial revenue bonds.

All of these shifts in the supply chain offer new challenges and new opportunities. If you'd like to learn more about them and how to tap into some of the resources that make these new partnerships possible, then be sure to read Forging New Partnerships.

William Canis is the vice president of the National Center for Manufacturing Research & Innovation at The Manufacturing Institute, the research and education affiliate of the National Association of Manufacturers. This article was originally published in the October 7 issue of The Official Show Daily at the FABTECH International and AWS Welding Show/Metalform trade show in the Las Vegas Convention Center, Las Vegas, NV.