Of little surprise to supply chain managers, a recent article published by The Financial Times indicates that China is positioned to overtake the US in 2009 as the world’s largest producer of manufactured goods, four years earlier than expected. This article cites forecasts conducted by Global Insight for the Financial Times, and concludes that in 2009, China will account for 17 percent of manufacturing value-added output vs. the forecasted US output of 16 percent.  More revealing though is that Global Insight forecasters had previously predicted that the US would retain the top position until 2013, but a large downward revision and current economic factors has caused the US to slip more quickly than expected. This article’s sobering conclusion that the expected change will end more than a 100 years of US dominance in world manufacturing output.  The question I raise for Supply Chain Matters readers is ‘Should this be a major concern?’

A separate FT article indicates the pessimistic view held by many Americans that the US lost the dominant position years ago. A somewhat informal poll of 326 people selected at random across four major US cities uncovered the general perception that the US ranked far lower in global manufacturing output, with a perceived rank of 20th. Jim Womack, chairmen of the Lean Enterprise Institute is quoted – “Americans have watched for more than a generation as the US fraction of total world manufacturing has fallen. And it’s easy to confuse the country’s absolute level of domestic output, which has in most cases gone up, with the US’s share of the whole world pie, which was bound to go down no matter how good American-based plants were.” 

I’ll weigh in on these observations from a dual bias, one of supply chain management strategy, and second as a concerned citizen of the US.  First, the fact that the US would ultimately lose its leadership role was inevitable; the question was always in the timing and the economics. Consumer and industrial markets such as China have far larger scope than that of the US, and have economic growth cycles that are far more positive than that of the US. In today’s new era of expensive energy and transportation, the shorter the supply chain, the more opportunity for overall supply chain cost efficiency.  Large US global companies such as IBM, Caterpillar, Hewlett Packard, General Electric and others have already concluded this fact and have expanded their manufacturing capabilities beyond the US.

But on the other hand, as a citizen of the US who is significantly concerned about the prosperity of coming generations, I remain concerned.  If the US is to sustain its position as one of the world’s economic leaders, it must be in the leadership position of innovation.  I often point out that innovation comes from many broad areas- products, emerging technology, as well as process capability. I include overall manufacturing capability and value-added in the innovation category. 

To this point, global economic factors have made US exports and products attractive in foreign markets, but that will eventually change.  This new era of expensive energy adds new realities to supply chain value-added flows.    In my view, leadership is in jeopardy when innovation moves offshore.

So the real concern for Americans should be where does the US stand on the innovation scale.  If the current growth forecasts for China are played out to 2013, than manufacturing innovation leadership is a foregone conclusion.  The concern for and the challenge to US based companies and legislative leaders is the recognition and action plans that insure that US based manufacturing is world-class in terms of innovation and global cost competitiveness. That includes innovative supply chain suppliers that are innovative in products, process, and technology.

 Bob Ferrari