Manufacturing Sector
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Industry Overview
The US manufacturing sector consists of about 290,000 establishments (single-location companies and units of multi-location companies) with combined annual sales of about $4 trillion. Major companies include Boeing, Caterpillar, DuPont, Ford, GE, GM, Hewlett-Packard, IBM, Procter & Gamble, Pfizer, and Tyson Foods. The manufacturing sector is fragmented: the largest 50 companies account for less than half of overall sales.
The global manufacturing industry generates more than $10 trillion in annual revenue. Top manufacturing countries include the US, Japan, China, Germany, Italy, and the UK. Leading exporting countries include China, the US, Germany, Japan, and France. Major companies include: Toyota Motor (Japan), GE (US), Siemens (Germany), Nestlé (Switzerland), and Sanofi (France).
Competitive Landscape
Demand ultimately depends on consumer spending. The profitability of individual companies depends on efficient production and distribution. Large companies often have large economies of scale in purchasing, production, and marketing. Small companies can compete effectively by producing specialized products. The sector is capital-intensive: average annual revenue per employee is about $350,000.
Computer systems and controls have steadily increased the labor productivity of US manufacturers in the last 10 years. Even so, US labor costs remain high, and many manufacturers have moved production operations to lower-cost countries like China.
Many US exports are goods with high technology content: motor vehicles and parts, semiconductors, computers, drugs, agricultural and construction equipment. Leading export markets include Canada, Mexico, and China. A large portion of exports are components shipped to Canadian and Mexican factories for eventual re-entry to the US as finished products.
Imports of manufactured goods to the US come primarily from China, Mexico, Canada, Japan, and Germany.
Products, Operations & Technology
Major manufactured products include transportation equipment, computers and electronics, food, chemicals, machinery, and products made of metal, plastic, and paper. Food and beverages account for 15 percent of US manufacturing revenues, chemicals 14 percent, transportation manufacturing (automobiles, planes, and rail road equipment) 5 percent, and computers and electronics 4 percent.
Production operations transform input materials, including unfinished products and components, into finished products, using energy, machinery, and labor. Inputs may be raw materials (iron ore, petroleum feedstock); crops (cotton, rubber, foods); or semi-processed components (steel bars, plastic pellets, electronics, car subassemblies). To ensure availability of input materials, supply contracts are common. Energy, used mainly to power equipment or produce heat, is a major cost for many manufacturers. The steady rise in the cost of energy has encouraged companies to design energy-efficient production processes.
Several basic manufacturing methods are used, including continuous process and batch operations. Continuous process operations, like assembly lines, have proven to be the most efficient way to make many products, with economies increasing as greater volume is produced. These economies of scale encourage companies to grow. Batch operations are more common when customized products are made. The efficiency of production varies from company to company, and in many cases both the process and the final products are protected by patents.
The greatest production efficiencies are often achieved by companies that specialize in a particular product. Few US manufacturers today produce everything from raw materials to finished goods. A result of specialization is that most manufacturers make products for other manufacturers. Specialization often allows a manufacturer to have expertise in manufacturing similar products or products with similar uses.
The US manufacturing industry has become highly automated in all aspects. US manufacturers spend more than $6 billion annually for computer equipment. Manufacturing was a lead industry in the application of enterprise resource planning (ERP) technology and in its evolution to an enterprise services architecture (ESA). Applying these technologies has streamlined business processes and reduced the number of labor hours required per unit of production.
Most manufacturers have automated backoffice processes such as accounting, order entry, inventory management, and HR. These processes are integrated, operating on common databases. Many companies have implemented ERP systems that include suites of applications adapted to the manufacturing industry. Adopting industry standard packages lowers the cost of automation and gives the company flexibility in leveraging third-party applications.
To minimize investment in materials inventory, most manufacturing companies practice some form of just-in-time (or lean) manufacturing. This requires the company to carefully coordinate deliveries from suppliers to minimize raw materials inventory and to coordinate deliveries to customers to minimize finished goods inventory. Supply chain management systems allow manufacturers, suppliers, and customers to share information on orders, schedules, and inventories to reduce inventory costs and maintain timely order fulfillment.
To remain competitive in a global economy, US manufacturers have automated production operations using machinery, robotics, and computer control systems. Much of the equipment used in manufacturing includes programmable logic controllers (PLCs) containing microprocessors that can be programmed. These controllers can be networked to pass status and control information from machine to machine. In some larger operations, controllers are linked to servers that control processes among multiple machines. Factory systems are usually tied together using TCP/IP networking. Some factories are evolving to use wireless technology, driven in part by increasing use of radio frequency identification (RFID) tags.
Factory floor hardware, including portable computers, is generally ruggedized so that it can perform in adverse environments. The ruggedization can include shock mounting, heat sinks, fans, and hermetically sealed units.
