Ensuring American Manufacturing Leadership Through Next-Generation Supply Chains

Abstract

Suppliers now account for 50-70 percent of a typical manufacturer’s final production value. How U.S. manufacturers manage their supply chains has been the key to offshoring production and will be the key to rebuilding a robust manufacturing sector. Traditional purchasing practices, in which buying decisions are based on the lowest unit cost with acceptable quality and delivery, drove much of the shift to Asian suppliers. As Asian capabilities progressed, a more diverse range of products were imported from Asia, mostly China. Some U.S. suppliers responded by building production facilities or contracting production in China, while others, unable to compete, failed. The number of U.S. manufacturing establishments, 292,825 in 2015, has declined by more than 41,000 since 2005. A growing number of U.S. manufacturers, however, have recognized that this model of supply chain management does not provide a sustainable competitive advantage. If their products are made in the same factories as those of their competitors, product differentiation too often has become superficial. Regaining a competitive edge requires a different approach to managing suppliers, one in which the total supply chain is managed to maximize value. Suppliers are treated as partners, contributing design and engineering ideas. Manufacturing capacity, production planning, and delivery schedules are closely coordinated. Rather than a strict focus on low unit price, broader considerations of cost, flexibility, consistency, and risk minimization—collectively known as Total Cost of Ownership—drives purchasing decisions, at least for high-value parts and components. Many specific tools and techniques for building strong supplier partnerships have been created, and could be more widely used with appropriate training and information sharing.