In the last 10 years, there has been a dramatic reduction in manufacturing jobs in the U.S. due to a combination of factors, such as the economic crisis and foreign competition. But manufacturing jobs can return to the U.S., and a key component of that return involves innovation to facilitate product variety.
Companies that manufacture products abroad typically do not offer significant product variety, as the support costs — like inventory, markdowns and returns — are too high. It’s more economical to produce a narrow product line when you’re shipping to warehouses from across an ocean.
What drives this issue for overseas manufacturers is lead time. It can take four to six weeks to manufacture and ship products back to the U.S. By then, consumer demand may change quite a bit. This is all the more reason for them to offer a narrow product line.
U.S. manufacturers can gain competitive advantages over those foreign manufacturers by offering product variety. When you’re based closer to your customers and it only takes a few days to get a product into a warehouse, store or customer’s home, variety suddenly becomes much more affordable and feasible. You can produce products based on market demand without worrying about large inventory costs and reserve stocks. You can build to order without fear that large quantities of your product will remain unpurchased in warehouses.
That said, offering variety through manufacturing requires innovation. Manufacturers need to be innovative in terms of having flexible production processes and being able to change product volumes and product mixes. This is not always easy, but through innovation we can meet this challenge and gain a competitive advantage over foreign manufacturers.
A good example of a U.S. company providing variety to gain an edge is New Balance. That company does the final assembly in the U.S. for 25% of its shoes. Its marketplace niche involves providing a wide variety of sizes to customers. By not producing everything overseas, it can afford to manufacture its products based on consumer demand. It can be nimble with its production of shoes and quickly ship warehouse orders.
Variety works for other industries as well, especially ones that involve customization like automobiles. All of the large auto companies are putting factories within major U.S. and world markets to be closer to their customers. They want to reduce transportation costs, build cars based on local market demand, and tailor their fulfillment systems to address custom needs.
Another example is the Spanish fashion company Zara, which has been embracing this concept of product diversity, basing its manufacturing facilities in local European markets to quickly respond to consumer demand. This makes sense, as fashion trends can change by the time clothing made in China reaches stores in the U.S. or Europe.
Investment in manufacturing innovation will be worthwhile, as it could lead to thousands of manufacturing jobs in the U.S. But innovation also includes the types of processes that allow flexibility for variety. Some upfront investment in innovative processes and supply chains now will lead to significant long-term gains for the U.S. in decades to come.
Donald Rosenfield is a senior lecturer and director of the Leaders for Global Operations Program. He also is a commissioner on the MIT Production in the Innovation Economy (PIE) research group, which is studying how America’s strengths in innovation can be scaled up into new productive capabilities.