Wednesday, July 11, 2012

Two Models for Manufacturing Jobs: Walmart versus Boutique

It’s time to discard the widespread belief that manufacturing in the United States is dead. Although we are not the world’s biggest manufacturer, now that China has taken the lead, second place is not a bad position to be in. And we are already putting the brakes on our downward slide. One factor that’s slowing the offshoring trend is the movement of American manufacturers away from the Walmart model and toward the boutique model.

By the Walmart model, I mean large-scale production of mass-market goods. In this model, marketers and engineers design a product that can be manufactured at low cost in the large volumes that can be sustained by a mass market for a long time. For such a product, it doesn’t matter that the production workers have low skills or that shipping the product around the globe takes a long time. Although the large scale of production creates the danger of inventory buildup, the long product lifespan offers opportunities for the distributor to study and anticipate buying patterns and thus fine-tune the logistics.

But the Walmart model is not the only sustainable form of manufacturing. According to an article on the Forbes website, American manufacturers are learning that they can compete by adopting a boutique model. The author, Mitch Free, surveyed a large number of American manufacturers and found that 40% of them have accomplished some “reshoring” this year. One reason is uncertainty about the economy, which makes the businesses willing to trade the risks of large-scale production for the flexibility and lower risk of smaller-scale projects.

Another factor is the role of computer technology in manufacturing:
Computer Aided Design (CAD) software, Computer Numerically Controlled (CNC) machine tools, and Internet-based manufacturing networks have made producing complex parts and tooling akin to printing documents on network printers. This digitalization allows for distributed manufacturing such that companies can easily produce closer to their customers wherever in the world they may be versus in a single factory. By producing closer to their customers, companies save on logistics, take advantage of local economies, tweak products to local market preferences, build goodwill in the local market, and mitigate the risk of a single production factory.

The Walmart model is aided by a long product lifespan, but the trend is toward ever-faster obsolescence of products, which in turn requires ever-faster innovation and time to market. In this race, it helps to locate production near a company’s engineering and marketing teams, enabling close collaboration that produces quick results. This arrangement also facilitates customization of products. As the writer observes,
Starbucks is a great example of us paying a premium for customization; we could buy a coffee at the convenience store for $1 but we go to Starbucks and pay $4 for a customized coffee. This same behavior is permeating the product sector, and companies are quickly learning that there are fat margins in allowing customers to tailor some aspect of their product to specific tastes.
Some other, less significant factors that the survey found were the weakening of the U.S. dollar, rising transportation costs, and rising wages in traditionally low-wage countries. With regard to this last factor, the writer notes that there will always be emerging countries offering low-wage workers to turn out commoditized products that earn thin profit margins.

It’s important to understand that the boutique model of manufacturing depends on a highly skilled labor force. For American workers to take advantage of this trend, they will need the technical skills to use and maintain the computer-aided machinery, which in turn means a good education in STEM (science, technology, engineering, math). But even more fundamentally, they will need good learning skills to be able to adapt to constant change, plus good communication and people skills to be able to work collaboratively.

The emergence of this highly skilled workforce depends partly on the nation’s schools. And it also depends on an evolution in thinking about career goals, so that young people recognize that the new manufacturing jobs can offer a lifetime of highly rewarding work. The schools can contribute to this change in perception, but the larger culture also has to adapt and grant greater prestige to boutique-model, high-tech manufacturing jobs.


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