With America's worst industrial recession since World War II drawing to an end, it's increasingly clear that the future of manufacturing won't look much like its past. However painful the transformation, the U.S. factory sector is continuing a decades-old evolution away from labor-intensive activities measured more often by scale than precision.
Those manufacturers still standing are concentrating on ever-higher-quality products and processes, even if that means tearing up long-standing business practices and shedding workers to survive. And in the wings awaits a new generation of molecular manufacturers -- which have more in common with chipmakers than carmakers -- aiming to create self-assembling machines on a nanoscale. A focus on quality in the near term helps fuel innovation down the road.
REBOUND SIGNALS. It has been a long time since most manufacturers could think about much else besides survival, let alone the bleeding edge of materials science. Indeed, over the past four years, many U.S. industrial execs and workers have had little to hope for. Dozens of steelmakers, and an even larger numbers of their suppliers and customers -- machine shops, tool-and-die makers, and small-scale "job shops" -- and have gone out of business. Approximately 2.8 million factory jobs were lost in the period -- one in every seven that existed prior to the downturn. Even for industrial execs hardened by decades of punishing boom-and-bust cycles, the scale of these job losses is unprecedented.
Yet, hope is dawning. The job losses may have finally ceased in March when, for the first time in 44 months, the total number of factory jobs didn't shrink. And while domestic industrial output remains 1.5% below its 2000 level, the signs of a rebound are fast multiplying. The index of leading indicators tracked by the National Association of Manufacturers (NAM) rose by 4.1% in the year through Mar. 24, with orders for durable goods -- heavy, long-lasting items such as automobiles and washing machines -- up 8.7% over the same period.
"It's clear that the manufacturing recovery is finally out of the starting box, and this time the recovery has legs," said Jerry Jasinowski, president of NAM, in a prepared statement.
SAVED BY SIX SIGMA. After this trial by fire, the survivors claim to be leaner, more responsive, and more competitive. Many managers have discovered that a clear focus on quality can help guide the process of realigning long-standing business processes. Consider Xerox' (XRX) experience. Well into the 1990s, it still carried a fabled reputation for manufacturing innovation, by building printers and copiers that combined both high-precision machinery and cutting-edge information systems.
Yet by the decade's end, Xerox had lost its way. The "Document Company" couldn't even straighten out its own billing problems. But Xerox' highly disciplined commitment to a Lean Six Sigma helped save it. This statistically rigorous analytical method breaks down processes to measure and isolate error. Redundant steps are eliminated, and broken steps are fixed.
The road back has been painful, with headcount down by around 36,000 to nearer 60,000 today, but Xerox is profitable again, thanks partly to its conviction about quality. "It takes strong leadership to succeed with Six Sigma. We've gone at it with a vengeance," says CEO Anne M. Mulcahy.
CONSTANT CHANGE. The drug industry hasn't suffered as badly as have heavy manufacturers, but risk-aversion has led to costly factory snafus. Many of these problems stem from a culture in which manufacturing was more of an empirical art than a science -- and where the introduction of new technology and processes was hamstrung by U.S. Food & Drug Administration regulations.
That's finally changing. "Critics of the industry were saying that the pharmaceutical industry was not keeping pace with the available technology. To a large extent they were correct," says Gerry Migliaccio, Pfizer's (PFE) quality chief. "Everyone now understands that change has to be part of continuous-improvement program."
Now, in the wake of a cluster of manufacturing mishaps, both sides of this relationship are taking steps to shake up this hidebound approach. Drugmakers such as Abbott (ABT) are investing in test processes to catch errors as they happen, rather than after the fact. And the FDA is revamping its regulations to encourage -- rather than punish -- early discovery of bugs in the mix. "Changing the regulatory approach is the lynchpin to unleashing process innovation on the factory floor," says Jackson Nickerson of Washington University, St. Louis.
HEALTHIER BOTTOM LINE. Foodmakers face similar quality challenges, as well as some unique ones, such as the need to protect the food chain from bioterrorists. This industry has already learned that better quality control and auditing isn't just good business -- it's the law. Both the European Union and the U.S. now require companies to carefully trace the origin of food products from the time ingredients enter a plant.
As outbreaks of mad cow disease and incidents of bacteria-tainted foods in supermarkets and restaurants have shown, the key to safety in food processing is the ability to follow every ingredient from every supplier. So new tracking and sensing technology is rapidly making its way into the industry with the aim of knowing nearly instantly what went into any batch of food.
The improvements in food-processing technology have an additional payoff in addition to better safety: a healthier bottom line. Being able to better track ingredients used in production lets foodmakers streamline purchasing and stockpile fewer materials in bulk.
NANO-ROBOTIC WORKERS. The next major manufacturing leap won't be found on the factory floor, however. It's taking shape in laboratory chemical reactors. Scientists are learning how to harness the basic forces of physics and chemistry to create a mix of atoms that "self-assemble" in a predictable sequence, all on their own. That means less waste and, therefore, lower costs.
These self-assembling materials are the first step toward what may in time become molecular-scale machines able to create integrated circuits or to conduct medical tests and apply treatments on the same scale that biological processes occur. With public and corporate funding mounting, "nanotechology is now on accelerated path," says Mihail Roco, senior adviser for nanotechnology at the National Science Foundation.
These technologies are still years -- even decades -- away. Yet excitement over nano-materials is already feeding back into the business plans of companies that are involved in more prosaic efforts to get smarter. At Xerox, Lean Six Sigma is helping it survive now, but its research and development labs are cooking up nanoscale toner particles that they hope will enhance the performance current and future products. And drugmakers are doing likewise: so-called nano-dots already show promise as diagnostic markers.
The survival recipe for smart manufacturers is turning out to be a focus on quality today with a commitment to innovation in the future. By Adam Aston in New York, with John Carey in Washington, D.C., and Olga Kharif in Portland, Ore.