Design Key To Manufacturing Prosperity

August 1, 2008
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GRAND RAPIDS — The days of the American economy competing with other nations on low-priced products has a well-designed fork stuck in it: Design, George Erickcek believes, is what will set the United States apart.

“In the past, you might be able to say, ‘Well, we’ll just compete on price. We’ll just cut the price on our product and keep the market that way,’” said Erickcek, senior regional analyst at the Upjohn Institute.

“That option is really obsolete for West Michigan. We really can’t out-price Mexico or Asia. The increase in transportation costs help, but it’s still pretty hard for us to out-price them. We have to compete on a different scale; we have to compete on quality and design. More than ever, there is an importance on design, on what I call ‘disruptive’ design.”

Erickcek defines disruptive design as a product’s “birth” — the first stage of a product’s life cycle. Erickcek used the example of the PT Cruiser. He said when it first came out, it “created its own little market for quite some time.”

He followed his example through the remaining stages of a product’s life cycle. After the initial buzz was gone, the second stage — application design — was initiated and the PT Cruiser was offered as a convertible. The goal of application design is to open the product up to different markets.

In the next stage — inactive design — the product becomes standard and the emphasis backs away from its design features and tries to compete on low cost. After this, the product reaches its final stage — loss of design — when the product is abandoned.

“The real thing, though, is this: Any product, be it a product or a service, once you have a disruptive design and it’s something that’s new and something people haven’t seen before, you have a monopoly,” said Erickcek.

“With that monopoly, you’re able to not only make a lot of money, but pick up production, add jobs.”

The more companies are able to bring out new products with new designs, the better the U.S. will be able to compete against the low-cost production offered by other nations and keep the work force going, said Erickcek.

The manufacturing sector, Erickcek said, may be hurt worse than the data suggests.

“The story that I often told — and now I’m starting to think may not be true — is that the loss of manufacturing jobs was due primarily to productivity gains,” said Erickcek, referencing a two-year-old study stating that productivity gains were responsible for two-thirds of manufacturing job loss and only one-third due to global outsourcing.

“Well, now there’s this new evidence that, one, the productivity gains that have occurred in manufacturing appear to be focused on only one sector — computers and electrical components, which took credit for roughly 80 percent of the productivity but only employed about 10 percent of the workers.”

Erickcek also pointed out that new research shows productivity is being overestimated due to the way the Bureau of Economic Analysis collects import data.

“It’s there and it’s pretty serious. It is an accounting nightmare that is affecting the measurement of productivity. When they correct it, which I believe they will be, it will decrease the level of productivity that they’re reporting.”

Temporary employment also adds to the confusion about the size of the work force: Since temporary employees are not counted as part of the work force, employment numbers appear smaller than they actually are.

“The extreme case here would be that a firm employs 15, then overnight, keeps one person as manager, fires the other 14 people, adds 14 temporary workers, and his productivity just shot up big time.

“The output being generated is based on that one employee. The other 14 are not counted in the numbers. All of this suggests that the issues facing the loss of jobs in manufacturing activities may not be due to productivity as we thought, but due to offshore production, given that it really reflects, I believe, how strongly it is to enter into a different level of play,” said Erickcek. “And that’s where design comes in.”

“The way to keep these jobs is to produce new high-demand products, new high-design products that can meet the marketplace. And maybe meet the marketplace with a little higher price.”

In addition to good design, Erickcek believes a nationwide public policy would also be beneficial in keeping manufacturing jobs in the U.S.

Currently, there is a similar policy in manufacturing called Manufacturing Extension Partnership. Erickcek said that has been successful in helping firms “run faster and smarter.”

Design in manufacturing, however, lacks such a policy. Erickcek believes hiring locally would help. He said one way to get there is by attracting companies, designers or engineers that can add value to a product’s life cycle and help it enter new markets, so production will increase and create a need for local workers.

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