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Stop Attempting to Recreate America’s Manufacturing Past and Look to the Future: McKinsey

Posted November 17, 2017

The demise of U.S. manufacturing isn’t a foregone conclusion, says consulting company McKinsey & Co. in a new report that predicts the decade ahead – with increased demand, new technology, and value chain optimization – will create an opening for the sector to turn things around.

“After a surge of growth in the late 1990s, the U.S. manufacturing sector has experienced two decades of erosion in many industries,” McKinsey Global Institute, the company’s research arm, said in the report’s executive summary. “Growth in overall U.S. manufacturing has been slowing for two decades, with little net increase during the most recent decade.”

Manufacturers responded by “cutting costs, whether that meant offshoring work, squeezing suppliers, reducing wages and benefits — or going out of business altogether,” the report states. Now, companies companies need to “step up their game,” McKinsey says, noting that “new technologies will play a large role in determining whether they can compete.”

Combining demand projections with an analysis of specific industry trends and historic performance, the report estimates that the U.S. could boost annual manufacturing value added by up to 20% or roughly $530 billion over current trends by 2025.

But in order for the sector to thrive in the future, major improvements will have to be made. Many plants have outdated equipment “the workforce is aging, and firms are staying alive only by cutting costs and putting off investment,” according to the report. “No one should underestimate the effort it will take to turn things around.”

“The U.S. manufacturing sector’s relatively slow pace of digital adoptions has been a drag on its productivity performance,” McKinsey observed. However, to succeed in the future, companies need to be willing to embrace new technology sooner and be more proactive in boosting worker skills.

Given the importance of manufacturing to the broader economy, “capturing these opportunities should be a national priority,” McKinsey stated, warning policy-makers that “rather than attempting to re-create the past or preserve the status quo, the United States will need to focus on positioning its manufacturing sector to compete in the future.”

“Revitalizing the entire sector will require dramatically scaling up what works—and the task is too big for any single entity,” the report concludes. “Manufacturing needs supportive government programs and policies with long-term certainty and funding. It also needs regional coalitions with everyone at the table: large and small manufacturers, workers, technology experts, educators, public officials, and investors.”

Click here to download the complete report, Making it in America: Revitalizing U.S. Manufacturing.