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The Evolution and Future of Manufacturing Competitiveness
2014 Manufacturing Summit: The Road Ahead
Franklin Furniture Institute Mississippi State University
Jack McDougle President & Founder
Blutre Strategies, Inc.
1
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2
change is constant and faster than ever
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time to reach 50 million users
3
38 years
75 years
13 years
4 years
3 years
50 days
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4
only 35 days for the Angry Birds app
when President Lincoln was assassinated, it took 21 days for the news to reach England
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if you graduated college in 2004
5
these companies didn’t exist
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0 200 400 600 800 1000 1200 1400
China
India
United States
Indonesia
Brazil
facebook boasts the 3rd largest population
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facebook’s market cap - surrounded by some impressive companies
7
Rank Company Market Cap 22 Coca-Cola $177 B 23 Anheuser-Busch InBev SA/NV $174 B 24 Bank of America $173 B 25 Merck $165 B 26 Total $154 B 27 Facebook $151 B 28 BP $148 B 29 Citigroup $147 B 30 Amazon.com $145 B 31 Sanofi $136 B 32 Disney $136 B
2222222222222227777777777 Facebook $1511111 BBBBBBBBBBBBBB 28 BP $148 B
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information flows more freely than ever
• 4 billion email accounts in 2014
• more than 300 billion emails per day
• more than 50 billion instant messages per day
• U.S. Post Office handles ~600 million pieces of mail per day
8
Source: The Radicati Group, Inc.
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data is exploding • 90% of the world’s data created in the last 2 years • if you stacked a pile of CD-ROMs on top of one another
until you’d reached the current global storage capacity, it would stretch 50,000 miles beyond the moon
• every hour, enough information is consumed by internet traffic to fill 7 million DVDs. Side by side, they’d scale Mount Everest 95 times
• there are 30 billion pieces of content shared on Facebook every day
9
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10
1 week of the New York Times
contains as much information
as a lifetime in the 18th century
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stunning and rapid transformation of global business
11
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unprecedented appetite for resources
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8.5 billion people by 2030 7 billion in 2014
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95% of consumers will live outside of the U.S.
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Source: World Bank
growing global middle class creates huge opportunities & challenges
15
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we need to produce as
much food in the next 40 years as we have in the
last 500
16
Source: Commonwealth Scientific and Industrial Research Organization
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Georges Seurat interpreted by Chris Jordan
17
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106,000 aluminum cans
the number used in the U.S. every 30 seconds
20
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2 million plastic beverage bottles
the number used in the U.S. every 5 minutes
24
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at current consumption rates, we will need 2 planets by 2030
Source: 2012 World Wildlife Fund's "Living Planet Report"
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manufacturing is the greatest innovation in
history
26
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Population 7 billion 6 billion 5 billion 4 billion 3 billion 2 billion 1 billion
0 500 1000 1500 2000
27
massive impact of the industrial revolution
Source: Angus Maddison's "World Population, GDP and Per Capita GDP, 1-2003
$17,356
GDP per capita
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the 20th century was the American century
28
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unmatched economic prosperity
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the world’s arsenal of democracy
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the great ages of economic development have resulted in higher living standards
Hunting and fishing
Agriculture
Industrial
Information
31
The developed world
The developing world
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divergence between “thinking” and “making”
32
Basic R&D On-going operations
Applied R&D
Tech Transfer and Commercial-
ization
Scale-up Start-up
Innovation process Production process
Significant national focus Innovation clusters and government support Multiple collaborative efforts Government and private sector investment
Limited national focus Lack of coordinated efforts Barriers to production at scale Few government investments and incentives Regulatory and tax policy hurdles
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Start-up Scale-up On-goingoperations
Basic R&D Applied R&D Tech transfer andcommercialization
Government
Universities
Angels
Venture capital
Private equity
M&A
Private equity
Debt financing
Foreign sovereign wealth funds
Valley of DeathZones
Valley of DeathZones
U.S. Advantage China Advantage
Illustrative and signals bulk of investment focus. Exceptions can always be found.
scaling production is difficult in the U.S.
33
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manufacturing is changing rapidly
34
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wrong public image of manufacturing
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Advanced Materials/Composites
Additive Manufacturing
Bio Manufacturing & Bioinformatics
Flexible Electronics Manufacturing
Industrial Robotics
Nano Manufacturing
Advanced Forming/Joining/Welding
Advanced Sensing, Measurement, & Process Control
Visualization, Informatics and Digital Manufacturing
Advanced Manufacturing & Testing Equipment
Chemical Processing
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research
development
engineering
production
sales distribution
logistics
customer service
marketing
support
de
p
g
Manufacturing Enterprise
a more comprehensive view of the manufacturing enterprise
For example:
GE’s Big Room
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innovation is thinking and making
38
Basic R&D
On-going operations
Applied R&D
Tech Transfer and
Commercial-ization
Scale-up Start-up
Government and private sector support and collaboration
-A C
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manufacturing is knowledge-intensive
39
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new uses for emerging technologies: additive manufacturing / 3D printing
40
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"DNA origami" to make nanobots
41
robots that can respond to chemical cues and operate inside a living animal
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Retain product weight Lower operating costs Increase productivity Extend shelf life 2-3 times Increase nutritional value Improve hygiene
North Atlantic cod 14 days on flake ice and 14 days on nano-ice
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manufacturing is more important than
ever
43
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highest multiplier effect
44
0 0.2 0.4 0.6 0.8 1 1.2 1.4
manufactuirng
agriculture
transportation
construction
arts and entertainment
information
education and health
retail trade
other services
business services Source: U.S. Bureau of Economic Analysis
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manufacturing drives productivity growth
Source: U.S. Bureau of Economic Analysis
90
100
110
120
130
140
150
160
170
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Pro
duct
ivity
Gro
wth
Inde
x (1
998=
100)
45
manufacturing
services
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manufactured goods account
for nearly 60% of exports
46
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manufacturing drives R&D and innovation
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manufacturing dominates U.S. domestic private sector R&D investment
Source: National Science Foundation
3.2
3.9
2.3
0
1
2
3
4
5
All Industries Manufacturing Nonmanufacturing
U.S
. Dom
estic
R&
D a
s a
Per
cent
of
Dom
estic
Net
Sal
es, 2
011
48
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Source: U.S. Bureau of Labor Statistics and U.S. Bureau of Economic Analysis
manufacturing pays higher average compensation
$22.29 $21.44
$11.55 $9.56
0
5
10
15
20
25
30
35
Manufacturing Workers All Workers
Com
pens
atio
n in
Dol
lars
pe
r Hou
r Wor
ked,
201
3
Wages and Salaries Benefits
49
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0
2
4
6
8
10
12
14
16
18
GD
P Tr
illio
ns o
f dol
lars
201
2
U.S. manufacturing is the world’s 7th largest economy
Source: International Monetary Fund and U.S. Bureau of Economic Analysis
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U.S. faces many challenges & opportunities
51
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stubborn long-term unemployment
52
60.0
61.0
62.0
63.0
64.0
65.0
66.0
67.0
68.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1990
19
91
1992
19
93
1994
19
95
1996
19
97
1998
19
99
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
2014
Unemployment
Participation rate
Source: U.S. Bureau of Labor Statistics
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tension between productivity and employment
53
0
500
1000
1500
2000
2500
3000
3500
4000
0
5000
10000
15000
20000
25000
Productivity
Manufacturing employment
Source: U.S. Bureau of Labor Statistics and U.S. Bureau of Economic Analysis
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11,000
11,200
11,400
11,600
11,800
12,000
12,200
12,400
U.S. manufacturing jobs are growing N
umbe
r of e
mpl
oyee
s in
thou
sand
s
Source: U.S. Bureau of Labor Statistics
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growing inability to fund strategic priorities
55
federal debt at $17.5 tillion or $151K per taxpayer
debt to gdp ration ~108%
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-5
0
5
10
15
20
25
2008 2011
Perc
enta
ge C
ontr
ibut
ion
to
U.S
. Str
uctu
ral C
ost B
urde
n
Corporate Taxes Employee Benefits Torts Regulatory Energy
structural cost disadvantage
Source: MAPI (Updated June 2011)
56
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last quarter of 2012: 68 regulation per day
$1 billion for manufacturing institutes
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national network for manufacturing innovation
58
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0
20
40
60
80
100
120 Fr
ance
Uni
ted
Stat
es
Japa
n
Ger
man
y
Uni
ted
Kin
gdom
Can
ada
Aver
age
of 9
pa
rtne
rs
Kor
ea
Mex
ico
Chi
na
Taiw
an
Stru
ctur
al C
osts
of M
anuf
actu
ring
as
a Pe
rcen
tage
of U
.S. C
osts
only France has higher structural costs
Source: MAPI (Updated June 2011)
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Statutory (1997)
Statutory (2012)
Effective (2011)
United States 40.0 40.0 34.6 Japan 57.1 38.0 29.5 France 36.6 33.3 34.1 Mexico 34.0 30.0 17.5 Germany 57.4 29.4 23.8 Canada 44.6 28.0 20.5 China 33.0 25.0 16.6 Korea 30.8 24.2 29.5 United Kingdom 31.0 24.0 27.9 Taiwan 25.0 17.0 10.9
corporate tax rates remain high
Source: OECD
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the U.S. is competitive but not dominant in total R&D investment
Source: OECD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0 19
99
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Gro
ss E
xpen
ditu
res
on R
&D
as
a P
erce
nt o
f GD
P
U.S. Germany United Kingdom Japan China
61
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0
10
20
30
40
50
60
70
80
90
100
Australia Canada Germany Japan Korea United Kingdom
United States
Low-technology Medium-low technology Medium-high technology High-technology
manufacturing sector composition by technological intensity
U.S. manufacturing lags Germany, Japan and Korea in technological intensity
Source: OECD
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80
85
90
95
100
105
110
OECD Average
U.S. Canada Japan Germany U.K. Czech Republic
Poland Mexico
Aver
age
Sco
res
of 1
5-Ye
ar-O
ld S
tude
nts
(Sca
led
to O
EC
D A
vera
ge),
2009
Science Literacy Math Literacy
U.S. students are not competitive in math and science skills
Source: U.S. National Center for Education Statistics
63
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U.S. lags significantly in graduating engineers
Source: National Science Foundation
4.4 6.1 7.5
12.4
17.1
24.5
31.2
0
10
20
30
40
Per
cent
of F
irst U
nive
rsity
Deg
rees
in
Eng
inee
ring,
200
8 (o
r Mos
t Rec
ent Y
ear)
64
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manufacturing competitiveness
tilting towards the U.S.
65
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how do manufacturing CEOs view competitiveness?
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drivers of global manufacturing competitiveness
67
Talent Driven Innovation
Physical Infrastructure
Economic, trade, financial, tax systems
Labor and material costs and availability y
Energy costs and policies
Supply networks
Local market conditions
Legal and regulatory system
Healthcare system
Government investment in manufacturing and innovation
Market Forces
Manufacturing Competitiveness
Government Forces
Source: Deloitte and Council on Competitiveness
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Rank Drivers Index Score 1 Talent Driven Innovation 10.00 2 Economic, trade, financial, tax systems 8.42 3 Labor and material costs and availability 8.07 4 Supply networks 7.76 5 Legal and regulatory system 7.60 6 Physical Infrastructure 6.47 7 Energy costs and policies 6.25 8 Local market conditions 3.99 9 Healthcare system 2.48
10 Government investment in manufacturing and innovation
1.00
how do the key drivers stack up?
Source: Deloitte and Council on Competitiveness
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what is talent driven innovation?
quality and availability of a country’s skilled workforce,
including researchers, scientists, and engineers, and the resulting
ability to drive innovation
69
Source: Deloitte and Council on Competitiveness
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where do countries rank?
70
Rank Country Index Score
1 China 10.00 2 Germany 7.96 3 United States 7.84 4 India 7.65 5 South Korea 7.59 6 Taiwan 7.57 7 Canada 7.24 8 Brazil 7.13 9 Singapore 6.64
10 Japan 6.60
Rank Country Index Score
1 China 10.00 2 India 8.49 3 Brazil 7.89 4 Germany 7.82 5 United States 7.69 6 South Korea 7.63 7 Taiwan 7.18 8 Canada 6.99 9 Singapore 6.64
10 Vietnam 6.50
2013 2018
2 Germanyyyyyy 7.96 3 United States 7.84 4 India 7 65 4 Germanyyyyyy 7.82
5 United States 7.699999 6 SSSoutttttthhhhhh KKKKKKorreeaa 7 63
Source: Deloitte and Council on Competitiveness
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U.S. manufacturing slipped to #2
Source: United Nations
0
5
10
15
20
25
30
35 19
80
1981
19
82
1983
19
84
1985
19
86
1987
19
88
1989
19
90
1991
19
92
1993
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
02
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
Per
cent
of V
alue
-Add
ed in
G
loba
l Man
ufac
turin
g
United States China Germany Japan Brazil
71
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advantages and challenges of manufacturing in the U.S.
Advantages • Technological prowess and size • Research support for national laboratories and universities • High productivity • Certain policy actions • Market size and sophistication Challenges • Historical high-cost labor (starting to change) • High corporate tax rates and other structural costs • Slowing growth Areas to watch out • Policy uncertainty • Shale gas availability • Reshoring • Skills
72
Source: Deloitte and Council on Competitiveness
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advantages and challenges of manufacturing in China
Advantages to manufacturers • Favorable policy actions • Growing middle class • Increasing R&D • Advanced electronics manufacturing • Robust raw material supply base • Physical infrastructure Challenges • Innovation & IP protection • Tax burden • Lower productivity • Regulatory inefficiency • Transport costs to U.S.
73
Areas to watch out • Investment in strategic industries • Slowing domestic growth • Greater emphasis on energy and
environment • Improving education • Rising labor costs
Source: Deloitte and Council on Competitiveness
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the U.S. is the #1 destination for foreign direct investment
Source: UNCTAD World Investment Report
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0 19
90
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
FDI S
tock
, $Tr
illio
ns
France Germany United Kingdom United States China* Russia Netherlands
74
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foreign investment in the U.S. grows
Source: U.S. Bureau of Economic Analysis
0
200
400
600
800
1,000 19
85
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
$Bill
ions
U.S. Direct Investment Position Abroad Foreign Direct Investment Position in the U.S.
75
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• rising wages in China
• decreasing availability of both low & high skill labor in China
• reduced energy costs in U.S.
• IP and piracy/counterfeiting losses in China
• high rate of technology advancement is shortening the time-interval of new product demand
• increases total cost of transportation (longer distances, etc)
• ability to efficiently integrate suppliers
cost advantages (real & perceived) of offshoring production are diminishing
76
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manufacturing labor costs in the U.S.
Source: Report on The Structural Cost Of U.S. Manufacturing. October, 2011
$48.93 $44.08
$41.36
$35.94 $32.42
$29.83
$24.71
$18.53 $15.80
$10.70
0.00
10.00
20.00
30.00
40.00
50.00
60.00
77
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US labor market is the most attractive of all major developed world manufacturers
0
20
40
60
80
100
120
140
160
180
Germany France Italy U.K. Japan 0
1
2
3
4
5
6
7
8
9
10
Germany France Italy U.K. Japan
Labor costs higher in other major manufacturing economies
Productivity adjusted wages (indexed)
U.S.
Source: International Labor Organization, Economist Intelligence Unit, Fraser Institute for Economic Freedom, BCG
U.S. benefits from a relatively flexible labor market
Overall labor market regulation
World Rank 112 94 72 15 14
U.S. 3
© 2014 blutre strategies, all rights reserved 79
0
5
10
15
20
25
30
35
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fully
load
ed fa
ctor
y-w
orke
r wag
es ($
/hou
r)
Source: Economist Intelligence Unit, U.S. Bureau of Labor Statistics, BCG
China’s wages are growing rapidly
Ratio of average Chinese wages to U.S. wages
17% 9%
4% 3%
U.S. wages
2014 2015
Chinese wages
© 2014 blutre strategies, all rights reserved 80
abundant natural gas provides a huge cost advantage for U.S. based manufacturers
0
50
100
150
200
250
300
350
400
Germany France Italy U.K. Japan
Natural gas prices in other major manufacturing economies (indexed)
U.S.
Source: International Energy Agency, BCG
0
50
100
150
200
250
300
350
400
450
Germany France Italy U.K. Japan
Industrial electricity prices are lower in the U.S. (indexed)
0 U.S.
© 2014 blutre strategies, all rights reserved 81
0
20
40
60
80
100
120
140
U.S Germany France Italy U.K. Japan China
Other Electricity Natural Gas Labor Productivity
U.S. becoming one of the developed world’s lowest cost economies
Average projected manufacturing costs of the major exporting countries compared to the U.S. 2015
Source: U.S Census Bureau, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, International Labor Organization, BCG
© 2014 blutre strategies, all rights reserved 82
U.S. manufactures nearly 75% of what it consumes
Food & beverages
Petroleum& chemicals
Wood Products
Paper products
Glass, stone,
minerals
Plastics, rubber
Chemicals
Furniture Primary metal manufacturing
Manufactured goods consumed in the U.S. by sector, 2010 (%)
Transportation Goods
Textiles, fabrics
Machinery Appliances, electrical
equipment
Computers, electronics
Apparel, footwear,
accessories
Fabricated metals
GlGl Misc.
Source: U.S. Census Bureau, U.S. Bureau of Economic Analyses, BCG
© 2014 blutre strategies, all rights reserved 83
7 industry clusters are becoming more attractive in the U.S.
Logistics costs as a share of product price
Source: U.S. Department of Transportation, U.S. Census Bureau, U.S. Bureau of Economic Analysis, BCG
Labo
r cos
ts a
s a
shar
e of
tota
l pro
duct
cos
ts
High
High
Low
© 2014 blutre strategies, all rights reserved 84
attractive industries account for nearly $2 trillion of U.S. consumption and nearly $200 billion in imports from China
Industry Value of goods consumed
Imports from China
Transportation goods
$582 B $6 B
Computers & electronics
$467 B $122 B
Fabricated metals $262 B $10 B
Machinery $251 B $16 B
Plastics and rubber $170 B $9 B
Appliances and electrical equipment
$134 B $25 B
Furniture $75B $13 B
Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis, BCG
electrical eqqquippppppppmentFurniture $75B $13 B
© 2014 blutre strategies, all rights reserved 85
recent news of interest
Ikea awarded Sauder Woodworking Co. of Archbold, Ohio, a 5 year contract. The partnership will create at
least 150 new jobs and involve an equipment investment of over $13 million by Sauder.
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86
key take-aways • change is constant and faster than ever • unprecedented appetite for resources • manufacturing is the greatest innovation in history • manufacturing will continue to change rapidly • U.S. faces challenges & opportunities while manufacturing
more important than ever • manufacturing competitiveness tilting towards the U.S.
- innovation - labor and productivity - energy
if we play it smart, we’re look at another century of American manufacturing excellence and leadership
© 2014 blutre strategies, all rights reserved
Thank you
JJack McDougle President & Founder
Blutre Strategies, Inc.