Manufacturing Efficiency a Rising Priority for CEOs as Trump Promises to Bring Jobs Back Home

Trump already has convinced United Technology’s Carrier refrigeration unit to keep around 1,000 jobs in the U.S. instead of shifting them to Mexico. IBM, meanwhile, has seemingly acquiesced to the president-elect’s protectionist leanings by pledging to create 25,000 news jobs in America over the next four years.

There may be trade-offs, with any increased costs associated with forgoing cheaper offshore labor potentially offset by Trump’s pledge to raise import tariffs and lower the corporate tax rate. But nothing is assured and U.S. companies planning to grow more at home may need to improve the efficiency of their operations if they want to protect their margins.

According to a new report by Boston Consulting Group and the National Association of Manufacturers, U.S. industry productivity slipped by 0.4% between 2011 and 2015. That’s despite 90% of 200 CEOs surveyed by the management consultancy nominating productivity improvements as a top five profit driver.

Leaders should be bold and target productivity gains of up to 20% in key cost areas, rather than being satisfied with incremental advances of a few percentage points, according to Justin Rose, a BCG partner and author of the report. “In many manufacturing industries, such large productivity gains will tip competitiveness from low-cost countries back to the United States,” Rose said.

“In the past, productivity could be achieved only through low-cost labor in large factories. In the future, manufacturing will be driven by new materials, additive techniques and digitized plants.

GE CEO Jeff Immelt is a big believer in America’s scope to boost productivity through technological advances, such as data analytics and the Internet of Things. “Our competitive advantage is digital,” he recently told a gathering in New York. “In the past, productivity could be achieved only through low-cost labor in large factories. In the future, manufacturing will be driven by new materials, additive techniques and digitized plants.”

Eight years of economic uncertainty has generally made business reluctant to invest in new gizmos and talent. Indeed, BCG’s survey found that most CEOs have addressed the productivity issue by resorting to old levers, such as reducing working capital and optimizing supply chains.

Executives ranked themselves lower on more advanced and cross-functional topics, such as organizational efficiency, complexity reduction and the adoption of new digital tools, widely referred to as Industry 4.0.

Trump’s pledges to lighten regulation and slash taxes have boosted CEO confidence levels, potentially putting businesses under pressure to invest to stay competitive.

Some companies already are ahead of the curve. Harley Davidson, for example, has applied 3D simulation software to allow customers to design motorbikes from their own homes. New techniques for planning and operations monitoring, meanwhile, have allowed for same-day delivery. At the same time, BCG estimates that Harley’s costs have declined by 7% and net margins have increased by 19%.

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Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

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