Made in America:

Rethinking the Future of US Manufacturing

David Simchi-Levi & James Paul Peruvankal - MIT
Narendra Mulani, Bill Read & John Ferreira - Accenture

A growing number of US executives are

repatriating their manufacturing capabilities
moving some production operations back from
overseas. One such company is Ford which, in
August 2010, announced plans to bring back
about 2,200 parts-production jobs. Another
example is Caterpillar, which is investing $120
million in a new Victoria, TX, plant to make
excavator machinesdevices formerly made at
a Caterpillar plant in Japan.1 Washington policy
makers strongly support these moves; inside
the beltway there is unanimous agreement that
the United States should push for growth in the
manufacturing sector.

But if corporate and political policy

makers are increasingly focused on
American manufacturing, why has this
sector lost six million jobs since 1997?2
Are we truly entering a new era, or are
the above examples rare exceptions to a
largely irreversible trend? The signals are
mixed at best!
The objective of this paper is to help
answer these questions by identifying
the most influential drivers of
manufacturing growth. Toward this end,
MIT and Accenture offer an analysis of
todays shifting business environment
(Section 1), followed by a look at what
we believe are the drivers most tightly
tied to manufacturing growth:

Taxation (Section 2): Using

detailed analyses, we chart the
impact that tax rates have on
manufacturing decisions.
Demographics (Section 3): Analysis
of data from a survey of 287
manufacturing executives assembled
in late 2010 by Accenture suggests
that regional share of market demand
will change significantly in the next
three years. Such a change requires a
major shift in manufacturing strategy.
Supply chain challenges (Section 4):
Daunting issues, such as high fuel
prices and rapidly increasing overseas
labor costs, must be addressed using
innovative supply chain strategies.

A Shift in the Business

Environment

The world of manufacturing is

changingperhaps faster than ever
before. The recent recession obviously
played a huge part: From 2008 to 2009,
US GDP fell by about 1 percent, while US
manufacturing output declined by 10.8
percent. Meanwhile, China is poised to
overtake the United States as the worlds
largest manufacturing nation. In 2009,
Chinas manufacturing output was $1.6
trillion, just below the United States
output of $1.7 trillion.
Events unrelated to the recession
may have had an even bigger impact.
For example, volatile demand levels,
labor costs, commodity prices and
exchange rates are making it harder
for companies to control operating
costs. As a result, many are finding it
more difficult to maximize the value
of long-entrenched practices such
as just-in-time, lean manufacturing,
off-shoring and outsourcing.
Consider, for example, changes in oil
price: Figure 1 illustrates the number of
days per year between 1987 and 2009
that the price of oil changed by 5 percent
or more. During most years, daily oil
prices changed by at least 5 percent only
5 to 20 times. But in 2008 oil prices rose
or fell by 5 percent or more on 39 days.
3

That was an even more volatile year than

the recession year of 1990.

markets generate most of the worlds

new market growth.

The effect of oil-price volatility and

upward trending (the price of oil more
than doubled between January 2009
and January 2011) is exacerbated by
changes in labor costs in developing
countries (Figure 2). Together, the
oil and labor issues suggest that the
offshoring and outsourcing decisions
companies made a few years ago
may require some rethinking.

Even more striking is the anticipated

shift in demand for products made by
companies with more than $10 billion
in revenue. As shown in Figure 4,
North Americas share of this market is
projected to drop by more than 5 percent,
while Asias is projected to rise by the
same amount over the same period.
Similarly, the combined share of revenue
generated by companies in developed
countries (North America, Western
Europe and Japan) is projected to fall by
almost 7 percent and rise by about the
same amount in emerging markets.

In the same vein, low-cost-country

sourcing strategies and lean practices
have helped many companies reduce
costs. But in the current pan-world
business climate, these approaches could
increase organizations exposure to
operational problems and compromise
their ability to respond effectively to
natural disasters. Globalization has
definitely increased the risk of counterfeit
components and products entering the
supply chainwith potentially severe
consequences to the economy, public
health and safety, and national security.
Shifts in consumer demographics
represent another challenge to
manufacturers. As illustrated by the
power tools industry (Figure 3), emerging

The net effect is that, in a very short

time, many of the manufacturing
industrys most important benchmarks
have changed significantly. As a
result, the strategies, programs and
policies that many companies have in
place might not perform as planned.
Instead, manufacturers should consider
developing new operating models based
on a "new normal," while responding
to three of the 21st centurys most
important manufacturing drivers:
taxation, market demographics and
supply chain challenges.

Figure 1: Oil price volatility, 1987 to 2009: Number of days during which oil prices shifted more than five percent.3
45
40

2008: 39 days

1990: 38 days

35
30
25
20
15
10
5
0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 2: Average annual wage

increases in five countries, 2003 to
2008.

Figure 3: Between 2002 and 2009, share of worldwide demand for power tools
grew from 22 percent to 33 percent among emerging markets (Asia Pacific,
Latin America, and Africa and the Middle East).
100%
90%
80%

16%

15%

18%

3%
3%

5%
4%

8%
6%

70%
60%

Latin America

39%
44%

50%

41%

40%

North America

39%
32%

10%
0%

Africa/
Middle East
Europe

30%
20%

Asia Pacific

2002

2006

27%
2009

Figure 4: Projected shift in regional share between 2010 and 2013 for large
(>$10 billion) companies.4
6%
4%
2%
0%

North
America

Western
Europe

Middle East/
Africa

Japan
Eastern
Europe

Latin
America

Asia

-2%
-4%
-6%

How Taxation Affects

Manufacturing

Our objective in this section is to

demonstrate the impact of taxation on
manufacturing strategy. Consider first
that manufacturers generally adhere to
one or more of the following success
measures: cost efficiency (reducing total
supply chain cost), capital efficiency
(optimizing capital infrastructure
investments and reducing working
capital) and tax efficiency (maximizing
after-tax profit).
In recent years, increased focus has been
placed on place on tax efficiency as one
of the success measures. By shifting
assets and jobs overseas (where tax rates
generally are lower) many companies
have significantly reduced their liabilities
(Figure 5).5
Differences in local taxation go a
long way toward explaining the low
taxes paid by many of the United
States largest corporations. Although
the US corporate income tax rate
is 35 percent, the effective tax rate
of some of the countrys biggest
companies is below 10 percent. To
illustrate how this happens, we offer
the following hypothetical case study.

A US-based manufacturer of building

material sells two grades of products.
The low-grade products are sold for
$7 to $9 per unit while the high-grade
products are sold for $12 to $14 per
unit. The company has a manufacturing
facility in Akron, OH, and distribution
centers (DCs) in Pittsburgh, St. Louis,
Atlanta and Reno.
Pressure to reduce costs and improve
profitability forced the company to
consider moving some or all of its
manufacturing operations outside
of the United States. Two potential
locations were identified: Mexico City
and Warsaw, Poland. Figure 7 illustrates
projected manufacturing costs for each
of the three locations (US, Mexico,
Poland) as well as the tax rate in each
region. The US tax rate includes the
35 percent corporate income tax rate
(which is adjusted to 32.7 to reflect
net rate due to a deduction associated
with sub-central income tax) plus 6.54
percent for sub-central (state/region)
corporate income tax.

The company could easily conclude

that outsourcing manufacturing to
Mexico or Poland would reduce its
costs and tax liability. However, moving
operations to Poland and Mexico would
also involve higher transportation costs.
In addition, shipments from Poland
would have to flow through the Port of
Baltimore and incur additional handling
charges. Understanding this, the
company formulated the three scenarios
illustrated in Figure 8:
Scenario 1: Manufacturing remains in
the United States: In this scenario, costs
are high, profit is low and the effective
tax rate is 39.25 percent.
Scenario 2: Company emphasizes the
minimization of total supply chain costs:
Focusing on cost cutting results in a
shift of about 50 percent of production
volume to Mexico. This reduces costs,
increases profits and reduces the
effective tax rate to 33.18 percent.
Scenario 3: Company focuses on
maximizing after-tax profits: This
involves moving all manufacturing
activities out of the United States
to Mexico and Polandsignificantly
increasing profit and reducing the
effective tax rate to 25.93 percent.

Figure 5: 2008 effective tax rates in

various countries.
Country
Ireland
Korea
Mexico
Poland
United States

Corporate Tax Rate

12.5%
27.5%
28%
19%
35%

Figure 7: Cost and tax rates in three countries.

Cost & Tax Rates
Annual Fixed Cost
Variable Cost: Low Grade
Variable Cost: High Grade
Tax Rate

United States
$1.25M
$2.20
$4.50
39.25%

Mexico
$925K
$1.05
$2.15
28%

Poland
$975K
$1.10
$2.25
19%

Figure 8: The impact of low-cost manufacturing and attractive tax rates.

Scenario 1: US
Region Production Volume
US
100%
Mexico
Poland
Scenario 2: Low Cost
Region Production Volume
US
50%
Mexico 50%
Poland

Pre-Tax Profit Tax Rate

$12,065,745
39.25%
28%
19%
$12,065,745
39.25%

Tax Paid
$4,735,804

After Tax Profit

$7,329,941

$4,735,804

$7,329,941

Pre-Tax Profit Tax Rate

$6,481,590
39.25%
$7,604,692
28%
19%
$14,086,282 33.18%

Tax Paid
$2,544,024
$2,129,314

After Tax Profit

$3,937,566
$5,475,378

$4,673,338

$9,412,944

Tax Paid
$1,284,447
$927,491
$1,382,435
$3,594,373

After Tax Profit

$1,988,030
$2,384,975
$5,893,539
$10,266,544

Scenario 3: Max After-Tax Profit

Region Production Volume Pre-Tax Profit
US
0%
$3,272,477
Mexico 40%
$3,312,466
Poland 60%
$7,275,974
$13,860,917

Tax Rate
39.25%
28%
19%

25.93%

Observe that in Figure 8s last scenario

when manufacturing is moved outside
the United Statesthe company records
about one third of its profit in the US.
This profit is based on the difference
between the selling price in the US and
the transfer price: the price representing
the value of goods delivered to the US
from offshore manufacturing facilities.
Thus the higher the transfer price, the
lower the profit recorded in the US,
and consequently the higher the profit
in low-tax-rate countries. Since the
transfer price is under the control of the
manufacturer (within basic accounting
guidelines), the profit recorded in the
US, and thus the amount of tax paid in
the US, is controlled by the firm.6

Changing Demographics:
The Growing Importance
of Regional Manufacturing
Strategies

Most companies understand the

importance of getting close to the
customer, regardless of whether they
sell their products to consumers or to
other businesses. In most cases, close
is figurative rather than literal. However,
it is increasingly clear that the physical
location of supply and manufacturing
facilities can have a significant impact
on close-to-the-customer issues
such as providing custom products,
responding effectively to customer
requests and ensuring delivery
excellence in spite of demand swings.
Given that both literal and figurative
closeness matter, the core question
becomes where does (and will) our
revenue come from? Based on data
obtained by Accenture, Figure 9 suggests
that the larger the size of the company,
the larger the portion of revenue
generated outside the United States. The
same holds true for the manufacturing
supply sidewhere components and
raw materials are produced. This rule
appears even more steadfast in certain
industries, such as electronics and life
sciences (Figure 10).

The implication is clear: Many large

companies already generate significant
revenue outside the United States; and
for these companies, supply follows
demand. This is illustrated in Figure 11,
which focuses on companies with more
than $10 billion in revenue. As shown
in the graphic, supply manufacturing by
region follows the revenue distribution.
Surprisingly, our data shows that
more than 50 percent of supply
manufacturing for these companies is
generated in the US.

Expected Shifts in
Regional Supply and
Demand
Are executives prepared for the shifts
we have just described? To find out,
Accenture and MIT analyzed the
survey data (focused on companies
in 17 different industries ) obtained
by Accenture. We compared current
revenue and manufacturing distribution
by region to the 2013 projections
that each surveyed company
provided to our researchers.

Figure 12 presents the projected shift

in regional shares in revenuethat
is, the contribution of a region to
the firms revenue in 2013 minus the
contribution of the region to revenue
in 2010. A positive value indicates
growth in that region, while a negative
value indicates decline in that region
(the blue demand bars). The same
is done for manufacturing supply
(the red supply bars). The implied
conclusion is that, in the next three
years, growth in revenue (demand) and
manufacturing supply will come from
Asia and Latin America, while North
Americas and Western Europes shares
of both demand and supply will decline.

Figure 9: 2010 share of revenue and supply from the United States by company size.
Share of Demand
Share of Supply

Less than
$250M

$250M$500M

$500M$1B

$1B-$5B

$5B-$10B

Greater than
$10B

Figure 10: 2010 share of revenue from the United States by company size and industry.
100%
80%
60%
40%
20%
0%

Automotive/Transportation Equipment
Biotechnology/Life Sciences
Chemical/Process
Electrical/Electronic Equipment
Industrial Goods
Metal Fabrication
Paper/Wood/Printing

Less than
$250M

$250M$500M

$500M$1B

$1B-$5B

$5B-$10B

Greater than
$10B

Figure 11: 2010 distribution of revenue and manufacturing supply by region for companies $10B or larger.
Demand
Supply

North
America

Western
Europe

Japan

Eastern
Europe

Middle
East/Africa

Latin
America

Asia

Figure 12: Projected shift in regional share between 2010 and 2013 for companies whose revenue exceeds $10 billion.
8%

Change in regional share of demand

6%

Change in regional share of supply

4%
2%
0%
-2%

North
America

Western
Europe

Middle
East/Africa

Japan
Eastern
Europe

Latin
America

Asia

-4%
-6%
-8%

This trend holds for almost all of

the 17 industries we reviewed. For
example, Figure 13 demonstrates the
projected shift in regional share of
revenue and supply between 2010
and 2013 in two industries: electrical/
electronic equipment and industrial
goods. The big winners in both revenue
and supply are Asia and Latin America,
while the percentage of revenue and
supply generated from North America
and Western Europe are projected to
decline between 2010 and 2013. A more
detailed analysis shows that China and
India comprise much of the growth in
demand and supply in Asia.
As pointed out earlier, the projected
shift in regional share holds for almost
all industries. The exception is the
software business. As shown in Figure
14, this industrys revenue and supply
share in North America is expected to
increase slightly in the next three years,
while Indias supply share will increase
significantly and Chinas supply share
will decrease significantly.

Lastly, we tested the correlation

between projected supply shifts and
regional tax rates. For this purpose, we
looked at the difference between the
proportion of a firms supply emanating
from a region in 2013 and the proportion
of supply in that region in 2010. The tax
rate of a region is the weighted average
of the tax rate of each country in that
region, weighted by their GDP. These
statistics are presented in Figure 15.
The results are quite consistent. North
America, Western Europe and Japan all
have high tax rates, along with declines
in supply for those regions. China and
most other Asia-Pacific countries have
significant supply growth and lower tax
rates. The exception is India, which has
high supply growth and high tax rates.
In 2010-2011 the countrys tax rate
was 35.5 percent, although that rate
is scheduled to decrease to 30 percent
by 2012. In 2010, in fact, the Indian
government initially considered reducing
corporate taxes for foreign companies
to 25 percent by 2012, but it eventually
settled on 30 percent. Thus, the
predicted supply growth in India is due
in part to demand growth and in part to
the expectation of a lower tax rate.

Figure 13: Projected shift in regional share between 2010 and 2013 for two industries.
8%
6%
4%
2% North
America
0%
-2%
-4%
-6%
-8%

Western
Europe

8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%

Middle
East/
Africa

Japan
Eastern
Europe

Latin
America

Asia

North
America

Western
Europe

Middle
East/
Africa

Japan
Eastern
Europe

Latin
America

Asia

Change in regional share of demand

Change in regional share of supply

Figure 14: Projected shift in regional share between 2010 and 2013 for the software industry.
15

Demand Growth
Supply Growth

Software

10
5

Eastern
Euopr
Europe/
Russia

South
America

Western
Europe

United Mexico/
States/ Central

-5 Canada America

China

Japan
India

Middle
East/
Africa

Australia Other
Asia
pacific

-10
-15

Figure 15: Projected shift in regional share of supply and tax rate. For the purpose of this figure, APAC does not include
China and India.
4

Supply Growth
China

3
2

Western
Europe

APAC

1
0

Tax Rate

Eastern
Europe
Australia

Japan
India

-1

Mexico/
Central
America

-2
-3

Range of Tax Rate

for that Region

-4

South
America

40
35
30
25
20
15
10
5

-5
-6

United
States/
Canada

Middle
East/
Africa

45

Supply Shift

Average Corporate Tax Rate

10

Managing Supply Chain

Challenges

Since the mid 1990s, many companies

have outsourced or offshored some or
all of their manufacturing operations.
For most, the enabling factor was cheap
oil: Long supply lines were economically
feasible because transportation (i.e.,
fuel) costs were relatively low.
Hence, more emphasis was given to
reducing manufacturing costs through
1) off-shoring or outsourcing, 2) plant
rationalizations (leveraging production
economies of scale and reducing capital
investment) and 3) consolidating
distribution centers and warehouses to
reduce inventory levels and eliminate
fixed facility costs.
Then the playing field changed. Crude
oil prices rose and transportation costs
became far more important relative to
inventory, production and fixed facility
costs. This in turn has given rise to three
cost-optimization realities:

1: Regional Distribution
Centers Become More
Attractive
As oil prices increase, outbound
transportation costs become more
expensive and, as a consequence, it
becomes more necessary to minimize
11

distances between distribution centers

and retail outlets. Building more
warehouses is certainly an alternative.
However, more warehouses imply
more safety stock and generally higher
inventory levels.
A US-based company has manufacturing
facilities in Philadelphia, Omaha and
Juarez, Mexico. Not surprisingly, the
Juarez facility is the lowest-cost
operation. The company also has five
distribution centers in the United States.
Concerned about rising fuel prices, the
organization launched a network design
study to determine 1) the right number
and location of distribution centers, 2)
the optimal assignment of customers to
DCs, 3) the best allocation of products
across the companys manufacturing
and distribution facilities and 4) what
changes should be made periodically to
understand how the network ought to
change as oil prices fluctuate.
The study revealed a significant need to
reduce outbound transportation costs by
deploying more distribution centers that
stock more inventory. This is illustrated
in Figure 16, which depicts the number
of DCs increasing from five to seven
as oil costs rise from $75 per barrel to
$200 per barrel.8

2. Sourcing and
Production Move Closer
to Demand
As cheaper manufacturing costs
(frequently associated with offshoring)
are offset by higher transportation
costs, it may be necessary to move more
manufacturing and sourcing activities
onshore. This can be determined
through total landed cost analyses that
consider unit costs, transportation costs,
inventory and handling costs, duties
and taxation, and the costs of finance.
Landed cost assessments are a good
way to calculate the cost of sourcing
or manufacturing in one location and
serving customers in other locations.
In a total landed cost assessment, the
impact of sourcing and production costs
generally diminishes as transportation
costs increase.
Revisiting the previous example, we can
see that, as oil prices increase, so does
the need for production to move closer
to demand. In this case, the advantages
of cheaper manufacturing in Mexico are
offset by higher transportation costs
(Figure 17).9

Figure 16: Oil cost increases from $75 per barrel to $200 per barrel change the optimal number of distribution centers
from five to seven. In particular, the Las Vegas DC is replaced by facilities in Los Angeles, Albuquerque and Portland.
$75/barrel

$200/barrel

Figure 17: As oil prices rise, manufacturing moves closer to market demand. The percentages represent the proportion of
demand satisfied from manufacturing at a specific plant.
$75/barrel

$200/barrel

23%

22%

78%

23%

Juarez,
Mexico
Philly Plant
54%

The need to move manufacturing

facilities from low-cost countries to
locations that are nearer to market
demand is strengthened by increases
in developing countries labor costs
and the pressure most companies are
feeling to reduce times to market.
These three forces (transportation
costs, labor costs and time-tomarket pressures) are inspiring some
companies to move manufacturing
facilities from Asia to Mexico, as
illustrated in the next example.
TV manufacturer Sharp recently started
moving manufacturing facilities from
Asia to Mexico to serve customers
in North and South America. This
shift was driven by the need to keep
shipping costs low and time to market
short. A particularly salient issue was
that prices of flat-screen TVs fall
fast, so reducing shipping times from
about 40 days (when flat-screen TVs
were produced in Asia) to seven days
(making the units in Mexico) can have
a big impact on the bottom line.10

Juarez,
Mexico
Philly Plant
Omaha
Plant

3. Supply Chain Flexibility

Becomes More Critical
As oil price volatility increases,
it becomes more important for
companies to serve customers from
the closest manufacturing plant.
However, this is not possible if each
plant specializes in the production of
only a few itemsa strategy known
as dedicated manufacturing.
A dedicated manufacturing approach
often reduces manufacturing costs due
to economies of scale and the fact that
fewer set-ups may be required to switch
between different products. However,
a dedicated manufacturing strategy
can also result in long delivery legs
and hence higher transportation costs.
By contrast, a flexible manufacturing
strategywith each plant able to
produce all (or almost all) products that
the company providesmay increase
production costs (due to frequent
set-ups and smaller lot sizes), but it is
nearly certain to reduce transportation
costs. So it stands to reason that the
more oil prices rise, the more important
it is to invest in a flexible strategy.
This is illustrated in the case study
below, in which we show supply chain

costs falling from 14 percent (using

the dedicated strategy) to 3.5 percent
(using the flexible manufacturing
strategy) when oil prices rise from
$100 per barrel to $200 per barrel.
A European manufacturing company
has five plants located in Geel, Belgium;
Hamburg, Germany; Lecce, Italy;
Pordenone, Italy and Cheltenham, UK.
Each facility is dedicated to a single
product family. Inbound transportation
uses large trucks (15,000 kg/shipment)
while outbound transportation deploys
smaller trucks (5,000 kg/shipment).
Figure 18 shows the effects of keeping
each plant dedicated to a single product
family while optimizing the structure
of the logistics network. Basically,
an increase in crude oil price from
$100 per barrel to $200 per barrel
will raise the companys supply chain
costs by 14 percenteven if the firm
adjusts the distribution network by
repositioning distribution centers.11

12

Figure 18: Dedicated manufacturing while adapting the distribution network.

$100/barrel: 10 DCs used

$200/barrel: 14 DCs used

14% Cost
Increase

Figure 19: Implementation of a flexible manufacturing strategy.

$100/barrel: 10 DCs used

$200/barrel: 11 DCs used/4 Mfg Lines added

3.5% Cost
Increase

Conversely, investing in manufacturing

flexibility by allowing products to
be made at new plantseven when
including the investment associated
with plant reconfigurationreduces
the increase in supply chain costs from
14 percent to 3.5 percent (Figure 19).
Interestingly, flexibility is achieved
by adding only four new production
lines to the existing plants.12
Accenture has observed that companies
pursue greater flexibility not only in
manufacturing, but in all areas up and
down the supply chain. For example,
being able to react quickly with new
sourcing solutionswhether they are
from a different plant or supplieris
an excellent way to protect operations
from the volatility that is inherent
in todays economic environment.
Flexible manufacturing may also be the
optimal way to minimize supply chain
disruptions caused by natural disasters
such as the recent tsunami in Japan
and volcanic eruptions in Iceland.

13

14

Conclusions and
Recommendations

The United States remains a large,

affluent market that generates
significant global demand. It has
and will continue to havemany
demographic characteristics that are
extremely attractive to companies. The
reality, however, is that less and less of
that demand is being filled by stateside
manufacturing operations.
Still, manufacturing is now going through
a genuine transformational period, driven
particularly by increased labor costs in
developing countries, shifting demand
patterns, heightened market volatility
and significant rises in the price of
oil. Manufacturing companies should
acknowledge that these events might be
the impetus for a shift in how and where
they make their goods.
In effect, there exists a huge
opportunity for US companies and policy
makers to reverse the trend and return
the country to an era of manufacturing
growth. The biggest hurdle may be that
a new mindset is neededa sense of
urgency, an acceptance of new ideas and
an acknowledgement that the playing
field is often uneven and that hyperaggressive programs and policies must
be enacted as a result.

15

The good news is that we are not

starting with an entirely blank slate.
Similar challengessuch as those faced
when Japan emerged as industrial
forcewere addressed and largely
surmounted in the 1980s and early
1990s. The key then, as it is now,
involved extensive collaboration among
industry, government and academia. In
the automotive industry, for example,
the US government negotiated a
Voluntary Export Restraint program in
1981 that limited Japanese exports to
the US to 1.68 million cars annually.
This agreement compelled Japanese
companies to open factories in the US to
serve local markets.13

The next year, responding to the

threat to American manufacturing,
and in partnership with several US
manufacturing companies, MIT
established a unique graduate program,
the Leaders for Manufacturing (LFM).
This program focused on developing
manufacturing company leaders who
possess both a management perspective
and deep technical knowledge.

In 1987, Congress allocated significant

funding to a consortia that included
United States semiconductor
manufacturing companies, software
vendors and government agencies.
The goal was to strengthen critical
segments of the US semiconductor
equipment industry (a sector considered
important for America's security and
prosperity) by working with individual
suppliers on projects to improve the
performance of their equipment.14

Consumer demand is changing, with

emerging markets contributing more
and more to a typical companys
revenue.

Now is the time for government,

industry and academia to again pool
resources in pursuit of a worthy and
common goal: rebuilding the nations
manufacturing competitiveness. Such an
effort would need to recognize that:

Manufacturing investments naturally

flow to countries and regions where
financial incentives are substantial.
Chief among those incentivesand
what drives jobs in and out of a
regionis a countrys tax policy.
Companies compete on cost and
responsiveness, and this balance
moves dramatically when labor costs
rise and the locus of demand shifts.

 Local talent and skills are essential to

productivity and innovation. Longterm depletion of manufacturing skills
will make it hard to reverse the trend.
Research and development incentives
provided by the US government must
be tied to manufacturing operations.
Otherwise, whatever is developed with
taxpayer money could easily be moved
to other regions associated with lowcost manufacturing.
Dynamic supply chain management
capabilities are now essential. In
the 21st century, successful US
manufacturing companies will be
those that can respond quickly to
demand changes, cost increases, and
economic and political shifts. Prime
enablers will be powerful analytical
tools and operations that demonstrate
unprecedented flexibility.
Revival of the US manufacturing
industry depends on other factors
as well, such as the strength of the
US economy and the devaluation of
other currencies against the dollar. But
without a concentrated, collaborative,
national effort, it will be difficult for the
United States to reestablish worldwide
manufacturing prominence.

16

17

About the Authors

David Simchi-Levi is a Professor

of Engineering Systems at MIT and
is considered one of the premier
thought leaders in supply chain
management. His research focuses on
developing and implementing robust
and efficient techniques for logistics
and manufacturing systems. He has
published widely in professional journals
on both practical and theoretical
aspects of logistics and supply chain
management. Professor Simchi-Levi
coauthored the books Managing the
Supply Chain (McGraw-Hill, 2004), The
Logic of Logistics (Springer 2005), as
well as the award winning Designing and
Managing the Supply Chain (McGrawHill, 2007). His new book Operations
Rules: Delivering Customer Value through
Flexible Operations was published by MIT
Press in September 2010.
James Paul Peruvankal is a graduate
student at the MITs Sloan School
of Management and the School of
Engineering. His research interests
include Supply Chain Strategy Alignment
and Cost of Complexity of Systems. He
has worked on Supply-Chain IT projects

References
Are Manufacturers Really Bringing
Back Work to the US? SCDigest, August
24, 2010; Hagerty, J. R. U.S. Factories
Buck Decline, The Wall Street Journal,
January, 19 2011.

Source: US Labor Department.

Taken from a talk given by Dr. Stefan

Hartung, Robert Bosch GmbH, Power
Tools in Our Common Future Conference,
Essen, Germany, on November 6, 2010.

for major multi-national retailers. He

is a Certified Supply Chain Professional
by the Association for Operations
Management. He holds a Bachelor of
Technology from the Indian Institute of
Technology, Mumbai, India.
Bill Read is the Managing Director of
Accentures North America Supply
Chain Consulting practice. With close
to 30 years of supply chain consulting,
ERP and outsourcing experience to
draw on, Bill is known for his effective
consulting style, deep process expertise,
and an ability to work with all levels of
client management to achieve radical
improvements to business operations.
He has a deep understanding of Supply
Chain Mastery that allows him to
specialize in bringing innovative thought
leadership in the form of supply chain
transformation to businesses with
difficult operational and technology
challenges across the manufacturing,
distribution and retail industries. Based
in Charleston, he can be reached at
bill.read@accenture.com.
Narendra Mulani is the Managing
Director of Accentures Products North
America practice, and is responsible

Case example prepared by Derek

Nelson of ILOG.
6

Source: Citizens for Tax Justice: 12

Corporations Pay Effective Tax Rate of
Negative 1.5%on $171 Billion in Profits;
Reap $62.4 Billion in Tax Subsidies.
7

John Ferreira is the Executive Director

of Accentures North American
Manufacturing practice. With more
than 25 years of both industry and
manufacturing consulting experience
across multiple industries, he has
overseen the delivery of many operations
and enterprise transformation efforts.
John holds an MBA from Northeastern
University and a BA from the University
of Massachusetts. Based in Hartford
he can be reached at john.a.ferreira@
accenture.com.

DOD Involvement with the

Semiconductor Manufacturing
Technology Consortium Department of
Defense, Office of the Inspector General,
March 15, 1995, Report No. 95-148.

14

Source: Citizens for Tax Justice: 12

Corporations Pay Effective Tax Rate of
Negative 1.5%on $171 Billion in Profits;
Reap $62.4 Billion in Tax Subsidies.
8

Ibid.

Kessler, M. Sharp Takes a Gamble on

New TV Plant in Mexico. USA Today,
November 6, 2007.

Data source: Survey of 287

manufacturing executives, conducted in
2010 by Accenture.

10

It should be noted that US

manufacturers most popular destination,
China, is also a special case. Until
2007, the corporate income tax for
foreign companies operating in China
was 15 percent (17 percent for joint
ventures). This was significantly
lower than the corporate income tax
rate to which Chinese companies
were subject (25 percent). In 2007,
however, China standardized its
corporate income tax at 25 percent,
regardless of a companys origin.

11

for creating value for clients across a

variety of products industries including:
Retail; Consumer Goods & Services; Life
Sciences; and Automotive, Industrial,
Infrastructure, Travel. Narendras
client experience focuses on leading
large-scale value chain improvement
engagements, and he is passionate these
days about the effect of digitization,
analytics and sustainability on all
aspects of consumer life. Narendra
also served as a member of the global
senior leadership team at Accenture
as a key architect of Accentures High
Performance business framework.
Based in New York, he can be reached at
narendra.p.mulani@accenture.com.

Case example from Operations Rules:

Delivering Customer Value through
Flexible Operations by D. Simchi-Levi,
MIT Press, October 2010.

Case example from Operations Rules:

Delivering Customer Value through
Flexible Operations by D. Simchi-Levi,
MIT Press, October 2010.

12

Lohr, S. Was Japan Only the WarmUp For China? The New York Times,
January 23, 2011
13

18

Copyright 2011 Accenture

All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.

ACC11-1145

About Accenture
Accenture is a global management
consulting, technology services and
outsourcing company, with more than
223,000 people serving clients in
more than 120 countries. Combining
unparalleled experience, comprehensive
capabilities across all industries and
business functions, and extensive
research on the worlds most successful
companies, Accenture collaborates
with clients to help them become
high-performance businesses and
governments. The company generated
net revenues of US$21.6 billion for the
fiscal year ended Aug. 31, 2010. Its home
page is www.accenture.com.