This post by Randy Komisar first appeared in Forbes, 12/10/13
The U.S. Production Economy: Then and Now
In the 1950s, one third of the American workforce was employed in the manufacturing industry; the economy not only supported manufacturing jobs, it thrived on the power of this sector. Since then, U.S. manufacturing has been in a sharp decline as overseas production has become the dominant choice for American companies. Since 2000, the U.S. has seen 5.8 million manufacturing jobs shift overseas.
Today there remain just 12 million manufacturing workers in the United States who earn a living for their households. Jobs in the U.S. production economy are being lost to digital technologies favoring jobs in the creation economy—designers, marketers, engineers, technologists and the like. In many industries, the output of 1,000 workers can be done by one machine, while in other cases the cost of domestic labor cannot compete with what exists overseas.
So how can we reverse the trend and start making things in America again?
What we need is a new type of company—called an artisanal manufacturer—based on principles that promote economic prosperity, enliven local communities, and offer customers a rewarding experience based on quality and value. The first phase of artisanal manufacturing has typically been very small scale, localized and expensive. Today a new type of artisanal manufacturer is on the verge of carving out a meaningful place in the market, offering broader access to a level of quality that can’t be achieved by traditional mass-scale businesses.
New artisanal manufacturing companies take advantage of changing consumer dynamics and developing technologies in order to create value in the market, achieve long-term sustainability and build the capacity to grow in aggregate to a scale significant enough to become a meaningful source of 21st century production jobs.
The Business of Scale
For most traditional manufacturers, the guiding principles of building a business are to scale rapidly, reduce costs, and accelerate profits. The manufacturing transformation of the past 25 years has had a dramatic impact, cutting out every facet of inefficiency in production. This model has had exceptional results, enabling growth of some of the world’s largest companies.
A common tenet of ‘scale businesses’ is to cut costs to the extent that customers will accept lower quality products, poorer service, and less convenience. From this perspective, not only is job creation a low priority, it can be a liability. Together, developments in technology and the scale-driven mentality have been major contributors to the decline of an entire class of jobs. As the cost of labor rises, companies built to scale will almost always take advantage of the opportunity to integrate labor-reducing technologies at the expense of the worker, often driving down quality and value for the consumer.
The Power of the Consumer
Never before have consumers had so much power to direct their dollars toward brands that offer the things they value. The internet and compatible technologies are enabling an unprecedented level of transparency and consumers are increasingly informed about what their alternatives are when making purchasing decisions. Moreover, a cultural shift toward social shopping and the remarkable capacity of social media to build brand awareness is making it possible for companies to get more traction while investing less in marketing.
The result of this will be a stripping down of the things consumers don’t care about and greater access to the things that matter. This “atomization” of demand means people buy the single song, not the album. Traditional retailers are built to extract value from consumers in order to pay for the massive overheads of stores and high budget marketing campaigns. Artisanal manufacturing companies have the capacity to create value for customers by offering more of what they want and less of what they don’t.
Together the trend toward hyper-connectivity and the demand for better options are creating the potential for scale in artisanal manufacturing.
A New Alternative: Rethinking Scale in America
What if we could create an alternative to traditional scale businesses that would put the customer first, focus on quality and actually create jobs and economic growth in the communities the businesses serve? By borrowing from the values that made America a leader in manufacturing back in the 1950s, while driving innovation forward with today’s technologies, artisanal manufacturing has the power to do this.
The term ‘artisanal manufacturing’ can be used to describe the production of quality products by skilled workers, prioritizing customer value over cheap prices. With this approach, it is impossible to produce goods without involving dedicated human hands in the process.
Not only are consumers who choose to buy artisanal goods rewarded by the product itself; by choosing to support local companies they also contribute to sustaining communities of talented workers who make great stuff, here in America. The quality of the output of workers directly impacts what lands in the hands of customers, and it remains true today that you get what you pay for.
5 Principles of Artisanal Manufacturing in the New World
Artisanal manufacturing prioritizes obsessive devotion to delivering a product that goes above and beyond consumer expectation. Companies that are driven to push the limits of scale can afford to make sacrifices on the product side; artisanal manufacturers cannot.
The following principles define this new value proposition:
1. Quality Over Quantity
Leaders of artisanal manufacturing companies think differently about scale. Rather than focusing on producing mass quantities of a standard product, these companies deliver an uncompromising level of quality that cannot be produced without an obsessive level of attention to detail. Companies that prioritize rapid scale will test the limits of customer tolerance for lower quality. This leaves discerning consumers hungry for the type of options that artisanal manufacturers can provide.
Through gradual growth artisanal manufacturers can achieve meaningful scale, from the local level to the national and even international level. Artisanal manufacturing need not be confined to small-batch producers; it is an approach with the potential to reach the masses through carefully executed expansion. Smaller scale production does not necessarily mean higher quality; in some cases higher quality can even be achieved as scale increases.
2. Customers Over Capital
Many of the most successful businesses in America have been able to thrive by putting the interests of capital investors first. These companies play a major role in sustaining the economy, but they don’t serve the interests of every consumer or every worker. Typically they fail to promote the prosperity of their communities.
To be sure, customers have a variety of needs in their lives. And low cost, commodity products will continue to serve many of them. But US manufacturing’s rush to the bottom in the last 50 years has left a gap of high quality, fairly priced goods that mean more to customers than their disposable substitutes. Artisanal manufacturers have the opportunity to build prosperous businesses filling that gap for disappointed consumers.
Artisanal manufacturers pay obsessive attention to what is best for their customers, rather than cutting corners to drive profit margins. Placing customer needs ahead of capital motivations is central to the artisanal manufacturing model.
3. Demand Scaling Over Supply Scaling
Artisanal manufacturers can scale within their means by growing in accordance with demand and prioritizing quality. This generally means more careful growth, but also affords lower risk and reduced waste. Impact is achieved not by scaling to create a market but by scaling to serve a market.
Capital gorges on scale, but customers feed off of quality. Artisanal manufacturers subordinate the scaling demands of capital to the needs of customers and the sustainability of their communities.
Traditional scale companies tend to build inventory volumes determined in large part by optimizing the economies of production. They are in the business of feeding their distribution channels and investing in marketing to attract customers at a massive scale. Product companies tend to morph into real estate and logistics businesses when feeding the distribution assets takes precedence over the needs of loyal customers. These companies are vulnerable to changing consumer demands, which routinely result in major errors in inventory decisions. The resulting seasonal sales condition customers to buy cheap and squander the operational savings derived from squeezing labor costs and offshoring supply chains. Artisanal manufacturers avoid these pitfalls by optimizing not around volume production, but around customer satisfaction.
4. Technology Can Deliver Customer Value, Not Just Cheap Products.
Technology has enabled American companies to move jobs offshore, drive labor costs to precariously low levels, and provide US customers with an endless supply of disposable goods. But it can also enable local sourcing, rapid changes in supply, efficient distribution, direct marketing, smaller inventories, reduced working capital, and improved customer relations and services.
The new breed of artisanal manufacturers don’t just use technology to engage customers and fulfill demand, they also use it to reduce supply chain costs and shorten the time from production to sale in order to minimize costly mistakes. These savings offset the higher costs of labor that are the hallmark of the living wages paid to local workers for quality work.
If rapid scale is not the key to making your business viable, and product and customers are your passion, there are technologies to support that. This is a matter of choice, not inevitability.
5. Labor Is Not Just an Expense.
Companies that view employees merely as a line-item cost to be squeezed tend to overlook the importance of human capital in creating lasting value and profit. The US will not return to a manufacturing juggernaut by reinventing sweatshops with lower wages or fewer jobs. And the US will not create meaningful manufacturing jobs by using robots to reduce costs. If we are going to return to making things, we need a different model of artisanal manufacturing driven by values not just costs. By building healthy communities of skilled workers, artisanal manufacturers in turn build healthy communities of consumers who believe in the products that they make.
Several industries are already leading in artisanal manufacturing and there is still room for growth. As the market for artisanal products grows, so do technologies to help build and distribute them, offering a critical means of scaling to support demand. Among the best examples are foods, beverages, clothing, and home goods.
One common characteristic among artisanal businesses is that they offer more than just a product or a retail environment. They have a brand that tells a story of what the product stands for, who made it and where it comes from. In other words, they give consumers something to love.
The Food Movement
Arguably more advanced than any other artisanal movement, American food makers have turned high quality, craft-made products into a part of our food culture and given consumers a remarkable selection of options made with care by real people. Producers all over the country are providing their communities with wholesome foods, grown and raised by farmers who support workers, the land and customers in equal measure.
Case: Cabot Creamery
Cabot Creamery formed as a collective of dairy farmers in 1919 and today is a thriving business supporting 1200 dairy farm families and employing 1000 employees at dairy plants located in Vermont, New York and Massachusetts. A certified B Corporation, Cabot is committed to social and environmental excellence, contributing to the health of the communities that it serves. While Cabot has grown and changed significantly over nearly a century, the commitment to quality remains paramount and the brand’s award-winning products, including cheese, yogurt and butter have been recognized among the best in the world.
Rethinking American Apparel
While the bulk of apparel manufacturing has shifted overseas in recent decades, there is still a relatively wide range of American-made clothing options. Los Angeles has become a hub for premium denim, and across the country brands are investing in American-made quality. Though the price point for most well-crafted Made in USA apparel falls beyond the reach of the average American, the market shows high potential for growth among brands that use technology to add efficiency to the distribution process.
Case: American Giant
American Giant is an apparel brand that is setting the standard for quality in the casual basics category, investing time and money to make some of the best products on the market. The company is also leading the way by bringing innovation to the American apparel manufacturing process in order to deliver this level of quality at a competitive price.
By focusing on a limited array of quality products and selling online, direct to the consumer, American Giant has compressed its supply chain and cut the costs of traditional retail mark ups in order to deliver the best value to consumers. The company has demonstrated remarkable growth, consistently selling out of everything they make while scaling up rapidly, showing a consumer demand for apparel brands that put quality first and deliver a level of value in American-made apparel that has been all but lost since the 1950s.
American brewers, distillers and winemakers have made remarkable strides in advancing the quality of craft-made beverages. From relatively new winemakers, who successfully compete with world-class wineries, to brewmasters from every state who are building local industries and serving great products to their communities and beyond, there is a healthy market for artisanal beverage production.
Case: Sierra Nevada
Sierra Nevada was one of the first breweries to bring craft brewing in America to scale, having started brewing small-batch beers in 1980 and since expanded production to nearly a million barrels a year with 650 employees on staff. Through this dramatic growth the company has maintained its commitment to quality, putting people and product first.
Today there are hundreds of breweries making great beers all over the country with the potential to continue to grow. The demand for this product is already well developed among consumers thanks to artisanal beer industry pioneers like Sierra Nevada.
Many consumers consider their furniture and housewares purchases an investment, and the best pieces will last long enough to be passed down across generations. While mass-produced, low-cost options have carved out a dominant place in the market, there is still a demand for quality artisanally-crafted furniture, ceramics and other home goods.
Case: Heath Ceramics
Based in Sausalito, California, Heath Ceramics has been making artisanal-quality pottery since 1948. Today the company has branched out into a broad range of household items, from dinnerware to decorative pottery to furniture. To expand beyond the capacity of the original ceramics factory, Heath has begun working with smaller-scale artisanal designers across the country to expand their businesses and reach a growing audience with a variety of high quality, American-made goods.
Industries for Growth
The industries listed above represent some of the strongest examples of artisanal manufacturing in the United States. Within each of these categories there is ample room for growth of new companies producing unique products, drawing on similar business principles.
There are many additional industries that show potential for growth of artisanal manufacturing, and many companies have already shown progress in producing products such as bicycles, sports equipment, musical instruments, footwear and furniture, to name a select few. Through innovation and a renewed sense of values, companies have the potential to create beautiful products that serve consumers better.
Companies that put profits first and can grow to massive proportion are appealing from an investment standpoint, but there is also room for businesses that scale within the means of their capacity to hold true to their values.
Businesses today are afforded the benefit of more advanced technology than ever before. By shifting business from an inward facing set of motivators—cost cutting, profits and growth—toward an external facing set of motivators—great products, amazing service, accessible prices—a new model for American business has the opportunity to thrive. Moreover this model has the potential to create a meaningful number of jobs, revitalize communities that were built on manufacturing, and turn America into the quality manufacturing leader it once was and still has the potential to be.
The challenge for businesses in the modern world is to expand the scale of this highly detail-oriented approach to reach a sufficient volume to serve consumer demand. In order to thrive, artisanal manufacturing must push for innovation in direct-to-consumer distribution and spread brand awareness through loyal customers who now hold the power to make or break companies. This is an opportunity for an entirely new class of companies to make an impact on people and the economy, and challenging existing beliefs about the business of scale.