Politicians make promises, but CEOs act
Earlier this month I read that on April 3 in 1860, the Pony Express opened for business, transporting mail between St. Joseph, Missouri and Sacramento, California. And as many movies and books have romanticized the Pony Express, it was surprising to learn it was in business a mere 18 months.
What was the cause for its demise? Technology, in the form of the intercontinental telegraph system.
This made me think about all the politicians and past presidential hopefuls who, in their campaigns, promised to bring manufacturing jobs back to the USA. As much as people want to believe the promises, in truth, the number of manufacturing jobs continues to decline. Why? Primarily due to technology.
Let me explain.
In a manufacturing process flow, the greatest cost and highest variability is found at any process step performed by a human. Automated equipment can be monitored by computers, with alarms set to indicate when a process drift occurs. Given periodic maintenance and a never-ending supply of material, automated manufacturing equipment can run indefinitely, converting raw material into semi-finished or finished goods at a constant output rate and of high quality with little-to-no variability.
Conversely, there are a myriad number of reasons for a reduction in output for tasks performed by people, ranging from something as simple as humans needing periodic bathroom breaks or needing to eat, to falling behind in output because of fatigue or illness. As for quality escapes, a defect can be induced by someone losing focus also due to fatigue or illness, or simply being distracted.
This is why the continued focus on automation, be it as simple as Domino's using a conveyor oven to bake pizzas for a controlled time span at a controlled temperature, to the complexity of Tesla's automated car factory in Fremont, California, that does employ 2,500 line personnel per 12-hour shift, but also uses 150 specialized robots, including 10 of the largest robots in the world, to produce over 2,500 electric cars each week.
Reducing conversion cost while improving quality and increasing output translates into increased revenue, and increased revenue/company value is the No. 1 goal for CEOs in their being viewed as successful in the eyes of the company's board of directors (BOD) and majority stakeholders, thereby reaping generous compensation. As technology innovation continues to reduce manufacturing conversion costs & subsequently increases revenue by replacing human capital with machine capital for U.S.-based manufacturing, CEOs will continue to invest in automation. But if the human element in manufacturing can't be automated, and manufacturing labor cost remains significantly lower as it is today in countries such as China and Vietnam, CEOs will continue to outsource manufacturing so as to keep the BOD and majority stakeholders happy, thereby continuing their handsome compensation.
Politicians will spout promise after promise, but it's companies' senior management that makes the decisions.
Allen Warren lives in Forest Grove.