Manufacturing execs are holding their breath. For most of them, business over the last six to nine months has been a teeth-grinding plunge. In April, market researchers at Manufacturers Alliance/MAPI in Arlington, Va., gulped when they tabulated their latest survey of chief financial officers. The first-quarter index of future business, an expression on confidence based on each company's analysis of projected orders, came in at only 34%. "That's the lowest point in 29 years--and the biggest quarter-to-quarter drop ever," says Thomas J. Duesterberg, MAPI's president.
Despite all the negatives still swirling around factory output, Duesterberg predicts that things will be on the mend "by sometime in the fall." So does the National Association of Manufacturers: 80% of the companies on NAM's board expect a turnaround in the third quarter because they believe the current inventory glut should be cleared out by August. Then the cumulative stimulus from interest-rate reductions and the cut in personal taxes should kick in, spurring both domestic demand and exports, says David M. Huether, NAM's director of economic analysis. And while today's strong dollar is crimping exports, the efficiencies promised by new manufacturing tools should help trim costs and boost competitiveness overseas. By the fourth quarter at the latest, Huether asserts, "we should see the beginnings of a rebound."
If the slowdown reverses by autumn, this will have been a relatively mild downturn, shorter and shallower than the manufacturing recessions of 1979-82 and 1989-91 (chart). Whenever the doldrums end, manufacturing seems poised to usher in another decade of prosperity like the 1990s. Since 1992, the sector's output has grown 60% faster than the overall economy--indeed, it has accounted for a third of U.S. economic expansion over the past decade.
LIGHTS OUT. For the erstwhile Rust Belt of the 1980s, it has been a Cinderella transformation. And it's by no means over. The Fairy Godmother of technology is still sprinkling factories with new magic-dust acronyms like CME, for collaborative manufacturing environment, and XML, for extensible markup language, the new scheme for tagging data on Web sites. Also, many manufacturers have yet to try fitting into the Net's glass slipper. When NAM surveyed its members last year, less than a third were conducting serious business on the Net. That's going to change greatly as companies wise up to what they can achieve with online technology.
So-called lights-out factories, or plants with no human workers, have long been a goal of factory-automation experts. One route to total automation is artificial intelligence (AI). For example, Milacron Inc.'s newest machine tools have "learning engines," or software imitations of the human brain called neural networks, that can regulate the equipment with uncanny precision. And neural-net systems from AI pioneer Gensym Corp. can absorb the intricacies of complex manufacturing operations in far greater depth than any person. Its programs are now helping to optimize production in several hundred plants worldwide.
Today, the Internet offers an alternative approach, says Paul Camuti, manager of industrial software at Siemens Energy & Automation Inc. Most new factory equipment comes with a built-in Net connection, so machines can be monitored and controlled from a remote location just as easily as from a control room overlooking the shop floor. Using the Net, production data can be captured at each machine, analyzed centrally, and plugged into corporate software systems. A good example is Unifi Inc. This producer of textile fibers runs 22 plants from its headquarters in Greensboro, N.C. Over the next decade, Camuti and others believe that productivity improvements from interplant optimization will match or surpass those achieved in the 1990s from shop-floor automation.
Next comes intercompany optimization--with the XML software standard providing a lingua franca for collaborative manufacturing. The XML dialects now being developed promise to enable any computer to comprehend the descriptions of parts and finished goods in every Web site catalog, along with inventory reports from retailers and distributors, plus all the documents used in business-to-business transactions. If that happens, the benefits would be "fantastic," says Richard L. Hunter Jr., Dell Computer Corp.'s vice-president of supply-chain management. XML may enable entire supply chains, and maybe even whole industries, to function as a unified, well-oiled machine.
In short, manufacturing's comeback has been impressive. But the best may be yet to come--once we're out of the current rut.
By Otis Port in New York
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