Manufacturing in America – Competitive Advantages: Raw Material


In the last post I discussed the impact supply chain has on locating a manufacturing facility. Taking this discussion further, there are many situation where locating the manufacturing facility in US is a rather easy choice. Some variables so overwhelm the supply chain that the alternative is rarely competitive. In many of my past consulting and other assignments we went through a detailed analysis only to validate the obvious, “locate the plant in the country with obvious supply chain advantage.”

A competitive supply chain is probably the best way to enhance shareholder returns for a manufacturing company.

So what are those obvious variables that can give us a supply chain advantage? Below is a sample to give you an idea of the thought process. Drop me a note or leave a comment with your favorite. It would be good to get your thoughts.

The most important advantage US has – the business environment. The legal, financial, law and order, education and many such factors are as crucial as any manufacturing specific factors. Don’t forget that these factors affect the performance of a supply chain too. Many would make you believe that we are no longer competitive in these areas. I disagree. Try driving a truck for a thousand mile in India (or many other low wage countries) and you will see it. We are competitive but our advantage is slipping. In one of the articles we will take up this point in detail.

For now, let’s discuss these natural supply chain advantages one-by-one as they are the corner stone of manufacturing base.

Raw material

Availability (or abundance) of raw material can dramatically lower the inbound logistics cost of a supply chain. For bulky low value density products the less you have to move them the better. Another factor that plays a significant role, with raw material, is the shelf life of the product. A freshly picked fruit can only last so long before it has to be either processed further or consumed.

There are many more factors that affect the raw material equation. It is related to the question of eco-system parts/raw material/semi-finished/auxiliary that is required to assemble or manufacture the final product. This is one of the reason why your favorite computer may not have come from US.

Consider the production of steel. There is a reason why the steel plants are best located close to the sources of iron ore and coal. Both the raw material are low value density products and less one has to move them the better. Nature, however, may not always provide both of them at the same location but even one of them is better than none.  Consider reviving the steel manufacturing. We have abundant coal and enough steel to recycle (For some steel manufacturing you do not need iron ore). With our edge in technology and skilled labor we could easily produce high end steel and value added down stream products. You may be wondering why our steel production is not growing.

Why just stop at steel. Why not look at other material where we can produce high value added products. Can any one think of the products that can be made from coal for example!

Many of the raw material have limited shelf life. The time and cost of moving them around could easily overwhelm the inbound logistics cost. Agricultural sector in US is one of the most productive one and produces products with generally limited shelf-life. Why not focus on the factories that use agricultural products (both plants and animals) as their primary raw material. Consider packaged food items that leverage our agricultural output and transform to some thing (a much higher value density) that can be shipped around the world.

We don’t have to limit just to the food products. Why not look into various other products that can be derived from natural resources like paper, building construction material, chemicals etc. The trick here is to look into high value products and not just the commodity ones.

One of the most interesting example of raw material availability and the location of manufacturing operations are mammoth fishing vessels with on-board manufacturing capability. The catch (fish, raw material) enters one side of the ship, gets processed, packed and ready to go to consumers on the other end. The important factor here is the shelf life (fish can stay fresh only for so long) and a dramatic reduction of in-bound logistics cost.

We have abundant natural resources. A manufacturing company that manages and harvests these resources and combine them with high skilled labor force could easily produce innovative products that have demand across the globe.

Two important factors to consider when we are dealing with the natural resources: impact on environment and long term sustainability.

I am not in the camp where all environmental regulations are bad. We do need to protect the environment. Our quality of life depends on it. However, I do believe that the policy makers should continuously and consciously strike a balance between environmental protection and harvesting of the resources. The long term sustainability requires us to carefully manage the resources for the generations to come. After all it only makes business sense.

It will be naive to produce an exhaustive list of products and industries here. Any manufacturer can easily look into the type and availability of raw material and design a competitive supply chain with manufacturing base in US. Drop me a note if you want to sound off your ideas. The trick is not to think in terms of final product but start with raw material. You can easily create a product that is unique and competitive in both domestic and international markets.

I have barely started scratching the surface on this topic. We would circle back to “raw materials” as needed in future discussions. In the following articles, I will explore other competitive advantages that we have.

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  1. 9/12/2014Manufacturing in America – Competitive Advantages: Innovation - Mani Agrawal says:

    […] combine the other two competitive advantages we have – raw material and skills – with product and process innovation and you see a powerful picture emerging for […]

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