Making it in Dallas

Last week we took a look at some niches small service companies could carve in the new economy. Today we are going to talk about opportunities for small manufacturing operations to provide livelihoods for small businesses or even self employed craftspeople.

North Texas is a national leader in manufacturing and has one of the most diverse manufacturing sectors in the country. According to the U.S. Census Bureau there are over 5,500 manufacturing establishments here with at least one employee. While these include huge facilities maintained by the likes of Texas Instruments and General Motors, over 84% of these establishments have fewer than fifty employees. There are another 7,500 self employed manufacturing operations – that is, solo individuals who’s sole proprietorship is a manufacturing gig. The manufacturing talent pool is deep with over 179,000 production workers in the region. Dallas is clearly a place to succeed in manufacturing. But what about the macroeconomic picture when it comes to manufacturing in the U.S.?

The big picture in U.S. manufacturing is a continued steady decline in manufacturing employment. At the same time, the value of all U.S. manufacturing continues to increase. As a country we are making more and more manufacturing value with fewer and fewer workers. According to the U.S. Bureau of Economic Analysis, the inflation-adjusted value of goods produced in the U.S. more than doubled (up 114%) between 1990 and 2010. The iconic image of American manufacturing might, like pictured in the Diego Rivera mural below is long gone. But even if the days of huge American assembly lines employing thousands or workers are ever rarer, there are still many undercurrents in this economy that represent chances that new, small operations can take advantage of. So what are the trends that we are counting on for these opportunities?

 Diego Rivera Mural, Detroit Institute of Arts

Supply chain managers and analysts have been reexamining the overall costs of offshoring and are finding that equipment costs and access to financial capital are similar in the U.S. and abroad and labor is an ever declining share of total costs. Combined with higher fuel prices requiring slower crusing speeds for ships and U.S. production is more attracting in many instances.

Fortune Magazine identified three factors that are helping some domestic manufacturing operations:

• Overseas workers are getting more expensive. China is seeing wages soar ahead of productivity growth. Between 2000 and 2015 the wage difference will go from being 32 times cheaper to 6 times cheaper  – still powerfully in China’s favor, but no longer a no-brain decision to hire there. As the cost savings of off-shoring narrows, BCG says it expects the return of some U.S. manufacturing.

• Shipping costs keep increasing. On top of wage increases, the costs of jetting to far flung locations and more importantly, moving goods from the factory to the store keeps heading upward. In the last four years, shipping costs have risen 71% because of higher oil prices, according to IHS Global Insight.

• Global supply chains have shown weak links. Perhaps little highlights the issue more recently than the March earthquake and tsunami in Japan. Aside from the human tragedy, the disaster disrupted global supply chains, leaving many companies stranded without critical components.

The Reshoring Initiative suggests several factors U.S. manufacturers should consider when making the decision about where to produce:

  • Total Cost of Ownership
  • Quality and consistency of inputs
  • Pipeline and surge inventory impact on just-in-time operations
  • Clustering manufacturing near R&D facilities, enhancing innovation
  • Intellectual property and regulatory compliance risk
  • Ability to respond quickly to customers’ demands

The Reshoring Initiative developed a cost calculator that manufacturers of all sizes can use to help decide if they should produce domestically or abroad. This total cost of ownership reflects the benefits and risks surrounding manufacturing that are not directly related to assembly. It is argued that things like overhead, management and research and development should be part of the equation. The calculator is free to use.

Turning back to Dallas, if we assume these favorable macro trends, what are the specific opportunities for manufacturing businesses here? The region hosts large clusters in several manufacturing segments including electronics like telecommunication hardware, semiconductor related products and instruments, transportation equipment, food products, machinery and building components (things like structural pieces, cabinets and fixtures.) 

These big local industries can mean the potential for subcontractor business. An important policy objective for the region should be building local supply chain linkages. Small businesses may not be able to directly supply a TI or GM plant, but we can help them build their capacity so that they supply the medium size company that is the direct subcontractor to the big company. Local certification organizations like the DFW Minority Supplier Development Council, a SourceLinkDallas partner helps focus on this area.

Even self employed or household-scale businesses can find opportunities in manufacturing. The maker movement which is so dramatically symbolized by tools like desktop 3D printers like the Makerbot has brought exacting low-volume production capabilities to the solo manufacturer or designer. The image below displays the tiny factory and some parts it produces. Small businesses or individuals equipped with these tools can find customers by providing batch production or rapid prototyping for a manufacturer,
engineering company, fashion designer or ad agency.


Dallas should also be a great location for more consumer-oriented micro or craft manufacturing businesses. Some of these opportunities might be broadly considered upscale consumer products like food (think about artisan cheese, meats and beer), accessories and apparel. These consumer niche or neighborhood-related consumer businesses are tied into another emerging opportunity that will be the focus of next week’s post when we talk a look at the experience economy. This economy combines local production with entertainment or recreation. A good example was the recent Dallas Beer Week.