Despite conventional wisdom that the South is the "best" place for manufacturing in the United States, the Northeast and West appear to be more cost-efficient locations.
I just finished writing an article for the September issue of ASSEMBLY about new aerospace plants that are cropping up around the country. Many of these facilities are located in the South.
The best-known example is Boeing’s new plant in North Charleston, SC, which will soon begin assembling the 787 Dreamliner. The aerospace giant will use that facility to alleviate a logjam at its sprawling factory in Everett, WA (Boeing Commercial Airplanes is boosting its production capacity 40 percent over the next three years).
Other new aerospace plants in the South include Embraer Executive Aircraft, Melbourne, FL; Honda Aircraft Co., Greensboro, NC; and Piper Aircraft Inc., Vero Beach, FL.
While researching the article, I discovered that Boeing plans to build another facility in the near future to assemble the next-generation of its popular 737 airliner. The single-aisle aircraft, which has a backlog of more than 2,000 unfilled orders, is currently assembled on a moving line in Renton, WA. The fuselages are built by Spirit AeroSystems Inc. in Wichita, KS, and shipped 2,000 miles by rail using specially modified flatcars.
It will be fun to see where Boeing decides to build the highly coveted plant (a decision is expected some time early next year). Three logical choices would be Kansas, South Carolina or Washington.
Some location in Kansas or Washington would make the most sense from a logistical point of view. But, another possibility is to expand the South Carolina operations, because the new 737 may feature a composite fuselage similar to the 787.
Before making a decision on where to produce the aircraft, Boeing brass may want to heed the advice of the American Institute for Economic Research (AIER). It claims that states in the Northeast and West tend to be better manufacturing locations than southern states.
“Despite the conventional wisdom that the South is the best place for manufacturing in the United States, eight of the top 10 states for cost-efficient manufacturing are located in the West and Northeast,” says AIER Research Fellow Lei Chen, Ph.D.
Using 2007 Economic Census data (the most recent data available) and a completely data-driven analysis method, known as Data Envelopment Analysis, Chen recently discovered that the most cost-efficient manufacturing takes place in Oregon, followed by Connecticut, Iowa, North Carolina, New York, Arizona, Massachusetts, Nevada, Colorado and Washington.
Chen claims that the 10 states with the least cost-efficient manufacturing are Mississippi, North Dakota, Kentucky, Vermont, Alabama, Louisiana, Alaska, Montana, South Carolina and Idaho.
“States that are the most cost-efficient have manufacturing bases that allocate their resources in such a way that relatively low cost inputs replace high cost ones and inputs are used in the most productive manner,” says Chen. “If all manufacturers allocated their resources this way, on average, U.S. manufacturers could reduce their total production costs by 15.6 percent, and still produce the same quantities of output.”
Chen based his analysis on a variety of factors, including production and nonproduction labor costs, capital, energy and materials.
Do you think manufacturers should adjust their compasses before breaking ground on future factories? If nothing else, I think Chen’s analysis could lead to an interesting debate.
The only thing I can go by is our Assembly Plant of the Year award. This year’s recipient (we’ll be disclosing the winner in our October issue) is not located in any of the 21 states mentioned above, but it is a world-class facility. During the past seven years, we’ve honored manufacturers in Alabama, Kentucky, New York and Washington (in addition to Illinois and Tennessee). The assembly plants I visited in the South were as equally impressive as plants in the Northeast and West.