The History of American Manufacturing

Manufacturing is the use of resources to transform raw materials into finished goods. The American system of manufacturing involves the use of semi-skilled labor using machine tooling and templates to produce a standardized, identical output. The concept to mass produce products from interchangeable parts originated in Europe and is thought to be introduced in America by Thomas Jefferson, then Ambassador to France. The American system of manufacturing was advanced by Eli Whitney in the early years of the United States when he developed the machine tools that enabled semi-skilled labor to manufacture parts to match a template on a repeatable basis. Although there was still a requirement for the craftsmen to create the design template before production, they were no longer required in the actual manufacturing. Interchangeable parts that conformed to the template made it possible to separate manufacturing from assembly; and assembly could then be carried out by semi-skilled workers on an assembly line. The assembly line could then mass-produce standardized products.

The American system of manufacturing was the basis for armory practices developed by the United States Department of War in the 1820s to mass-produce arms from mass-produced, interchangeable parts. The U.S. government gave Whitney a contract for 10,000 muskets--to be produced within two years--even though he had no factory or machines. It actually took eight years to deliver the order, as Whitney perfected and developed new techniques and machines, but he did go on to produce a further 15,000 muskets within the following two years. The government partnered with private industry to finance innovation and drive technology initiating a system of practices that endures today.

The Evolution of Outsourcing

The concept of interchangeability migrated from the armories to industry leading to the "golden age" of American manufacturing, beginning when Henry Ford perfected the process in the mass-production of automobiles. The use of pre-manufactured parts in an assembly line required efficient production strategies that included supply-chain management to optimize output and economy of scale. The business model incorporating these strategies made American manufacturing the "Arsenal of Democracy" during World War II and was later credited for the development of the Japanese manufacturing powerhouse. The American Manufacturing System remains the model for global manufacturing, but today's business model embraces a different strategy called contract manufacturing.

Contract manufacturing (CM) is a form of outsourcing where the manufacturer creates products to specification under contractual agreement with the original equipment manufacturer (OEM). Outsourcing of electronics manufacturing was developed by IBM as part of it's entry into the PC market in 1981. Instead of attempting to manufacture complex circuit boards themselves, IBM decided to outsource their manufacture to companies possessing those core competencies. IBM retained ownership of the design and brand recognition for the products produced. In a CM business model, the OEM solicits the CM with a production requirement. The CM will quote the requirement based on processes, labor, tooling and material costs. Typically, an OEM will request quotes from multiple sources. After the bidding process is complete, the OEM will select a source, and then, for the agreed-upon price, the manufacturer acts as the OEM's factory, producing and shipping the product on behalf of the OEM. Many of those shipments are made to electronic manufacturing services (EMS) companies who design, test, manufacture, distribute and provide return/repair services for electronic components and assemblies for OEMs.