Manufacturing in the U.S. and Overseas ... Lessons From New School Apple and Old School American Crystal

Apple and American Crystal Sugar are both American based companies.

Apple manufactures its iPhones, iPads and most other products overseas. Thus, it has virtually no U.S. union related labor problems. Apple is an example of "new school" manufacturing.

American Crystal Sugar is the nation's largest sugar beet processor. It has lots of U.S. union related labor problems. We'll call American Crystal an example of "old school" manufacturing.

Here's the bottom line. Old school better go to school and learn what it's up against with its new school competitors. Otherwise old school will become no more school.

And we simply can't afford to let that happen to either our U.S. workers or the U.S. economy. Besides, it doesn't need to come to that, even though it's headed that way.

Old school American Crystal does most of its sugar beet processing work in North Dakota, Minnesota and Iowa. Six months ago, after being unable to reach an agreement with its union about changes in work rules and benefits, American Crystal locked out its union represented workers. Replacement workers have been hired in the union workers' place for the duration of the lockout.

What's the difference between a strike and a lockout? Strikes are initiated by unions and lockouts are implemented by companies. When lockouts occur, companies are usually between a rock and a hard place competitively and believe their labor issues are existential if left unresolved. Companies reason that if they don't get needed changes to their labor situation, their business isn't viable, so it's often a last ditch effort to save the company.

In both strike and lockout situations, union workers are without jobs for the duration of the dispute.

More Lockouts as Companies Battle Unions says this about the growing trend of lockouts:

"Lockouts, on the other hand, have grown to represent a record percentage of the nation’s work stoppages, according to Bloomberg BNA, a Bloomberg subsidiary that provides information to lawyers and labor relations experts. Last year, at least 17 employers imposed lockouts, telling their workers not to show up until they were willing to accept management’s contract offer.

Perhaps nowhere is the battle more pitched than at American Crystal Sugar, the nation’s largest sugar beet processor.

Last summer, contract negotiations bogged down, with the company insisting that its workers agree to higher payments for health coverage, more outsourcing and many other concessions. Shortly after the 1,300 unionized workers — spread among five plants in North Dakota, Minnesota and Iowa — voted overwhelmingly to reject those demands, the company locked them out and hired replacement workers.

That was on Aug. 1, more than five months ago, and since then the workers and their families have been scrounging to make ends meet. . . . .

With many private-sector labor unions growing smaller and weaker, and with public-sector unions under attack in numerous states, some employers think the time is ideal to use lockouts, a forceful approach they were once reluctant to use.

Many employers, though, say they have little choice.

Robert Batterman, a labor lawyer who represents employers, said whether it was the N.F.L. or Sotheby’s, which locked out 43 art handlers in Manhattan last July, “the pendulum has swung too far toward the employees, and the employers are looking in these tight economic times to get givebacks.”

“Employers,” he continued, “are using lockouts because unions are reluctant to do what the employers consider reasonable in terms of compromising. Employers are looking to reset their collective bargaining relations.”"

Now let's review the Apple situation. Apple does the bulk of its production overseas.

How the U.S. Lost Out on iPhone Work is a somewhat lengthy but quite excellent article on Apple's overseas production advantages and the worker flexibility it entails. It's well worth taking the time to read the article in its entirety.

In any event, when taken together, the two articles reveal, even excluding compensation issues, a deeply troubling story about the U.S. labor environment in union shops compared to overseas.

While we don't need to go to such extremes as opening dorms for workers, we do need to stop all the infighting and address our very real U.S. competitiveness issues. And these issues are most pronounced with U.S. manufacturing with long established union represented work forces.

Let's hope Steve Jobs wasn't right about manufacturing jobs not returning to America. Here's what he said to President Obama one year ago:

" When Barack Obama joined Silicon Valley’s top luminaries for dinner in California last February, each guest was asked to come with a question for the president.

But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products."

It will be worth taking your time to read the rest of this blockbuster and very disturbing article. I urge you to read it in its entirety.

But in case you don't, here's another brief excerpt:

"Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple’s contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. Instead, they work for foreign companies in Asia, Europe and elsewhere, at factories that almost all electronics designers rely upon to build their wares.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”"

By reading about Apple's manufacturing, you'll see the craziness about the American Crystal labor dispute. Our manufacturing problem is an existential one for lots of American companies and their U.S. work forces.

But unions and politicians apparently don't want to tell the cold hard truth to the U.S. based workers. So they don't and things continue to deteriorate.

Building a Case for Manufacturing Relevance lays out the wide reaching importance of manufacturing jobs and the indirect number of additional workers impacted:

"The rap on manufacturing's rebound is that, while nice, it doesn't count for that much. The sector is not the be-all and end-all of the American economy it once was. Exhibit A: Where a half-century ago factories employed a third of the private work force, now they only employ about one in ten private workers. . . .

But manufacturing's role in the economy extends beyond the factory floor. After a car rolls off the line, it gets hauled by a trucker, and then sold by a dealer, each of whom gets a cut of the sale. It can begin to add up.

One way to see how is to look at the Commerce Department's measure of goods production—the value of goods produced in the U.S., with an adjustment for inventory swings—a category driven by manufacturing.

In the third quarter, goods production accounted for 28% of gross domestic product.

That is well below the 43% share of GDP goods production held 50 years earlier and the 65% accounted for by services today. (The final piece is "structures," like new homes and bridges, at 7%.) But it is still substantial.

Moreover, goods production is 6% higher than at the end of 2007, when the recession began, adjusting for inflation, compared with 2% for the services sector. The upshot is that manufacturing isn't merely a bright spot for the U.S. economy, it is driving it."

We must stop leaving our manufacturing future on autopilot. There's no future in that approach.

It's time to tell the new school Apple story to one and all. That would in turn help solve expeditiously old school manufacturing issues at companies like American Crystal Sugar. One way or the other.

Thanks. Bob.