It Takes a Factory to Make a Manufacturer

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How can you call yourself a manufacturer if you don’t manufacture anything?

If they don't really manufacture, why should we call them manufacturers? — If they don’t really manufacture, why should we call them manufacturers?

The Economic Classification Policy Committee (ECPC) of the Census Bureau is considering changing the definition of manufacturing to include “Factoryless Goods Producers” (FGP’s) as part of an update to the North American Industry Classification System (NAICS) 2017.
They say “A factoryless Goods Producer (FGP) establishment outsources all of the transformation steps traditionally considered manufacturing (i.e., the actual physical chemical or mechanical transformation of inputs into new outputs), but undertakes all of the entrepreneurial steps and arranges for all required capital, labor, and material inputs required to make a good.” Factoryless Goods Producer Fact Sheet
Buying stuff from other manufacturers isn’t manufacturing, it’s wholesale trade.
If an establishment doesn’t actually manufacture something, why should it be classified as a manufacturer?
If a company doesn’t have a factory and means of transforming inputs into goods, why should that be classified as manufacturing?
If a firm doesn’t employ workers to transform inputs into finished goods, why is that manufacturing?
We submitted our comments on this issue.
You can too go to http://www.regulations.gov then

Type in “NAICS for 2017” in quotes in the search box labeled ‘Rules, Comments, Adjudications or Supporting Documents’
Click search;
Click the Comment Now!
Follow instructions for submitting your comments.

There are many reasons to oppose the creation of a type of manufactuirer called a Factoryless Goods producer. I put a bunch of them in my comments.
But you only have to ask one logical question, really- How can you call yourself a manufacturer if you don’t manufacture anything?
And how does that help create statistics we can use if manufacturer no longer means “company that manufactures?”
Photo credit:
We’ve covered this before:

Manufacturing Defined- Making Things!

Manufacturing Defined- Making Things!

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We were pleased to be quoted in the weekend edition of the Wall Street Journal in an article by Tim Aeppel titled Feds Try Redefining Manufacturing.
Our initial post on Factoryless Goods Producers was cited in the article.

It's like manufacturing, except without us actually making anything. — It’s like manufacturing, except without us actually making anything.

The issue is that federal agencies are trying to redefine “Manufacturing” to recognize “Factoryless Goods Producers” as Manufacturers.
If you don’t actually make something- how can you be considered a Manufacturer?
If you contract to have some company in a foreign country make your product, why should you be credited as manufacturer and why should US get balance of trade credit for being the manufacturer?
We think that definitions ought to be honest.
Manufacturing is actually making things. not designing them, ordering them, or buying them from another company.
We think that manufacturing ought to be credited where the making things actually happens. Apple designs and sells some really cool electronics- but the manufacturing is not done in the US.
Why would we want to let US companies claim to be manufacturers when in fact they don’t make the products in the first place, and often have them made overseas where the operations are not governed by US legal protections for labor rules, safety, environment?
Deceiving consumers and the voters with fraudulent numbers is what this about. It’s not about reacting to globalization. It is about counting the hollowing out of US Manufacturing as actually manufacturing.

Yet no new employees are hired.
No new assembly lines or factories are built.
No new payroll taxes are being paid.

Manufacturing is about making things.
If you don’t actually make it, you aren’t a manufacturer.
Sorry if that offends you.
You may be a great designer. Broker. Outsourcer. Wholesaler, Distributor. Whatever.
But you aren’t a manufacturer unless you actually make things.
Read Tim Aeppel’s WSJ Story
What is manufacturing?
He’s Lying Photo Credit

What is a Factoryless Goods Producer?

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isuzu_joe — It’s like manufacturing, except without us actually making anything.

According to the Federal Register Vol. 74, No. 4 / Wednesday, January 7, 2009 / Notices:

C. Factoryless Goods Producers

The factoryless goods producer outsources all of the transformation steps that traditionally have been considered manufacturing, but undertakes all of the entrepreneurial steps and arranges for all required capital, labor, and material inputs required to make a good.

Characteristics of factoryless goods producers include:

Does not perform transformation activities;
Contracts with manufacturing service provider to perform transformation activities to its specifications;
Owns rights to the intellectual property or design (whether independently developed or otherwise acquired) of the final manufactured product;
Owns the manufactured product it contracted another establishment to produce;
Controls and facilitates the production process; and
Sells the final product.

As noted in NAICS United States 2007, units that perform chemical, physical, or mechanical transformation of inputs into new outputs are usually classified in manufacturing.

Speaking of Precision: Nothing in those bullet points have anything at all to do with actually manufacturing. So why would we call a company that doesn’t transform inputs a manufacturer?

Federal Register: Alternatively, these units could be classified within the wholesale trade sector, because they purchase critical input transformation services from others and are more like a traditional wholesaler who buys and sells goods.

SOP: That’s the ticket!

FR: Classification of factoryless goods producers to either manufacturing or wholesale trade will affect current statistical programs and the estimates that they produce.

SOP: You betcha! Imagine not adding any workers to the manufacturing sector, but now counting all those billions of dollars worth of outsourced goods from China now as somehow magically being “manufactured” here in the U.S. Our worker productivity numbers would soar.

Except it wouldn’t.

Factoryless Goods Producers. Not manufacturing at a location near you.

What is Manufacturing?

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There seems to be a lot of confusion these days about manufacturing. As a guy who has worked his entire life in manufacturing, I’d like to eliminate this confusion.

The word “Manufacture” is made up from two Latin Roots “manu” and “factura.”

“Manu” means “by hand”

“Factura” is a derivative of “facere” which meant “to perform” or “to do.” Factura means ” a working.”

Those Junior High Latin Classes sure made understanding big words pretty clear.

While the linguistic origins of ‘manufacturing’ were “a working, by hand,” the essence was the creation of something by work into something else. In modern terms, it is “the conversion of raw materials into finished goods by labor.”

Today, with our abundance of machines, and non-human provided energy, we define manufacturing as “the use of machines, tools and labor to convert raw materials into finished goods.”

In North America, (for now) Manufacturing is denoted officially by NAICS codes numbering from 31-33 according to BLS.

So what is the confusion about manufacturing?

There is a move afoot to count the foreign production of Factoryless Goods Producers (FGP’s) as ” U.S. Manufacturing.”

Federal Register see part VI

If you don’t actually make something, you aren’t really a manufacturer.

If you don’t make it here, how can you count it here?

-You may be a great designer. Great engineer. Great logistics company. Great sales company.

But if you don’t make what ever it is that you designed, engineer, or sell- it ain’t manufacturing.

So when someone tries to tell you that they are a “factoryless goods producer,” don’t flinch, don’t blink, don’t bat an eye.

And what ever you do don’t call them a liar. (It’s rude to call people liars, even when they are lying.)

Just tell them that they are mistaken, they are an outsourcer, not a manufacturer.

Manufacturers actually make things and often export their products.

Factoryless goods producers don’t make anything themselves.

In some cases however outsourcers EXPORT OUR JOBS.

Tomorrow: What Uncle Sam means when he says Factoryless Goods Producer.