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April 4, 2013

Infrastructure Remains a Vital Component of the Manufacturing Cluster

More so than most other segments of economy, manufacturing relies on an efficient transportation system for complex supply chain moves and access to new markets. Prior CMAP Policy Updates discussed key workforce and innovation issues affecting our region's manufacturing cluster. This blog explores infrastructure findings from CMAP's manufacturing cluster drill-down report, including the link between infrastructure and manufacturing competiveness and why this connection will become even more important in a new era of advanced manufacturing.

In the past, much manufacturing was vertically integrated, meaning raw materials were transformed into goods under a single roof. In contemporary advanced manufacturing, more firms focus instead on producing a single, specialized component that serves as an intermediate input to a final good. For example, in the early 20th Century, Ford Motor Company's River Rouge Complex turned raw materials into running vehicles at a single mega-facility. Today, automotive manufacturers tend to source individual components from numerous suppliers: the transmission from one firm, tires from another, and the brake pads from a third. These suppliers in turn rely on further tier firms for other inputs. The proliferation of firms that specialize in niche components instead of the whole production process has enhanced the importance of manufacturing supply chains -- behind a final manufactured good lies a series of complex supply chain moves of raw materials, intermediate inputs, and discreet parts.

With the spread of globalization, individual components of a final manufactured good can be sourced from around the world. And while international supply chains certainly are a hallmark of contemporary manufacturing, CMAP's research found that half of all manufactured goods in the U.S. move 50 miles or less. As such, regional supply chains play a paramount role in producing advanced manufacturing products, and adequate transportation infrastructure is necessary to enable these intra-regional moves.

Transportation infrastructure also grants manufacturers access to new customers through exporting. These exports fuel economic growth in the regional economy by introducing new money that otherwise wouldn't flow to metropolitan Chicago. The region's existing transportation system provides superior connections for local manufacturers to reach distant markets. Metropolitan Chicago is the only domestic region served by six of the seven Class I railroads, boasts seven interstate highways, and has the nation's second busiest airport in terms of international air cargo. Not surprising given these transportation assets, metropolitan Chicago exports more manufactured goods than any domestic region except Los Angeles.

The region's transportation system has long been an asset for manufacturers. Indeed, a recent survey of 1,000 industrial businesses in the region found that close to two-thirds credited metropolitan Chicago's air, truck, rail, and intermodal capabilities as the primary reason they chose to operate here. Yet congestion threatens to undermine the transportation advantages currently enjoyed by regional manufacturers. Metropolitan Chicago is among the most congested regions in the nation, which costs firms billions of dollars a year in lost time and fuel. Yet the most significant impact of congestion may be decreased shipment reliability, which makes it harder for manufacturers to operate under just-in-time production models.

How to Preserve Region's Competitive Advantage in Infrastructure
While the Chicago region is not alone in facing serious financing challenges around transportation infrastructure, its status as a manufacturing and freight hub mean the issue is even more pronounced. To preserve a regional transportation system that enables complex supply chain management and access to new markets, CMAP's manufacturing drill-down report calls for prioritized investments, innovative financing, and improved freight governance. The region needs to invest strategically in major capital projects that support economic growth and have the greatest benefits for regional mobility and accessibility. For example, the Elgin-O'Hare Western Access project would improve throughput and reliability on corridors serving a major node of the manufacturing cluster. Second, innovative financing through measures such as congestion pricing not only builds a regional source of revenue, but also helps manage traffic and gives drivers more choice. Finally, system coordination can be improved through freight governance to reduce redundancies in the system.