THE BLOG

City Planning: How Cities Can Save Local Manufacturing Businesses

04/13/2011 03:58 pm ET | Updated Jun 06, 2011

All across America, small to medium manufacturing businesses are shutting down, resulting in lost jobs and lost revenues for cities. Everyone loses. Is there a way to save the company?

Manufacturing has typically been located in areas that offer resources the manufacturing company requires, whether natural resources, like water, good weather, or cost-saving labor.

With the advent of the Internet as well as the expansion of global trade and low cost manufacturing in other countries, these small businesses have lost their advantage and market. Everyone loses in this situation, especially the city the business operates in, as tax revenue declines, property taxes decline, and welfare and support costs increase.

Is there an alternative to stagnation in the small manufacturing sector throughout the United States? I think so. It just requires a different perspective and the ability to identify what people need or want.

2011-04-06-maufwordl.jpgThe Internet has opened new channels of distribution and direct sales that can jump-start small manufacturers. The old distributional business model of jobbers, distributors, reps, and retail was expensive and amassed redundant transportation, commissions, and warehousing expenses. Internet-direct sales means far more money stays in the local economy to support jobs and the community.

Small companies in trouble can find new products that can be manufactured locally and sell direct to customers using the Internet. This takes advantages of economies of scale and dis-intermediates middlemen, keeping all the revenue in the local economy.

What does this look like? Let's use a very simple business, blacksmiths, to explain the concept, realizing that any manufacturing company might be substituted in the example. Though most are more complicated, it works for all but the most specialized plants.

Assuming the blacksmith is in that part of the company where labor costs are reasonable and there is a sufficient pool of talent available, city planning might assist in developing an alternative business model that could save the company and give the community a boost.

In our example, we have a company that is qualified in metal work and has all the components available locally. All that is missing is a product with existing demand that can be sold and shipped directly from a central location using the Internet.

By looking at the manufacturing capability and selecting, as an example, weather vanes as a product, a company can bring their capabilities to bear on something they can sell internationally direct to customers. Most products would not be this simple, but this illustrates the process nicely.

Simply manufacturing weather vanes and using traditional distribution channels would put the company right back in the situation it was in, where it could not compete financially and would go out of business. But coupling a product that can be sold nationally with a national direct sales system, makes sense.

This model comprises finding a product with existing demand being searched for on the web that fits the manufacturing capability of the company, creating models that can be photographed, creating websites with direct sales capabilities, and promoting the products using social media and search engine marketing.

The designs for the weather-vanes can be obtained for free from the patent office by searching old design patents that have expired.

The company need make only one of each, by hand initially, photograph them, and include the images in a website that has a shopping cart and perhaps open a store on eBay. Start-up costs are relatively small. Only when a model is ordered is it manufactured. No inventory, no commissions, no middlemen, no accounts receivable. It is all cash-in-advance and made on demand.

By optimizing the website for search engines, using social media, and creating videos, the company can rise to the top of the search engine results and have a very successful line of weather vanes, sold entirely through the website at retail prices. The model provides lower costs for greater sales.

While small manufacturing companies may not know about this approach, city planning managers, bankers, and economic revitalization groups can develop a plan, using their expertise in each of the necessary areas.

Small towns and cities with manufacturing about to disappear now have an option. They can remodel their business strategy to match the new business environment created by the Internet and save jobs and maintain their tax basis.