How can you call yourself a manufacturer if you don’t manufacture anything?
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?”
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We’ve covered this before:
John Burg says:
I tried to comment at the government site but it said comments were closed as of 7/21/14.
My comment would be:
You are not a manufacture if you do not transform raw materials into a product in a factory.
Ray Kremer says:
The distinction is valid, I think. Wholesale is when you buy somebody else’s product in order to resell it. There are probably other companies buying the same product at wholesale also. If you weren’t around, the product would still exist. Outsourcing is when you contract somebody to make your product. Your supplier makes it according to your design or formula and sells it only to you. If you weren’t around, the product would not exist.
Outsourcing is often the only way for a small business to bring a product to market, though many large businesses outsource some or all of their manufacturing also. For NAICS to create a new category to distinguish outsourced manufacturing from wholesale purchasing and in-house manufacturing is probably a good idea. Having a third category to cover this actually makes related statistics more precise, not less. Without this new category, outsourced manufacturing is lumped into one or the other category that is not accurately descriptive of what is occurring. You could further subdivide this into domestic outsourcing and international outsourcing, if you wanted to keep track of where the jobs and money involved is going. That’s entirely reasonable. And make no mistake, domestic outsourcing does help create or maintain American jobs, oftentimes with activity that would not occur at all if it outsourcing was not an option, so claiming it doesn’t count as domestic manufacturing is not accurate.
My own (small) company outsources all our production, but we very much consider ourselves to be the manufacturer of our products that we developed.
Also, the comment period for this at regulations.gov that you point to closed on July 21.
speakingofprecision says:
Thanks Ray. I don’t mind having an outsourcing category,. What I mind is calling it manufacturing. NAICS code is based on shared processes for classification. Outsourcers have no manufacturing processes to be used for classification. Our industry is largely contract manufacturers, we sell parts and components to other companies. parts that we manufacture. We just object to calling outsourcing manufacturing.
Thanks for the thoughtful comment.
Jared Kayes says:
Excellent points. You can’t refer to yourself as a manufacturer when you are a wholesaler. It is like an art gallery taking credit for creating the artworks on its walls.