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.