The decline of manufacturing has dominated the political narrative in the United States, but thereare dual plotlines within this well-known story. A few outlier industries (notably pharmaceuticals,medical devices, and computers) prop up the sector's aggregate performance; most others haveexperienced flat growth or outright declines in real GDP over the past two decades. Even more striking, new research from the McKinsey Global Institute analyzes firm-level financialresults and finds a stark contrast in performance between the biggest U.S. manufacturingmultinationals and the small and midsize firms that make up most of the sector's establishmentsand employment.As a group, the largest U.S. firms have had the scale and resources to navigate the challenges of thepast two decades successfullyand they have been posting even healthier returns than their peersin other parts of the world. In fact, MGI analysis of financial data shows that large publicly traded USmanufacturing firms, most of them multinationals with revenues greater than $500 million,averaged returns on invested capital of 22% from 1997 to 2013. These returns were sustained byimprovements in both profit margins and sales growth, and they were notably higher than thoseposted by large manufacturers headquartered in Western Europe, South Korea, Japan, and China.But while the largest US firms have seen their domestic revenues grow more than twice as fast as thesector average even in the domestic market, their smaller suppliersthe firms that provide themwith the materials and components they depend onhave experienced negative growth. Some tier-one suppliers to major manufacturers are performing well, but tier-two and -three suppliers in manyindustries are struggling.It's clear why pain in the domestic supplier base matters from a policy perspective. Without thebreathing room to invest in new equipment and technologies, smaller manufacturers may be up to40% less productive than large companiesa gap so sizable that it drags down the entire sector'sperformance. In some instances, the end results were firm closures and lost jobs. Many of the smalland midsize manufacturers that did manage to survive kept going by cutting costs, which has led tostagnant wage growth.But now the situation has reached such a tipping point that larger U.S. manufacturers are takingnotice. They already report that the domestic supplier base is hollowed out, depriving them of theagility they need to respond quickly to new market opportunities. Some companies that builtlengthy global supply chains have wound up with greater complexity and costs than theyanticipatednot to mention greater exposure to a whole host of risks, including currencyfluctuations, geopolitical disruption, delays, quality issues, and reputational risk. Many lack any realvisibility into how their far-flung suppliers actually do business, and which smaller suppliers arestrategic for the manufacturer's core business.

According to the article, why are larger U.S. firms fairing better than their smaller suppliers?

How can having a lengthy, global supply chain add risk to an organization?

What are 3 ways identified in the article that companies can develop a tighter, more collaborative relationship with their suppliers?

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