An Emerging Trend in Re-Shoring American Manufacturing
The text below offers an interesting perspective on some of the reasons U.S. manufacturing is becoming more appealing to companies. It is written by Mike Collins, and is from the April 2010 online edition of The Retention Monthly.
There’s No Place Like Home
While U.S. tech companies seek opportunities in China, other U.S. firms are re–discovering the benefits of bringing off–shored production back to North America. Surprisingly, the two trends are not as contradictory as it may seem.
Several high–profile corporations have begun the process of on–shoring (also called re–shoring) business operations back to the United States including Caterpillar Inc. and General Electric Co. GE, for example, is shifting production of water heaters back to Louisville KY thanks to a more competitive labor agreement. Cookware maker All–Clad Metalcrafters is bringing production of lids for its pots and pans home to Canonsville PA. Other companies are beginning to re–evaluate their on–shoring options.
What’s prompting this change of strategy? One obvious reason: a weak U.S. dollar that makes it more expensive to purchase products from overseas vendors. Beyond this, there is a growing recognition that off–shored production –– whether in China or other overseas locations –– has its limitations (see “From East to West” in the July 2009 News archives).
In a recent article, Mike Collins, author of Saving American Manufacturing, cites several reasons for an emerging re–shoring trend by American manufacturers.
While U.S. tech companies seek opportunities in China, other U.S. firms are re–discovering the benefits of bringing off–shored production back to North America. Surprisingly, the two trends are not as contradictory as it may seem.
Several high–profile corporations have begun the process of on–shoring (also called re–shoring) business operations back to the United States including Caterpillar Inc. and General Electric Co. GE, for example, is shifting production of water heaters back to Louisville KY thanks to a more competitive labor agreement. Cookware maker All–Clad Metalcrafters is bringing production of lids for its pots and pans home to Canonsville PA. Other companies are beginning to re–evaluate their on–shoring options.
What’s prompting this change of strategy? One obvious reason: a weak U.S. dollar that makes it more expensive to purchase products from overseas vendors. Beyond this, there is a growing recognition that off–shored production –– whether in China or other overseas locations –– has its limitations (see “From East to West” in the July 2009 News archives).
In a recent article, Mike Collins, author of Saving American Manufacturing, cites several reasons for an emerging re–shoring trend by American manufacturers.
• It can be difficult to guarantee deliveries and accommodate customer change orders. Amfor Electronics, a contract manufacturer, learned this lesson and moved production back to Oregon from China.
• Damaged parts and other quality issues can negate the cost advantage of moving production to China. Many smaller U.S. manufacturers outsourced production of components to China only to be overwhelmed with costs associated with poor quality and damaged product.
• There are unanticipated costs related to financial terms, inventory requirements and shipping. One CEO noted a “double whammy:” Chinese firms won’t ship until payment is received; then, it takes another 30 days for the product to reach the U.S. Another firm cites a Chinese supplier who continually increased the minimum order size, resulting in increased inventory costs for the U.S. firm.
• Counterfeiting is always an issue. Farouk Systems, a $1 billion hair care products firm, built a new factory in Houston TX to make its hair curlers and irons after spending $6 million a year to fight counterfeiters who were knocking off the products made by its Chinese vendors (see “Welcome Home” in the October 2009 News archives).
• It can be easier and more cost–effective to customize products when production is located close to a firm’s research facilities and/or university research partners. NCR Corporation is moving production of its ATM machines from China to Columbus GA near the firm’s R&D center.
• U.S. firms can more effectively control the cost of capital by controlling the length of the supply chain. Trevor Dunthorne with All–Clad Metalcrafters noted, “If you can reduce the length of the supply chain, you can reduce the cost of capital.” As U.S. firms evaluate re–shoring certain operations, states are gearing up to compete for new investment and jobs. “Who wouldn’t want a big industrial business in their state? The jobs are good and they pay well,” notes consultant Frank Manfredi.
Still, the re–shoring movement is just beginning and economic developers shouldn’t get too excited, cautions Scott Paul, with the Alliance of American Manufacturing. He doesn’t think that re–shoring amounts to a trend yet. Paul explains, “I would call it a trickle. Every little bit helps but the net result is that we’re still off–shoring more than we’re on–shoring.”
To build momentum, the first Re–Shoring Fair will be held in Irvine CA on May 12. Sponsored by the National Tooling and Machining Association (NTMA) and the Precision Metals Association, it will bring together 50 to 100 original equipment manufacturers with American suppliers who would like to bid on work currently outsourced by the OEMs. For more information, visit the NTMA website at www.ntma.org.
Mike Collins has more info about re–shoring on his website at: www.mpcmgt.com.
Source:
“Caterpillar Joins ‘Onshoring’ Trend,” by Kris Maher. The Wall Street Journal. March 12, 2010.
“Re–Shoring – Bringing Manufacturing Back to American Suppliers,” by Mike Collins. www.pddnet.com
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