Are We Ready to Reshore Manufacturing?
One of my readers from Austin, Texas, forwarded this article:
Recent news coverage has highlighted several manufacturers that are locating their production facilities here United States. For instance, the Wall Street Journal reported that European aerospace manufacturer Airbus announced they’ll build a massive plant in Alabama. In another news story, the Detroit Free Press reported that the high-end watchmaker Shinola is planning to assemble their watches in Detroit.
These are encouraging signs for proponents of American manufacturing. What’s more, there have been reports of a number of companies “reshoring” their production from China or another overseas location. Companies are coming back for a variety of reasons, much of it has to do with China. Some of the most popularly cited reasons include:
- Chinese labor costs are expected to rise at a rate of 13 percent per year through 2015;
- The cost of shipping products around the world is dramatically increasing;
- Distance is making it difficult to design and collaborate on products; and,
- It’s increasingly difficult (and expensive) to protect intellectual property in China.
Whatever the reasons may be, I was intrigued by all this news of companies locating production here and (more importantly) reshoring their production.
Three Companies that Brought Production Back
I decided that I’d dig around to find examples of companies that actually made it happen — and how it benefited their business. While there were numerous reports of companies reshoring, I found three examples of companies coming back that represent a sampling of the motives for reshoring.
Hurst is best known as the manufacturer of the Jaws of Life, and they recently made news for bringing their production back from China due to quality issues and unreliable suppliers. After Hurst started getting returns of defective products, they started sourcing their goods domestically. As a result, they’ve realized significant quality improvements and have more control over their supply chain.
In February of this year, General Electric decided to reshore the production of their water heaters from China to Kentucky. In addition to supply chain issues, GE had difficulty coordinating short delivery times. Even though GE had 30 percent lower labor costs in China, once supply chain and delivery issues were factored in, they saw their costs were actually six percent higher than producing in the US. Because they moved back, they’ve gotten better control over their supply chain.
Peerless-AV moved back to the U.S. after they had to pay seven figures in legal fees to battle intellectual property theft and knock-off products. Moving back afforded Peerless better intellectual property protection, reduced inventory by 20 percent and allowed them to bring products to market faster.
Let’s Turn the Trickle Into a Trend
Of course, there’s no denying that this is not the dominant trend in the industry. The number of companies that have left the U.S. still dwarfs the number of companies that have come back to the U.S. The question then becomes: how do we turn this trickle into a trend? Here are a few ways (according to Mitch Free and we can make it happen:
- Create a more educated workforce that can fill skilled labor gaps and get Americans interested in manufacturing careers at all levels (e.g., assembly, engineering, management, etc.).
- Use automated assembly processes to limit the labor input of production more extensively.
- Help companies evaluate their true total cost of ownership (TCO) to help model the risks and costs of offshoring production.
If you have any thoughts on making this happen, I want to hear from. You can contact me via the Software Advice blog at: What Can be ‘Made in the USA’? Or you can reach me directly by emailing email@example.com.