Manufacturing in the US is making a comeback. It has to be true -- it said so in my local newspaper. Actually, a similar story has been reported in lots of places, including a recent study released by the McKinsey Global Institute. That study is titled, “The next era of global growth and innovation.”
Propelling this comeback is an increased need to reduce the duration between the time that a product is designed and the time that it appears on the shelves. While much of the design has always occurred in the US, there was generally a lag before the product hit manufacture, which often occurred in a faraway place like China or India.
While we like to think we live and work in an ever-shrinking world (and we do), there’s still some amount of time to transfer information. And depending on the size of the run, it may or may not make fiscal sense, especially as manufacturing in the US is gaining momentum.
Part of this shift to the US has to do with the fact that labor costs in places like China are on the rise. There are also uncertain and potentially rising tariffs, fluctuating currency exchange rates, and fuel costs that have turned sharply upward in the past 24 months. Mix all those facts together, and when you ask why manufacturing is making a comeback domestically, the question becomes, “Why not?”
Wal-Mart recently announced that it would be buying an additional $50 billion worth of US-made products over the next decade. That sounds like a pretty good indicator to me. The company plans to increase orders for items like paper and sporting goods, which it already buys domestically, and bring back production of some textiles, furniture, and higher-end appliances. The latter item surprises me the most, as the US seems to have lost the appliance battle, but time will tell.
A defining statement in the McKinsey report sums it up: “As long as companies and countries understand the evolving nature of manufacturing and act on the powerful trends shaping the global competitive environment, they can thrive in this promising future.”
It’s generally acknowledged that manufacturing tends to rise as an economy grows, with emphasized growth coming out of the recession like the one of a few years back. Sustaining that growth, and by how much, is dependent on a bunch of factors. They include the availability of low-cost and/or highly skilled labor; having and/or building the proper infrastructure, meaning efficient transportation of resources/materials and of goods produced; and access to the technology that’s required to manufacture goods in this new world. There’s also a difference between manufacturing complex products as opposed to more simple goods.
A nice benefit of the increase in manufacturing is the service industries that get pulled along in tow. Depending on your definition, this could include the research and development activities, sales and marketing jobs, and certainly customer support.
The final piece of this puzzle lies with investment. Will the proper level of investment be made to fully secure the manufacturing growth in the US? If the promises made by both parties in the recent election hold true, the investment will be there. Where it comes from specifically is still to be determined, but it likely (hopefully?) will materialize.
Rich, what you say is true for a lot of consumer goods. On the other hand, there are lots of foreign companies manufacturing here already. As I understand it, all BMW X series SUVs are made in the USA, even those sold in Germany. I just saw an ad for a Kia automobile, I think it was during the Superbowl, that said assembled in the USA. The Volkswagen Passat is made in the US, at least for US consumption. There are lots of suppliers to these companies that are also located here.
If you look at compnaies like Siemens and Bosch, they have bought a number of manufacturers in the US. I was at a plant in the Chicago area that made building controls. They have been around for probably a century. They are now part of Siemens and still manufacturing here.
As to your point about the time lapse, that is something that has been an issue in manufacturing for a long time. My experience is that the ideal is to have engineering and manufacturing colocated so as to make for a more efficient product development cycle. I did read a while back about a company that made space heaters. They redesigned their product to require fewer fasteners and were able to bring production back to the US. If I recall correctly, the makers of the KitchenAid mixers have brought back manufacturing to the US. This allows them to resond to changes in features and colors quickly, thus responding to market factors in a timely manner. They could not do that with Asian manufacturing. One last example involves software product development. I talked to the VP of a large software firm that indicated that almost all their development had been brought back to the US. They indicated that the quality was better, there was less management required and that the wage differentials were closing.
Rich, I'm also hopeful but not confident that we will make the necessary investments and changes to bring manufacturing back. Hopefully we can also create energy policy which provides a positive impetus for manufacturing as well.
Al, I am hesitant as well. A rational energy policy would definitely be a move in the right direction. I have recently seen an influx of articles on the "Rise of the Robots". Our Perfect Storm of increased regulations and cost to employers from the Affordable Care Act, have moved many manufactures to increase automation. That is a great way to improve production efficiency and reduce labor costs, but it is most definitely reducing the number of human jobs available in the manufacturing sector. I particularly like the recent article appearing in TechCruch that talks about America having hit "Peak Jobs" http://goo.gl/SYgwq.
"America is well on the way towards having a small, highly skilled and/or highly fortunate elite, with lucrative jobs; a vast underclass with casual, occasional, minimum-wage service work, if they're lucky; and very little in between. But it won't be 19th century capitalism redux, there'll be no place for neo-Marxism. That underclass won't control the means of production. They'll simply be irrelevant."
I didn't expect that technology was the solution to neo-Marxist Socialism. --Talk about your Mother of All silver linings...
Thanks for reporting on this info from McKinsey, a well-respected research house. I've been wondering how much of this back-to-America trend has been stimulated by the much higher cost of fuel. If you've bought anything online in the last year or so, mounting delivery costs have been painfully evident.
I routinely have parts made by machine shops, as well as build them on my own. I recently sent for RFQ, a set of very simple parts to a USA based machine shop. They returned a quote that was so outrageous, it is making think China is the only way. For example, that same USA based shop quoted me a part in the past around $13 USD, where a China company quoted me $5 USD. I went with the USA shop, since I want to support domestic growth.
But with the most recent quote, I have no choice but to go China.
Most USA shops I send RFQs to give me high priced quotes. Sometime, their prices are so high that they refuse to quote me at all. It isn't worth their time.
Until prices come down domestically, decline is the only direction.
I wonder how much of that difference might be due not only to lower labor costs (which we, of course have continued to subsidize by sending our business there) but also to a different business model. I'm hypothesizing like crazy here, but I wonder if US machine shops and material suppliers that are used to supplying large companies simply aren't set up for pick and place and shipping, etc. in small quantities to individuals such as yourself. And if companies in China are, for several reasons I can imagine along the way from manufacturing to shipping.
Your experience with higher machine shop pricing could also be due to basic supply and demand. In the past year or so I have seen in my buiness that many shops are at or near capacity so they don't need to quote a low price to get your business.
And, although my personal experience was a few years back, the $5-$13 price ratio from China to the US seems to be narrower than when my company was buying machined parts from Asian suppiers.
Are you making the mistake of not considering the total cost of buying from Asia? Did that $5 include the cost of shipping? What will you do if Chinese parts come in wrong? In our case of a custom one-off machine we could make minor modifications to the design and rework parts to accomodate the errors but that negated the savings. Will you have the time for them to start over and redo the order, or rework the parts youself?
Honestly, I never had anything made in China. But, the low price includes 5 day shipping. I imagine if the parts are wrong, I can get them re-worked. Though, I could be wrong. I have always gone with USA based manufacturers. But... I am considering a move.
To be fair, considering an overseas supplier is a rational thing to do from a business economics perspective. However, all cost factors should be considered including risk, and for small orders of custom parts the risk of not getting what you need is pretty high and should be weighed against the cost of something going wrong. Don't forget to factor in your customer's reaction in that case as well, if troubles with a chinese supplier cause you not meet commitments.
BTW - I saw your later post, and a 10 fold delta certainly makes a difference in that calculation. Sometimes you have to chose what is best your own business.
I do know of buyers that have been successful getting custom parts made in Asia, but I believe mainly because they could bury the cost of developing an Asian supplier in with the other business they were doing there.
I am a bit weary to order from those companies. They are not held to making perfect parts in the end. I may send thousands of dollars out of the country, it could be just like I threw it all out of the window.
I'm trying to be aware of the country of origin when purchasing products, and am willing to pay slightly more if it is from the USA. Since I can be a real cheapskate, this is something! ( On a related note, I wish that country of origin was required on food products, as that's one area where I really want to stay with North American produced products. )
I feel that it's important to retain some sort of manufacturing presence in our country, so we're not totally dependent on others for products, and to keep us from being totally a service industry based society. Let's face it, not everyone will be engineers and accountants, and it would be great to have good factory jobs for people, like my family had.
As for outsourcing software, I hope companies are getting a great deal, as what I've worked with has been rather low quality, and we had to redo much of it for many projects....
"If the promises made by both parties in the recent election hold true, the investment will be there."
You do understand that this is one of the most hilarious lines I have read in a while. If a politician's lips are moving, they are 100% lying! Even the honest candidate turns once in office as a politician. And with our current president not able to turn in a budget on time (four years in a row) and the Senate leadership not able to pass a budget in over 4 years, that the hilarity of this line is more damming!
What I did find encouraging is the Walmart moves. If big corporations that are headquartered in the US would seek more US made goods to sell, this may revive the economy in spite of the politicians.
It would also make a big difference if US-based manufacturers bought supplies and services in the US. Yesterday I interviewed a small US manufacturer who does exactly that: buys all materials and services used in his business from US suppliers, instead of buying cheaper stuff from China. That even includes local banking.
I do the same, Ann, with my portable trail obstacles for horses business. We design and make our products out of furniture-grade pvc that is manufactured here in the United States. We refuse to compromise the safety of our products in our specific application by going overseas. It has definitely affected the cost and driven it up, which affects marketability and sales - but folks who research the product understand the quality that they are purchasing.
Good for you, Nancy! I try to do the same as a consumer, and better yet, to shop locally. But living in a rural area means that a lot of things I want to buy aren't available locally. That, combined with the "volume is king" attitude of many chains with local operations means I end up buying more and more stuff online. That "volume is king" attitude makes no sense on the local small scale. Local businesses should be tailoring their wares to local shoppers. Many of the independents do, but not the chain stores.
That's great that you shop locally, Ann - we try to do the same. My husband's father owned a bicycle shop so we have a deep appreciation for people supporting local businesses. There is always the temptation of going into a brick and mortar store to gather information from the expertise of the employees working there, and then leaving without purchasing anything and buying the same product for less online. We don't mind paying more (within reason) because we know we are supporting their business and they provided us with a service in addition to the product, with their time and knowledge. Unfortunately with the advent of online shopping that is both convenient and often cheaper because they don't have a real storefront, these small business are becoming fewer and fewer...and we are losing something irreplaceable in the process.
Nancy, I'm more likely to research online and then buy locally, when possible, for the reasons you mention. Paying a bit more is not a problem in my mind. And it's not always more, anyhow, when you include the cost of shipping for online purchases. Then there's customer service. If I can get it locally, that's usually a better option, in my experience.
I agree Ann, especially when it comes to exchanges. While buying online is often tempting, the product often arrives damaged or is subpar for some other reason - then you have the additional hassle and expense of shipping returns. However, some items are just hard to find locally and in that event, it is a blessing to have the online option...
Bringing work back home may never happen. The USA fought hard for human/worker rights. People died over it. Now, those same corporations who fought against those rights, ship jobs off to places were abuse is fine. At home, consumers expect a low price of good, that only labor abuse can bring.
Foxconn, or whoever, can unionize, they will just find another place where the work is cheap. Other parts of Asia, then India, back to Mexico. When everyone fights back, they will industrialize places like the Congo.
It always matters, Cabe. It's just how willing are we to recognize that human rights apply to all people in all places and to do something about it regardless of the hit to our pocketbooks. But then, Jesus was betrayed for thirty pieces of silver so what can we expect when millions are at stake - it seems the thirst for money will always be the downfall of man.
If prices jumped up to USA worker made standards, the country would have a fit.
What I am thinking is that we all suffer from a sense of entitlement. A friend of mine, who has been out of work for some time, refuses to take a job where they will get dirty for low wages. Illegals, another abuse group of workers, are willing to take those jobs.
I think we are all dooms to work in the service industry. I, for one, enjoyed being a waiter in my youth – so I will be ok with it.
Cabe, I think you are right on the mark with your observation about "entitlement" attitudes in the U.S. - we have really lost our work ethic in this present generation. If people think they are entitled to be provided for, they certainly won't care about how other people are being treated.
My working career began with a paper route, progressed to fast food service, grocery store checker, faculty assistant to help pay for college, retail clerk on weekends while engineering tech during the week, to engineer, to engineering manager. Today, everyone kid thinks they should start at engineering manager...
I agree, sometimes the service industry is very enticing.
From a consumer standpoint, I find this article very hopeful. I am really tired of purchasing substandard products that do not meet athe same QC requirements for products manufactured in the U.S. For multiple reasons, this is very encouraging news indeed!
Nancy--I agree completely with you one this one. I don't know if I have just had a run of bad luck lately but just about every consumer product I have purchased, especially the electro-mechanical products, have been "off-quality". Two were DOA right out of the box. The merchandisers give my money back or substitute for another but even then it's a real pain. In dealing with off-shore suppliers, we noticed their first piece products were excellent but then, after production was initiated, the quality dropped significantly. I'm talking about PC boards, ribbon cables, Mylar overlays, etc etc. Products that should represent a high degree of quality are really junk when they come over. It get old fast. I do quality control work for a Southeastern client and it is not unusual to have 30 percent dropout on Mylar products coming from China. The biggest problem is you can't talk to these vendors and get your point across. We have problems and need relief.
Even in our local stores we are seeing this problem, Bob. We bought some incandescent light bulbs from Home Depot the other day and when we plugged them in, some went "pop" and the filament opened - just out of the box!
I agree with both of you. Although most of my online purchases seem to be fine, many of the consumer goods I buy from big-box stores are not. To the point where I've stopped patronizing them. There aren't that many our here in the boonies anyway, so I end up buying stuff either online or from small local mom & pop stores run by my friends and neighbors.
I think there is a growing consensus among business leaders that it's important to have an agile supply chain -- and that ocean freight is not agile. Relying on large shipments of parts that come via container ship from another continent makes it difficult to respond quickly to a changing business environment. There is a big advantage in being close to your customer base.
This is causing many companies to refocus on North America -- but not necessarily the U.S. For instance, Cardinal Health, a major medical supply manufacturer, recently decided to relocate one of its assembly plants from the Chicago area to Mexico. This provides them with continued proximity to U.S. customers, and increased proximity to emerging markets in Latin America. Probably most important from Cardinal's point of view, it lowers their labor costs.
U.S. manufacturing has a lot of potential advantages (including quality, as Nancy pointed out). But, unfortunately, many corporate leaders still don't know the difference between price and cost. They haven't learned that lo barato sale caro ("cheap" is expensive).
The U.S. will never be able to compete as a "low-cost country;" at least, not if we want to maintain our standard of living. The only way the U.S. will be able to compete as a manufacturing country is by providing a better overall value than other countries. This means world-class quality, among other things.
Over the next few years, we'll see whether or not we're up to the challenge.
Along with Cabe's comment, I try to keep sourcing in the US. Recently I ordered some blank boards from a company in Wisconsin, but the parts arrived via China Post. The Wisconsin address is just a front-end for web ordering at a Chinese board house.
I hate to be a pessimist, Charles - but it looks like it is a move to satisfy those looking in, without real substance. I hope I'm wrong...some of the conditions I have heard from colleagues visiting factories there are terrible.
It also mentioned that Foxconn said it plans to manufacture some Macs here in the U.S. - That would be interesting to follow and see if it really comes to fruition - that indeed would be manufacturing coming home.
Foxconn is about to purchase enormous amounts of robots, so there may not be much of a union left after that: http://www.reuters.com/article/2011/08/01/us-foxconn-robots-idUSTRE77016B20110801
Interesting article, Ann. I found the quote regarding Chinese manufacturing "Of course some companies will consider moving their manufacturing overseas, but it's easier said than done when the supply chain is here" highly ironic...what a shift from the past - and Mexico?!
How tragic about the suicides that have been occurring. But is it really Foxconn's desire to move asssembly line workers into R&D and other innovative positions which is what the article mentions is their goal with the advent of robots? Not every worker aspires to get off the line and what any employee wants is a safe work place and a fair wage. Another question also comes to mind - will there even enough positions for the soon to be displaced workers?
Nancy, I find it tough to believe that a company that treated workers like Foxconn did is likely to do anything they've said publicly about helping the displaced workers. The history of labor disputes in other places--like the US and Europe--makes me pretty cynical. And standards and attitudes about workers and their rights are very different in China from what we're used to in the West. As I posted on another discussion board, the problem with a lot of job displacement discussions is that they don't take into account the kind of new jobs created and the kind of old jobs that become no longer available to lesser-skilled people. The relationship between the skill level of the labor force and the kind of jobs available to it is not as balanced as many such studies would make one think.
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