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.
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....
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.
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.
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.
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