The return of manufacturing jobs to the US is a small but growing trend. Using the term "reshoring" to describe the phenomenon, the Reshoring Initiative has been busy promoting the return of manufacturing to the US.
More than 80,000 manufacturing jobs have been returned to the US since the reshoring trend started to gain momentum three years ago. The industries that have returned manufacturing jobs generally produce large, heavy products such as appliances; 61% of the reshored jobs have returned from China. The reasons for reshoring include increased wages in foreign markets, quality problems with goods manufactured elsewhere, freight costs, IP protection, and shipping times.
The Reshoring Initiative offers US companies the data to determine if producing goods in the US is actually more cost-efficient than foreign production. "Our job is to help bring manufacturing jobs back to the US," Harry Moser, founder and president of the Reshoring Initiative, told us. "Our method is to document that manufacturing in US can be done at an efficient rate, then let manufacturers re-evaluate their offshoring consideration."
One of the tools the initiative uses to convince companies to return their manufacturing to the US is total cost of ownership (TCO) software. "The TCO helps manufacturers select the products to bring back to the US. It's a strategic planning tool," Moser said. The initiative provides its evaluation software at no cost. "We give away the data and the TCO for free. Right now, I'm working to help both individual companies and states. We're working with Mississippi, New York, Alabama, and Pennsylvania."
The whole point is to encourage manufacturers to do the math on the real costs of foreign production. "A survey by Archstone Consulting in 2009 concluded that 60% of manufacturers do not do the math. They source their manufacturing on the basis of wage, purchase variance, or landed cost. Yet even the best of those landed cost estimates misses 15% to 20% of the total offshore cost."
So far, the gain in manufacturing jobs due to reshoring is offsetting the flow of jobs that continue to travel to foreign facilities. "The biggest thing the data shows is that the trend from 10 years ago, when we were losing a net 160,000 jobs a year, is now neutral," he said. "We stopped the bleeding, and now the challenge is to bring back net jobs."
If jobs started flooding back to the US, Moser said, we would not be prepared to accept all of them. After losing millions of skilled manufacturing jobs, it would take a spike in education to prepare for a significant influx of manufacturing jobs. "We don't have enough skilled people to bring it all back now. We see ourselves as one of the promoters to help society see that manufacturing is coming back and that schools need to begin to train more people for manufacturing jobs."
Trends favor the return of manufacturing jobs to the US. "The rising wages in China is the most tangible and the least reversible of the reasons to return manufacturing to the US. China's workforce is dropping at 3.5 million per year, while the demand for labor is increasing."
Another major trend that will not be reversed soon: China's labor costs are accelerating while US labor costs have stagnated. "US wages are also a factor. They've gone up about 2% -- about the same rate as productivity. So the unit labor cost in the US has been flat for 13 years, while in China it has gone up 320%," Moser said. "It's a big enough differential that, when you add in the hidden costs of offshore manufacturing, it makes sense to bring production back."