Posts Tagged ‘insourcing’

As strong promoters of the benefits of domestic manufacturing, we occasionally diverge from our usual posts about software, technology and business to take a look at the bigger picture in manufacturing.  Since nearly all our clients are manufacturers or distributors (or both), we like to highlight stories that we think point up the successes found in U.S. manufacturing today.

In a recent article in Outside Magazine entitled “Born in the USA” (Sep ’12) — admittedly, an odd place to learn about manufacturing but, as it turns out, a worthwhile article — contributing editor Tom Vanderbilt takes a look at several American manufacturers’ efforts to keep American products American.

Apparel maker Ibex of Vermont is returning manufacturing to U.S. shores despite the 37% tariff it pays to sell its wares in Canada.  It would be cheaper, sadly, to send goods directly from China to Canada, but Ibex’s customers have been known to “beat it up” over Chinese production, says CEO John Fernsell who notes that “we get a real good-quality product in the U.S.”

In part, this may be at the core of the real feel-good story in manufacturing lately: that U.S. manufacturing, long in decline, has actually rebounded since 2010.  And by the way, talk about manufacturing returning to the U.S. often overlooks the key point that, according to the U.S. Dept. of Commerce, much of it never left: 75% of what Americans consume today is produced here.

Meanwhile Chinese labor costs, adjusted for productivity, have grown to nearly a third of U.S. levels.  And for many companies, labor isn’t necessarily even the most important variable.  “The reason companies re-shore is they want to make more money,” says Harold Sirkin, a consultant with the Boston Group.  “They make more money because they’re closer to their customers and can supply them more quickly.”  And that proximity is one key to the long-term viability of American manufacturing.

Here’s another: the growing trend toward mass customization. At Princeton Tec, a maker of bike lights, workers pluck parts from bins that can be assembled and shipped the same day for the firm’s custom headlights – all made possible because, as their marketing manager points out, “we make it right here.”  Not that they hadn’t tried China.  It turned out that labor costs there were rising, factories couldn’t keep up with rapidly changing technology, and government-driven consolidation was closing suppliers.  Back home, the company can produce smaller batches, control inventory better and take care of problems as they arise.  At its New Jersey plant, they’ve since doubled their manufacturing capacity.

As China grows, it is producing more consumers, and its ‘middle-class’ will dwarf the entire U.S. population in just three years.  This in turn may benefit American manufacturers in the most ironic way of all: as noted by MIT supply chain guru Bruce Arntzen, “Made in the USA is very important to China.”  Which means still more customers for American-made goods.


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As a champion of manufacturing – where our clients are mostly employed and employers — our blog occasionally touches on the touchy topic of outsourcing.  Recently, an article in Bloomberg Businessweek that chided the current presidential candidates for ‘pandering’ for votes over who was the worst offender when it came to outsourcing jobs, brought a more realistic view into focus.  In fact, it shows up just how misguided so many pundits today are.  And where employment trends are heading.

Economists who study these things tell us that companies create jobs outside the U.S. for more than job labor/cost saving reasons – though that is one valid reason.  But companies also create jobs – especially larger companies – because it’soften necessary in order to pursue sales opportunities in those new markets.  They want to be close to the economies that are growing the fastest, and to have access to ‘local’ resources, and to staff who understand the local culture. 

As Businessweek points out in its July 16th issue, companies that don’t hire locally in foreign markets “for some patriotic reason… would be at a disadvantage to European and Asian competitors, which would probably cause market share to drop and eventually result in U.S. layoffs.”

And, truth be told, outsourcing has had benefits: It’s meant less expensive goods for U.S. consumers.  Meanwhile, workers in Asia are becoming more like Americans and are increasing demand for U.S. made goods.  Outsourcing, the article points out, also “allows more advanced industries to replace outdated ones.” 

Meanwhile, a combination of rising wages overseas, a strengthening Chinese currency, and the availability of low-cost natural gas have actually caused some jobs to flow back to the U.S. – a phenomenon known as insourcing.

The politicians leave the impression that companies are bad for outsourcing, and if only they’d stop doing so, the jobs would come back.  But the truth is more complicated.  For one thing, automation has eliminated jobs – that’s just companies becoming leaner, more efficient.  Overall employment in manufacturing is down significantly from years past (even as firms become more efficient, as they must, to survive).  Meanwhile, middle-skill (and middle-wage) occupations are declining rapidly – and as The Boss once famously said… “and boys them jobs ain’t coming back.”

There are many who believe that improved education in science and math is one key to long-term employment prosperity.  Retraining workers to perform higher skilled tasks would be another.  This seems to be a conversation heard less often than the political rhetoric – and a problem a whole lot harder to solve.


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