News

Posted by: Jessica Chambelrin – The D.M.S.C

Article by Robert J. Vechiola

More than a decade after the outsourcing trend reached its peak, a new trend, reshoring, is quickly gaining momentum in the manufacturing industry. For a variety of reasons, manufacturers are bringing production and the associated jobs back to the U.S., and the potential benefits to manufacturers, and the U.S. economy, are significant.

Several studies recently analyzed reshoring trends, and the number of companies looking to join the reshoring movement is remarkable. According to the Boston Consulting Group, 70% of U.S.-based manufacturers found sourcing in China more costly than they had anticipated; 92% believe Chinese labor costs will continue to rise; and a third of those with annual sales over $1 billion are planning or considering moving large-scale production from China to the U.S.

Grant Thornton states that more than one-third of U.S. businesses will probably move goods and services work back to the U.S. in the next 12 months. Places “closer to home,” like Mexico, Latin America, and Canada, are likely landing spots for another similarly sized group of businesses.

The Massachusetts Institute of Technology (MIT) found that 33.6% of the 340 respondents in its survey, including 198 manufacturing-only companies, were considering bringing manufacturing back to the U.S., with 15.3% definitely planning to reshore.

Reshoring involves more than just simply relocating facilities to the U.S. While reshorers typically compare relative costs before making their move, rarely do they understand that reshoring can involve an entity-wide restructuring and reorganization. If not handled adroitly, these challenges could cause major disruption and potentially threaten the enterprise.

As Frank Russo, CEO of Fabricating.com, pointed out in IndustryWeek, reshoring has impacts across all levels of the supply chain, and there is a need to rebuild a stronger U.S. supplier network.

With myriad details—such as timing existing contracts, maintaining inventory levels during the transition, staffing the new workforce, transporting various resources, and enforcing intellectual property rights overseas—involved in reshoring, companies should be prepared to address U.S. regulatory and legal requirements early in the process.

By Frank Russo, Chief Executive Officer, Fabricating.com / Posted by Jessica Chamberlin

Frank Russo, Chief Executive Officer, of Fabricating.com speaks of  reshoring manufacturing as a growing trend in the U.S. After many years of offshoring, companies are taking an in-depth look at the benefits of manufacturing closer to their customer base, leading many companies to reshore or consider reshoring production to the U.S.

U.S. manufacturing is becoming increasingly attractive to global companies and foreign investment due to the costs and risks associated with offshoring production. Escalating offshore wages, interruptions in unstable supply chains and shifting perspectives toward using total cost for objective decision-making, are causing a growing number of manufacturers to consider locations in the U.S.

Many past decisions to offshore manufacturing were based on price alone. Today, manufacturers are looking at more than just price when considering sourcing decisions and production locations. In an interview recently published in Industry Today, Harry Moser, founder/president of the Reshoring Initiative, said companies must look at the total cost of manufacturing such as quality, intellectual-property risk, inventory-carrying costs, the complexities of having a lengthier supply chain and other external and internal business costs. And, considering abundant and low-cost U.S. energy, manufacturing in the U.S. makes good economic sense for foreign and local investment.

Reshoring a Supply-Chain Strategy

Reshoring is not a fad — it’s a real supply-chain strategy based on real economic forces. Companies are making strategic shifts to their supply chain models to take advantage of the benefits of manufacturing in the U.S. I myself see reshoring in our marketplace sometimes several times a week. Every week, we speak with a buyer that wants to source only in the U.S. They want to reshore work, usually back from China, due to quality-control issues, time-to-market, delivery issues, language barriers or simply to be closer to their customers.

When companies source in the U.S., they can take advantage of the world’s largest market and leaner supply chains, since production is located closer to consumers. This affords them the flexibility to quickly respond to customers’ changing demands, a critical component for U.S. competitiveness.

By producing closer to consumers, manufacturers are able to eliminate the large run production requirements and sizable inventories common to manufacturing offshore. They can remove intellectual property risks and realize the benefits of innovation, quality and flexibility by putting American-made ingenuity behind sourcing decisions.

The perceived lack of U.S.manufacturing is no longer a perception, it is reality and The D.M.S.C. does not want to idly stand by and watch.  The U.S. for the first time is creating a total inability to procure vital parts in time of national emergencies. Without manufacturing capabilities, there will be shortages of vital parts in production of ammunition and avionics to mention only 2 areas, especially since normal suppliers may be allied to a potential adversary, or if an adversary blocks vital shipping lanes or air space during times of war.

A secondary problem from the lack of  exports, due to insufficient manufacturing, is currently having a profound influence on our foreign policy. Now that forgein countries have U.S. dollar deposits in bonds and other forms in excess of 1.2 trillion, they can and have exerted pressure to influence OUR foreign policy. Just last week, it was “suggested” by China that the U.S.  invest less into it’s military and to update our import laws to take care of some our impeding debt. When does a “suggestion” become a demand of foreign countries? When the U.S. is unable to pay on it’s obligations? We are at a tipping point here and now is the time for major change in the way we do business, because it’s proven, we are not doing it right.

The inability/lack of manufacturing causes an ever looming threat to U.S. interest rates, inflation and a general detriment to our economy and trade policy that can no longer be ignored. The D.M.S.C knows there is a substantial decrease in R & D activity in the machinery sector  of our economy which greatly effects our competitiveness in world market. By supporting the D.M.S.C you are supporting our local economy and country as a whole. As the D.M.S.C has explained, the lack of sufficient manufacturing capacity will not only make it impossible to ramp up production in times of need but we unknowingly transfer vital production know-how to potential competitors or adversaries when we out-source manufacturing to foreign countries.

The effect on procurement has been very apparent to not only the DMSC and it’s supporters but also to our allies and worse, to our adversaries. Just a few examples seen by the world- Our Presidential helicopter is Italian by design , Boeing and Northrop companies were competing to build a replacement tanker plane for the air force and the European Airbus design was judged superior in performance. Factual fig leaf- Northrop assembles the Airbus tanker but use overseas components. Other reminders of U.S lack of capabilits- the U.S. had to import uniforms for Desert Storm from Germany, the import of small arms from Europe and using Italian made, guns on U.S frigates.

The D.M.S.C wants everyone to understand that there is a direct relationship between mounting foreign debt and the steep drop in manufacturing  jobs. More government jobs will NOT support our economy but only impose more structured debt. None of this is about American greed and wealth, its about being placed on a level playing field when it comes to U.S. foreign policy, paying our debt and being able to live the American dream that our fore-founders set before us.

Over the years, corporations have learned that they can  boost their bottom lines, shareholder returns and executive performance bonuses by arbitrating labor across national boundaries, otherwise know as out-sourcing / offshoring . High value-added jobs in manufacturing and in trad-able services can be relocated from developed, to developing countries where wages and salaries are much lower.

When manufacturing jobs began leaving the U.S., economist gave their assurances that this was a good thing. Jobs that required little education would be replaced with new high-tech service jobs requiring  university degrees, thus the  American workforce would be elevated to a high-tech, high wage society. The plan: The U.S. would do the innovating, design, engineering, financing and marketing while poor countries such as China would manufacture the goods that Americans invented. High-tech services were to be a new source of “value-added” that would keep the American economy preeminent in the world.

The D.M.S.C would then ask why would economist think that it would stop there. If it pays corporations to ship out high value-added manufacturing jobs, it must also pay to ship out high value-added service jobs. And that is exactly what U.S. corporations have done with government support. The way we have seen corportations and our government answer this question, makes it impossible for the United States to remain the front runner in research, innovation, design and engineering when the country ceases to make things. Research and product development invariably follow manufacturing to support the manufacturing operations that have located there. It turns out that product development which was to be America’s replacment for manufacturing jobs, is the second larget business function that is offshored.

Job offshoring is no longer mainly associated with locating IT services and call centers in low-wage countries. Job offshoring has reached maturity, “and now the growth is centered around product and process innovation” according to Dr. Roberts. More than half of U.S. companies are now engaged in offshoring and the practice is no longer confined to large corporations. Small companies have discovered that offshoring of innovation projects can significantly leverage limited investment dollars. There are high growth rates in the offshoring of core functions such as finance, accounting and human resource jobs which have increased at an annual rate of 35%

What can be done? The D.M.S.C. believes that the U.S. economy has been seriously undermined by offshoring but at the same time creates market compettion which is necessary for a healthy economy. It has been suggested that the American market and living standards could be rescued by tariffs that offset the lower labor and compliance costs abroad. Another alternative, suggested by Ralph Gomory, would be to tax U.S.corporations on the basis of the percentage of their “value added” in the U.S. The more value added to a company’s product in America, the lower the tax rate on the profits.

The highly skilled U. S. workforce is being gradually transformed into a domestic service workforce characteristic of third-world economics. If anyone doesnt beleive this happening check out the recent article as of July 18 2011, on how an American company is producing an important Chinese product-chopsticks; because China is now running short on one of it’s natural resources- what’s next water? Perhaps that is how we will one day be forced to pay our foreighn debt holders back.

The D.M.S.C is asking for your support so that we can help “tip” in favor, back toward American manufacturing base- “we believe, it’s the right thing to do”.

— Dr. Roberts held the William E. Simon Chair in Political Economy at CSIS at George Town University  and was Senior Research Fellow in the Hoover Institution at Standford University. He served as Assistant Secretary of Treasury in the Reagan administration.

The DMSC has always maintained that in order for the American economy to get back on track we would need to give our citizens not only a reason to buy domestic but to get our great American minds wrapped back around  how important manufacturing is to our recovery and our continued success. The fact of the matter is, many of our states are on the brink of bankruptcy, much of it linked to the lack of manufacturing .

Today in America, there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5). This is an opposing trend compared to the boom times of the 60’s, where there were 15 million workers in manufacturing and 8.7 million collecting paychecks from government jobs.  According to statistics, more Americans work for the government then work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined.  According to Stephen Moore of the Wall Street Journal, ” we have moved decisively from a nation of makers to a nation of takers.  Nearly half of the $2.2 trillion cost of state and local governments is the $1 Trillion-a-year tab for pay and benefits of state and local employees”.

It has been noted that every state in America except for two- Indiana and Wisconsin- has more government workers on payroll then people manufacturing industrial goods. California which has the highest budget deficit in the history of the states has 2.4 million government employees-twice as many as people then those working  in the business of manufacturing. Even Michigan, (home of the D.M.S.C) at one time the auto capital of the world and Pennsylvania, once the steel capital, have more government bureaucrats then people making things…… the question you need to start asking- where are the productivity gains in government?

The DMSC believes that the government serves a very necessary function and we are in no way suggesting otherwise, but in order to support the needs of our government, manufacturing and R & D must have a very strong presence.  We at the DMSC have provided a much needed arena for domestic manufacturing and it’s support businesses to showcase their goods and services- ultimately creating a tax base that is fiscally responsible, because, “we believe it’s the right thing to do”.

http://online.wsj.com/article/SB10001424052748704050204576219073867182108.html