Manufacturing Success – Making it in the U.S.A.

April 30, 2013

The prevailing assumption that manufacturing offshore brings measurable cost advantages is withering on its imported vine.

As reported in industry journals and on manufacturing news sites, middle class wages are rising in high-growth countries like China, while productivity levels across the U.S. manufacturing base are at record levels.

Let’s connect these facts with some specific technological advances.  Automation, for one, has had a long and well-documented impact on numerous manufacturing processes.  And on the horizon we see Additive Manufacturing (AM): the sale of 3D printers grew 6500% between 2007 and 2012, and production-scale applications are already cutting costs and leadtimes.  BMW, for one, has seen AM reduce fixture- and jig manufacturing costs by 52% and slash time by 92%. Take these trends together, and you’ll see a dwindling cost/benefit gap between the U.S. and those countries whose main competitive advantage has traditionally been low-cost labor.

The truth is that the U.S. remains the world’s largest manufacturer of goods.  What’s more, we are very good at making cost-effective items that also meet extremely high quality standards.  The same cannot be said for most low-cost countries.  In consistent dollars, U.S. output is nearly triple 1972 levels.

That growth is just the start, however.  In order to continue adding jobs, we must focus our efforts on developing the IP and manufacturing ability to keep the new-product pipelines primed with cost-effective, high-value offerings that low-cost competitors can’t match.  With new sales brought about by product/market diversification, the next step will likely be increased top-line sales and profitability.

Our manufacturing base constantly delivers more productivity with fewer and fewer resources while simultaneously devouring the cost advantages of offshoring.  In fact, analysis posted in The Boston Consulting Group’s “Made in America, Again” report suggests that in less than five years the cost advantage associated with China vs. some major U.S. manufacturing centers will be just 10-15% for many items. Figure in added expenses like shipping, inventory costs and higher-than-needed order minimums, and the offshoring benefits cease to exist.

The same report calls out the following enterprises as supporting evidence that the shift is mounting:

  • NCR moved it production of ATMs to a plant in Columbus, Georgia, which will employ 870 people by 2014.
  • The Coleman Company is moving production of its 16-quart wheeled plastic cooler from China to Wichita, Kansas, owing to rising Chinese manufacturing and shipping costs.
  • Sleek Audio moved production of its high-end headphones from Chinese suppliers to its plant in Manatee County, Florida.
  • Peerless Industries will consolidate manufacturing of audio-visual mounting equipment systems in Illinois, moving work home from China to achieve cost efficiencies, shorten lead times, and gain local control over its manufacturing process.

Every day, American companies are seeing the light and reacting accordingly. In fact, reshoring is credited with creating 50,000 manufacturing jobs in the last three years alone.  As a concept, this conversation is being held across more and more C-Level suites.  Eventually the rumors of perceived benefits will turn to facts, and the facts will drive a new generation of growth planning. Even offshoring stalwarts are beginning to come around—Apple announced late last year that it would move some of its Mac production back to the U.S., and Walmart is pledging to spend $50 billion on additional U.S.-made products in the next decade.

It comes down to costs and benefits; as organizations perform rigorous product-by-product analysis on their global supply chain networks, they will realize—painfully in some cases—that a product is not built on hourly wage rates alone.

As Corporate America enters the second half of this decade, the “Made in America” moniker will again become a viable business strategy. Prolonged success in this new American Manufacturing movement will likely come down to having a blend of the right talents, technologies, and product development cycles to keep meaningful offerings in front of customers and one step ahead of the dreaded commoditization rut.