Reshoring: Returning Manufacturing to America
Manufacturing and the wealth, ingenuity, and optimism it fosters are returning to the U.S. from the other side of the globe. Today's “Made in America” revival is reaching from sea to shining sea, and the movement isn't a new one. It has been quietly building for years.
There are several reasons why the trend is picking up again, reshoring expert Harry Moser told TMA News Bulletin in January.
“Initially, when companies first went offshore, they were looking only at wage rate,” Moser, the president of the not-for-profit consulting group, Reshoring Initiative said. “Now they're more frequently looking at duty and packaging, but also the costs of carrying inventory.”
Then there's also the impact of innovation, Moser said, because being located in the vicinity of a manufacturing collaborator streamlines creativity and production processes.
“If a big company in the Chicago area is designing a product, and they buy a mold from a TMA member and the two of them are close together and speak the same language, they can get together to optimize and design,” Moser said. “Whereas, if the mold maker is over in China somewhere, it's a lot harder to do that.”
And then there is reshoring's impact on delivery time.
“If you have a three-month delivery and you get a surge of orders, you're going to lose a customer,” Moser said. “Whereas you have a nearby TMA member who's shipping them to you, you may be able to get that delivery in a week, and you don't lose the order and you keep that customer. That's worth a lot of money.”
For a long time, manufacturers turned a blind eye to those unseen costs of sending work overseas, especially during the offshoring trend in the early 2000s. That's changing – and it's bringing valuable work back to the States.
What works for the big guys isn't always good for everyone else
The reasons multinational corporations moved their work overseas tend to separate them from small- to medium sized manufacturers located in the U.S., Moser said.
“I see a dichotomy between the interests of the small to medium-sized manufacturers – especially the contractor manufacturers like the TMA members – and the multi-national corporations,” Moser said. “The bigger companies – the MMIs – care about maximizing shareholder profitability, and they do that generally by sourcing a product where it is least expensive, and selling it where they can get the most for it.
“And if that means sourcing everything or almost everything outside the United States, that's totally fine with them,” he said. “Whereas the contract manufacturers and the smaller companies – the ones that aren't mainly international – exist only on the manufacturing at their facilities in the United States.
“So if the big companies maximize by sourcing in China, or India or Mexico, and the TMA companies only manufacture in Illinois, then they go out of business.”
And thus, a strain can develop between the bigger companies and the very sources of contracts on which smaller manufacturers depend. Bigger companies want lower costs from their suppliers, while those in the supply chain are challenged to keep the work from going overseas.
“From my viewpoint, U.S. manufacturing is not manufacturing companies headquartered in the U.S., it is manufacturing that takes place in the United States,” Moser said. “It's real factories, real workers, real things being made and the objective of the government and the trade association should be to maximize that manufacturing that actually takes place in the country.”
The bleeding of manufacturing jobs has stopped
The topic of reshoring is a hot one, as evidenced by the overflow crowd that came to hear Moser speak in January, hosted by TMA's Young Leaders Committee. Moser told the crowd that manufacturing jobs have been returning to the U.S. for the past several years.
“Over the last six years, we've had dramatic improvement. If you go back even further to fifteen years, say 2000 to 2003, the U.S. was losing to offshoring – not to productivity, not to robots, not to recession – but to offshoring,” Moser said. “Just moving to having the work done in other countries, not here, we were losing up to 220,000 manufacturing jobs per year. By 2014 - 2015, that number was down to zero."
And while the jobs loss hasn't completely stopped, Moser says the jobs “bleeding” to offshoring is over, a good sign for manufacturing's future.
“We say the bleeding has stopped, “ Moser said. “But we still in aggregate lost about 4 million manufacturing jobs to offshoring, but at least each year while we're still losing 60,000 per year, we're bringing back about 60,000 a year. So the two backflows at least balance, instead of that negative two hundred thousand level of 15 years ago.”
It will take creative acts of Congress to turn U.S. manufacturing around
Moser is optimistic that President Trump and the Republican Congress will take aggressive action to make the U.S. competitive because companies of all sizes are obligated to maximize profitability. It will take a creative approach for Congress to do that, Moser said.
“Just by asking companies to come back, most won't come back. Ordering them to come back, they'll find a way not to come back,” he said. “You have to make it so it's in their best interest, that it will be more profitable producing for the U.S. market in the U.S., rather than producing somewhere else and shipping to the U.S.”
Those changes will need to affect the profitability of not only the end product or its assembly, but also the components, the tools, and all the other things the TMA members make in the U.S., Moser said. To that end, Moser's group Reshoring Initiative has put together a list of eight to ten actions they believe the new administration could consider to make the U.S. competitive.
“We're quantifying those actions, and when we get done with the project, a person would be able to say for every percentage improvement in competitiveness – price competitiveness – how many tens of thousands or hundreds of thousands of jobs will come back,” he said.
But there's a problem … and solutions
And despite all the optimism with the reshoring movement, there's one drawback that Moser sees with all of the work coming back to the U.S. – a critical shortage in the skilled workforce, machines and locations to fulfill the potential demand.
“One concern is if you implemented everything tomorrow, and you in effect brought back 10 million jobs this year, we just don't have the physical capacity to produce them and we certainly don't have the skilled workforce to produce them,” he said.
Moser believes the U.S. needs to make a ten- or –twenty year commitment to implement changes in the school system, the workforce training system, and companies' machine-buying plans in order to become overall productive.
“Otherwise, you can imagine if we tried to increase manufacturing here by 25 percent next year, it would be a disaster,” Moser said.
That needed plan should include shifting some of the nation's education resources from university loans to apprenticeship loans, making it easier for apprentices and the companies for which they work to have a profitable relationship during the apprenticeship.
Time for U.S. manufacturers to challenge the status quo
But before this reshoring movement can reach its full potential, American manufacturers must reframe their thinking now to challenge overseas competitors.
“Often the product has to be redesigned to get some of the labor out of the product, and some of the components out of it. You automate. You eliminate all of the costs of duty, freight, packaging,” Moser said.
His organization offers on their website a free resource to determine how those changes can affect the bottom line and compete with offshore manufacturers. Reshoring Initiative calls their website service the Total Cost of Ownership (TCO) estimator.
“When you actually do the math from our TCO user database, about 25 percent of what is now offshore can come back, and be sold at exactly the same price it's now being sold at with the Chinese product,” Moser said.
Moser says TMA members that have lost or are at the risk of losing work to offshore competitors because the TMA members' prices are too high have a place they can review their estimates.
“My goal is to bring back millions of jobs, and TMA members need to just call us for help,” he said. More from Mr. Moser, the reshoring movement and the TCO Estimator can be found at www.reshorenow.org.
First published in Technology & Manufacturing Association's February 2017 News Bulletin