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Can Manufacturing Come Back to the U.S.?

Jennifer Elder, The Sustainable CFO | Thursday November 11th, 2010 | 6 Comments

As America’s leading expert on “reshoring” and leader of the Reshoring Manufacturing Initiative (RMI), Harry Moser says, “YES! Manufacturing can come back to the U.S.”  The aim of reshoring (also known as ”backshoring” and “onshoring”) is to bring manufacturing jobs back to the United States from countries like China, India, and Mexico.  This is not only possible; this is a current reality.

Reshoring is Happening

In October 2009, NCR Corporation stopped manufacturing ATM machines in China and opened a plant in Columbus, Georgia (and applied for LEED certification).  In December 2009, Farouk Systems moved their hairstyling tools manufacturing back from China to a newly built plant in Houston, Texas.  These two companies alone returned over 2,000 high-paying jobs to the United States.  Reshoring is a concept that could revitalize our struggling economy and put hundreds of thousands back to work.  That really is news!Offshoring Equals Lost Jobs

For the past twenty years manufacturing in the United States has been declining steadily.  According to Gilbert B. Kaplan, former Acting Assistant Secretary of the US Department of Commerce, total manufacturing employment has decreased by almost 8 million jobs since the peak of manufacturing employment in 1989.   It is a loss that seems easy to understand.  We have all heard stories of jobs lost to cheap foreign labor.   It is not a hard choice for a CEO to move manufacturing overseas when the average wage in Southern China of 75 cents per hour is compared to an average of $18 per hour in the United States.  Many companies were lured by the promise of unbelievably cheap labor and focused only on that savings without considering other costs and impacts.

Cheap Labor Is Not The Only Cost

Reshoring is based on the idea that North American corporations usually do not understand all the variables involved when deciding to move an operation overseas. Moser, who has a Masters dgree from MIT and an MBA from the University of Chicago,  says that most corporations decide to move manufacturing based solely on direct costs of production – ie: materials and labor.  To their detriment they are ignoring a host of additional indirect costs incurred to get products to the American market from a foreign country.  According to a 2009 survey conducted by Archstone Consulting, 60% of manufacturers use only “rudimentary total cost models” which ignore over 20% of the cost of offshoring.

Costs typically not taken into account are insurance during shipment, the need to buy larger quantities of inventory at one time, delays in delivery due to weather or dock strikes, warranty and rework costs due to quality issues or the use of unacceptable materials such as lead-based paint, and the costs of travel overseas to coordinate and supervise production.  After a company has moved production overseas they are often subject to even more cost increases from sudden wage inflation, currency exchange issues, foreign legal obstacles, and customs delays.  Finally there are intangible costs that are hard to value, including negative publicity from closing a domestic manufacturing facility, foreign environmental impacts, the carbon footprint of shipping goods halfway around the world, inability to use a Just-In-Time inventory process, human rights violations, the difficulty in implementing product changes, the effects of political regime changes, and the real potential of intellectual property theft.

Moser, who has a Bachelors and Masters degree from MIT and an MBA from the University of Chicago, is aware that reshoring is not the correct answer for everyone.  There are times when overseas manufacturing makes sense.  When a company is looking to move into a foreign market, it is appropriate to manufacture near that market.   Moser’s focus, however, is to convince companies to take a solid, eyes-wide-open look at all factors and costs before moving manufacturing overseas.  To that end, he started the Reshoring Manufacturing Initiative (RMI).  RMI is providing free resources to anyone willing to explore the idea that manufacturing in the United States is economically viable.  Moser has even developed an Excel based tool, the Total Cost of Ownership Calculator, to help companies evaluate and compare costs of manufacturing in the United States versus manufacturing overseas.  He is so passionate about the idea that the tool is free to anyone willing to give it a try.

New Plants = New Jobs

For many companies taking the larger view, the total of all costs to manufacture, ship, and store, added to potential risks and costs of intangible impacts, will tip the scale in favor of manufacturing in the United States.  According to Jeremy Leonard, consultant for Manufacturers Alliance/MAPI, “companies who have gone…to take advantage of cheap labor are starting to tell us…it’s actually not worth it.”  Reshoring is starting to get the attention of some big names.   Companies such as as Ford Motor Company, General Electric, General Motors, and Dell have plans to open manufacturing facilities in the United States.  Ford has announced that they will be reshoring nearly 2,000 jobs by 2012.   In 2011, GE will move assembly of its energy efficient water heater from China to the United States. Currently,  Scott Paul, Executive Director of the Alliance for American Manufacturing, says reshoring “is a trickle; it’s not a flood.”   For the sake of our economy let’s hope that other companies recognize the benefits of reshoring, and turn it into a tidal wave!

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This article was made possible through the significant efforts of Sam F. Elder, CRPC.


▼▼▼      6 Comments     ▼▼▼

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  • Terry Mitchell

    I’m not an advocate of off shoring. However there are a couple of things that moving to Mexico, weren’t mentioned. I learned from experience that there’s no EPA or OSHA in Mexico. the benefits are not totally low wages. Companies save by lower costs in Safety, and the air they discharge into the environment. I saw this happen first hand! Mexico also has incentives to relocate there, these are very hard to ignore!

  • http://www.earth2017.com Bill Roth

    Excellent article Jennifer! Buy Local, including reshoring of manufacturing, is America’s path to restoring our economy, jobs and environment. The American consumer has $10 trillion of annual buying power, dwarfing the Chinese economy. The power is in our hands to Buy Local in support of jobs, our economy and environmental responsibility. The very name of my company, Earth 2017, is based upon my economic analysis that by 2017 the world market for sustainable goods and services will be $10 Trillion. And reshoring manufacturing in the U.S. can capture a huge percentage of this economic growth! Thanks you for introducing me and 3P readers to RMI!

  • http://jewelsnistico.com Diarry

    They can provides advantages foreign competitors often can’t match, such as speed, flexibility and access.If you are looking for a small business products i can help you check it here http://jewelsnistico.com.

  • Kevin

    $10 trillion of “buying power”? Thanks for the laugh Bill. Why not create a few more stimulus packages and make it $20 trillion? The problem with the economy is that there is nothing behind that purchasing power.

    For the US economy to recover manufacturing jobs will have to return. And before that can happen wage disparity between countries will need to be reduced. Jobs will continue leave the US when unskilled union labor demands $20/hr + for a job that someone accross the border will do for $2/hr.

  • veronica

    Hey Terry and Kevin. Do you think we all don’t have to pay for the long term effects of not caring for the environment across the world and the workers across the world. Wait till our coasts are flood like Pakistan and Australia then we really will be broke. Don’t think those countries you ship your manufacturing to will not screw you the way they screw their own citizens. In the end you mean nothing to them. Ever think about why no foreign company can set up in China with out a Chinese partner? China takes land from their own citizens what makes you think that at the end of the 100 year plan doesn’t include kicking out foreign business. If a country shows they have no problem screwing their underclass you can be sure they have no problem screwing foreign business the minute that country doesn’t need those not use foreigners. Let me guess then you will want the USA’s underclass to go die to protect your business in that Foreign country.Hey Kevin why don’t you take a pay cut live in a trailer and eat cat food if you think workers should be paid slave wages., put your life where your mouth is.

  • http://www.27gaylord.com Humera Fasihuddin

    We are a new startup that aims to enable reshoring. 27 Gaylord is a company which is taking abandoned manufacturing equipment / facilities & turning it into jobs. We plan to take the science and innovation coming out of Massachusetts and other states and turn it into scaleable high-value products and high-end manufacturing jobs. You can support our effort by voting for us in the MassChallenge competition.