Can Manufacturing Come Back to the U.S.?

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!

***

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

Jennifer is a CPA, CMA, CIA, CFF with a passion for how sustainability can improve a business. She is the owner and President of The Sustainable CFO, making the world better one business at a time. The Sustainable CFO provides consulting, on-demand CFO services, and business coaching to sustainably themed small business. Jennifer has 24 years of experience improving the business operations for a variety of companies in industries such as construction, legal services, and hi-tech. She also teaches finance in the Green MBA program at Antioch University New England. You can visit the website at www.sustainablecfo.com or follow her on twitter @sustainablecfo.