Reshoring: Manufactured, or Made in the USA?
Reshoring. It is the buzzword being uttered throughout manufacturing trade publications at a nausea inducing rate. While there is a lot being said about “best interests” and the need to put the American worker back in a good paying job, we need to focus on the matter of the actual processes and avoid being caught in the PR of it all. Is it manufactured, or Made in the USA?
Reshoring initiatives are everywhere. The most notable is the effort of the world’s largest brick and mortar retailer, Walmart, to spend $250 billion over 10 years on buying products manufactured in the US. While this is a lofty dollar amount surely set to wow the masses, it is a paltry figure that represents a mere 5 percent of the retail giant’s net sales over the same time frame. So, two years into what many have labeled; a sad attempt to stifle dipping sales, is it working? Or, is it worth it for others to follow suit?
To answer the question of whether or not the Walmart initiative is working is a tricky endeavor. Mostly due to the fact that the retailer isn’t saying much about what exactly has been done. The Reshoring Initiative, a non-profit organization aimed at helping companies bring manufacturing back to the US, can count at least 40 projects totaling nearly 5,000 jobs being reported thus far. So with no increase over current trends we can assume that over the course of the entire project Walmart will have had a hand in creating 20 - 25 thousand new jobs, right? Well… Again, it is not that simple.
The reasons for the sudden profitability of bringing these manufacturing jobs back to the United States lies within the technological advances of the past 20 years. The automation of manufacturing by replacing low skilled hand work with robotics, downsizes the number of actual new employees that the initiatives are achieving. While the goods will produce jobs and bring manufacturing back to the United States, the number of jobs created will be low simply because the labor costs have to remain at a minimum in keeping with competitive pricing strategies. While many studies have shown that consumers continually state a willingness to pay more for products made domestically, this does not hold up when the items are in direct competition with the lower priced alternatives.
Reshoring efforts do seem to be having some effect throughout our economy however it just may not be at the level anticipated. Since the lowest point of the recession in February of 2010 manufacturing has seen growth of 900,000 jobs according to the Department of Labor. This equates to over 10 percent of the 8.7 million jobs gained since that time. This is an improvement over the manufacturing sector accounting for roughly 9 percent of total US jobs in 2014. However, like all of the growth since the Great Recession, it has been agonizingly slow.
Still the largest influencer in this picture is labor cost. The entire reason this discussion is even happening is, at a time when global trade was emerging the United States could not compete with the miniscule labor costs of shipping manufacturing offshore. The consequence of so much rapid global growth however, is increasing wages in emerging economies. Since 2000, Chinese labor costs have increased from 17.5 percent of its US counterpart, to 61 percent. This, coupled with exponentially increasing transportation costs and the ever present IP issues, has shed new light on the viability of domestically produced goods and could be the shot in the arm that reshoring initiatives really need.
The focus now needs to shift from the costs of reshoring to the true, value added benefits gained. While the obvious savings are eliminating the massive shipping and travel costs when dealing with offshore suppliers, some of the true benefits may not be so obvious. The United States offers a vast array of regional flair to our manufacturing landscape. Like much of our diverse culture, our manufacturing varies the same way our food and music does from location to location.
If you are looking for the convenience of having the world’s finest intellectual, scientific, and engineering minds in close proximity to your manufacturing, look to the Northeast region. With robotics manufacturers and establishments such as the Massachusetts Institute of Technology making up the landscape, the area from New Jersey up the Eastern seaboard may be the perfect location for your widgets to be built.
Does your product focus on an area of the green movement? Are you trying to revolutionize recyclable, sustainable manufacturing? If so, your company might want to make its home in Northern California or the Pacific Northwest. These areas are leading the world in sustainability initiatives and offer industry specific knowledge and leadership in these emerging trends in manufacturing. Not to mention being considered the epicenter of tech.
If it is simply the need for mass production at a high level of quality, look to where the process began, the Midwest. The area boasts an extremely high number of tool and die builders along with contract manufacturers to keep your entire production effort in one centralized area from prototype to production. Minnesota, Wisconsin, Illinois, and Michigan are all great places to manufacture items ranging from consumer plastic goods to automotive electronics.
These are fantastic regions for any company to manufacture their products. But, even with the added value, is all of this effort truly worth the time and energy being expelled? Will these exertions bring enough jobs back to our manufacturing sector for them to be worth it? Well, if the focus is placed, not simply on the manufacturing of the final product, but on the project as a whole, then yes. One has to remember to not get caught up in all of the PR of the issue focusing on just the end products. What about the raw materials and tooling utilized? Initiatives need to focus on the entire project start to finish. If the products are manufactured in the US, but the raw materials, tooling, and other facets are coming from offshore suppliers than what exactly are we gaining from the measures but a few jobs while missing actual growth?
Working, worth it, these are not black and white scenarios that usually wind up creating more questions than they answer. While we all want to see a resurgence in the middle class and a more robust economy if there are not profitable avenues to allow companies to maintain sustained growth then the entire process fails. It is important to remember that just because the products are increasingly manufactured within our borders, it may not equate to as many jobs as one would prefer. This is why it is important to demand not simply manufactured in the USA, but Made in the USA.