In case you missed it, one focus of President Obama’s State of the Union speech was on attracting manufacturing jobs to the U.S. He referred to the reshoring efforts of Caterpillar, Ford, and also Apple-who will begin making a line of Mac computers stateside.
The President also spoke about manufacturing innovation institutes and hubs in the following excerpt from the speech:
“Last year, we created our first manufacturing innovation institute in Youngstown, Ohio. A once-shuttered warehouse is now a state-of-the art lab where new workers are mastering the 3D printing that has the potential to revolutionize the way we make almost everything. There’s no reason this can’t happen in other towns.
So tonight, I’m announcing the launch of three more of these manufacturing hubs, where businesses will partner with the Department of Defense and Energy to turn regions left behind by globalization into global centers of high-tech jobs…”
We should all be encouraged to see US manufacturing have a prominent place in national priorities, especially the idea of hubs where private and public institutes collaborate to create high-paying domestic jobs producing for global markets.
The Insourcing Boom details the emerging reshoring trend. It draws from the GE CEO Jeff Immelt’s commitment to reshoring and the revitalization of it’s Louisville, KY Appliance Park. Included also are other industry examples and trends that are reshoring manufacturing.
The article lists several of the global changes that affect a company’s sourcing decision:
At Appliance Park, this model of production—designed at home, produced abroad—had been standard for years. For the GeoSpring, it seemed both a victory and a vulnerability. The GeoSpring is an innovative product in a mature category—and offshore production, from the start, appeared to provide substantial cost savings. But making it in China also meant risking that it might be knocked off. And so in 2009, even as they were rolling it out, the folks at Appliance Park were doing the math on bringing it home.
Even then, changes in the global economy were coming into focus that made this more than just an exercise—changes that have continued to this day.
- Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
- The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)
- In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.
- American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.
- U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.
These are but a few costs companies that choose to outsource are facing. Another benefit, illustrated in the article is the affect reshoring has on innovation and cost control:
The GeoSpring suffered from an advanced-technology version of “IKEA Syndrome.” It was so hard to assemble that no one in the big room wanted to make it. Instead they redesigned it. The team eliminated 1 out of every 5 parts. It cut the cost of the materials by 25 percent. It eliminated the tangle of tubing that couldn’t be easily welded. By considering the workers who would have to put the water heater together—in fact, by having those workers right at the table, looking at the design as it was drawn—the team cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville.
In the end … not one part was the same.
So a funny thing happened to the GeoSpring on the way from the cheap Chinese factory to the expensive Kentucky factory: The material cost went down. The labor required to make it went down. The quality went up. Even the energy efficiency went up.
GE wasn’t just able to hold the retail sticker to the “China price.” It beat that price by nearly 20 percent. The China-made GeoSpring retailed for $1,599. The Louisville-made GeoSpring retails for $1,299.
Manufacturing cost savings are not the only recognized benefits from reshoring. With shorter product life cycles and greater market and forecasting uncertainty, a shorter supply chain can have a dramatic impact on the bottom line.
Time-to-market has also improved, greatly. It used to take five weeks to get the GeoSpring water heaters from the factory to U.S. retailers—four weeks on the boat from China and one week dockside to clear customs. Today, the water heaters—and the dishwashers and refrigerators—move straight from the manufacturing buildings to Appliance Park’s warehouse out back, from which they can be delivered to Lowe’s and Home Depot. Total time from factory to warehouse: 30 minutes.
Outsourcing has soft cost implications hidden as well:
But many of those hidden costs come later. In the first blush of cheap manufacturing, it’s easy to overlook the slow loss of your own skills, the gradual homogenization of your products, the corrosion of quality and decline of innovation. And it’s easy to assume that globally distributed production will hum along more smoothly than it often does in practice: however strong the planning, some of those shipping containers will be opened to reveal damaged or substandard goods, and some of them won’t have the number or variety of goods a company needs at that very moment. “All you need is to have to hire one or two 747s a couple times to get product here in a hurry,” says Shook, “and you lose those savings.”
Fortunately, there are resources and organizations that are actively working to help businesses bring operations back to the US.
Harry Moser, an MIT-trained engineer, spent decades running a business that made machine tools. After retiring, he started an organization called the Reshoring Initiative in 2010, to help companies assess where to make their products. “The way we see it,” says Moser, “about 60 percent of the companies that offshored manufacturing didn’t really do the math. They looked only at the labor rate—they didn’t look at the hidden costs.” Moser believes that about a quarter of what’s made outside the U.S. could be more profitably made at home.
The Reshoring Intiative has a Total Cost of Ownership Estimator tool to help companies with the aforementioned math.
This has to make anybody just a little sad. The article points out that the means of design are best served when connected to the means of production. The article is rather fatalistic on the hopes to make high-tech high volume products.
HBR.org via Why Apple Has to Manufacture in China.
What we can hope for success from Google with the new Nexus Q, CNN.com via Google’s new Nexus Q: Made in the U.S.A.
Today the USDA Rural Development announced that it will fund the economic development project in Southeast Kansas known as Project 17. We are honored to receive this funding and look forward to working regionally towards the common goal of economic prosperity. We are pleased to see federal programs that work to promote and support local initiatives. Here is the proposal and the following is the official press release:
USDA RURAL DEVELOPMENT ANNOUNCES FUNDING FOR TWO REGIONAL ECONOMIC DEVELOPMENT EFFORTS IN KANSAS
Topeka, Kansas, Sep 18, 2012 — USDA Rural Development State Director Patty Clark announced that the Kansas Entrepreneurial Communities Initiative and the Southeast Kansas Project 17 Initiative received grants to help spur economic development that will create or save approximately 360 jobs in targeted regions of Kansas.
“The grants announced will help entrepreneurs in rural Kansas access the capital and technical assistance they need to grow or begin their businesses,” stated Clark. “In order to address the economic challenges in rural Kansas, we must work collaboratively and the two initiatives receiving grants think regionally to help improve economic conditions for rural Kansans.”
USDA Rural Development is providing assistance through the Rural Business Enterprise Grant (RBEG) program, which provides grants for rural projects that finance and facilitate development of small and emerging rural businesses. The RBEG program is a key element of the Agency’s economic development efforts across rural America.
The Kansas Entrepreneurial Communities Initiative (KECI), supported by Fort Hays State University through the Kansas Small Business Development Center, is a collaborative partnership of non-profit organizations that are focused on accelerating quality economic development in regions throughout the state. The initiative received a $151,000 RBEG grant to help existing entrepreneurs expand by developing additional markets for selling their products and supporting aging entrepreneurs with transitioning their businesses to the next generation of entrepreneurs. Counties involved in the KECI initiative are: Allen, Anderson, Cheyenne (Bird City), Chautauqua, Dickinson, Elk, Greenwood, Labette, Linn, Marion (Hillsboro), Montgomery, Rawlins, Scott, Stafford, Thomas, and Wichita.
The Southeast Kansas Project 17 Initiative is receiving technical assistance from Kansas State University’s Advanced Manufacturing Institute, who will be researching niche opportunities for emerging manufacturing opportunities in southeast Kansas. The initiative received a $95,000 RBEG grant to work with a coalition of regional, state and national partners to develop a strategy that leverages advanced manufacturing technologies, the region’s assets, idle facilities, technical workforce and educational institutions to coordinate a network-based approach to identify new opportunities for the region’s manufacturing sector. Project 17 is a regional initiative to help improve the quality of life and economic opportunities for southeast Kansans, and includes the following counties: Allen, Anderson, Bourbon, Chautauqua, Cherokee, Coffey, Crawford, Elk, Franklin, Greenwood, Labette, Linn, Miami, Montgomery, Neosho, Wilson, and Woodson.
USDA, through its Rural Development mission area, has an active portfolio of more than $172 billion in loans and loan guarantees. These programs are designed to improve the economic stability of rural communities, businesses, residents, farmers and ranchers and improve the quality of life in rural America.
Recently, the White House hosted an event to talk about bringing jobs back in US, a trend called insourcing. The other term being used a lot recently to bring back manufacturing jobs to the US is Manufacturing reshoring. Here is an excerpt from a report on that event.
Acting Secretary Blank Talks Insourcing and Job Creation at Economic Development Forum | The White House.
Earlier this week, economic development leaders from around the country came together to discuss ongoing efforts to create jobs and grow the U.S. economy. The Economic Development Forum was hosted by the U.S. Commerce Department’s SelectUSA initiative, in partnership with the White House Business Council and the International Economic Development Council (IEDC), the world’s largest professional organization of economic development practitioners.
The forum provided an opportunity to discuss the Obama administration’s efforts to support U.S. businesses and encourage companies to bring good jobs back to America, a trend called insourcing.
Meanwhile there have been a reports out there that focus specifically on Manufacturing and talk about the benefits of manufacturing jobs and how to bring back those jobs to US. We have been talking about some of these reports here at our blog in previous posts here.
Deloitte as a part of their series on making America stronger, recently released a new report titled Manufacturing Opportunity: How America can regain global leadership in manufacturing. The report lists four pathways that could help American Manufactruing explore new opportunties and increase manufactruing employment. The first pathway lies in advanced technologies and innovation. The second pathway is enhancing talent. The third pathway to greater competitiveness is to reform taxes and regulations. Fourth pathway is to make investments in infrastructure.
Manufacturing is experiencing a crisis of confidence in the United States. Americans view the manufacturing sector in the U.S. as fragile and unstable. They are concerned about the long-term stability of manufacturing employment and fear that manufacturing jobs will inevitably be moved to workers in other countries. Despite these fears, Americans remain steadfast in their support of manufacturing in the United States and the economic benefits that result.
Today there are new pathways to manufacturing opportunity in America that are both available and achievable. And public policy has a major role to play in supporting these directions.
This report relies on collaborative efforts with a number of organizations working on important issues affecting the manufacturing industry, as well as surveys of American citizens, business and labor leaders, university presidents, and directors of some of the United States’ largest national laboratories. It presents a case for optimism – and for hard work. It examines some of the main challenges facing any attempt to cultivate an American manufacturing renaissance, and highlights recommendations that could help the United States overcome these roadblocks.
The elements of competitiveness
The linkage between manufacturing capabilities and economic prosperity is a much stronger predictor of a vibrant, successful, and growing economy than any other measure typically used by economists. Click to enlarge the infographic.
Action steps for policymakers to make America a more attractive place to conduct business
To develop specific recommendations regarding U.S. competitiveness, Deloitte and the U.S. Council on Competitiveness sought the input of CEOs, university presidents, leaders of U.S. national laboratories, and labor union leaders. Deloitte conducted one-on-one interviews with dozens of representatives from these constituent groups across America and then distilled the recommendations. These interviews are documented in the Council’s Ignite series of reports, which form the basis for the recommendations presented here.
- Education and workforce preparation - Manufacturing CEOs agreed that worker talent—specifically the talent that drives innovation—trumps all other factors in gauging competitiveness. Developing this talent through education, then, is the most important element in ensuring manufacturing success.
- Innovation - Across the spectrum of policy, from the tax code to the direct incubation of small businesses, government has an important role to play in boosting innovation.
- Economic, trade, financial and tax issues - Regulatory compliance costs, labor laws and regulations, and intellectual property protection and enforcement all have a strong influence on competitiveness and growth.
- Infrastructure - Transportation infrastructure is vitally important to U.S. manufacturing competitiveness in terms of attracting business investment, improving the effectiveness of logistics, the movement of raw materials, and in producing finished products on time and at minimum cost. Modern power grids and telecommunications networks play similar roles in moving energy and information.
Download the Manufacturing opportunity report for further insights.
The Alliance for American Manufacturing released a report recently “Preparing for the 21st century : Revitalizing American Manufacturing to Protect, Respond and Recover ” focused on the idea of the role played by manufacturing sector in protection, response and recovery in event of natural disasters.
Revitalizing America’s domestic manufacturing capacity must become a clear and urgent national priority at all levels of government and among industry leaders. The future vitality of our national and economic security goes hand-in-hand with that of our domestic manufacturing base.
The report makes a number of key recommendations designed to revitalize American manufacturing and ensure that we are not left flatfooted and vulnerable at a time when quick response and rapid rebuilding are necessary.
Among their specific recommendations are:
■■ Develop a plan to make the restoration of a strong American manufacturing sector a key component of both national and economic security strategies.
■■ Reinvest in America’s infrastructure, using U.S.-made materials.
■■ Incentivize the revitalization of American manufacturing, including the use of domestic-content preferences that maximize the power of federal procurement funds.
■■ Enforce trade laws to ensure a level playing field for U.S manufacturers and their workers facing unfair competition.
■■ Invest in the American workforce to ensure we have the trained workers needed to rebuild our infrastructure and work in a larger, more modern manufacturing sector.
The complete report can be downloaded here.
To visit the Alliance for American Manufacturing website, click here.