Re-Shoring of Manufacturing Jobs
Author: Jeffrey Fink
Re-shoring is the bringing of manufacturing and service-related jobs back to the United States from overseas. It is the opposite concept to “off-shoring” which involves eliminating manufacturing jobs in the United States and replacing them with jobs over-seas, usually in China or other countries in Asia. This has the net-effect of increasing gross domestic product in the countries that manufacture the products for export to the United States, while correspondingly reducing the GDP in the US.
Since off-shoring began decades ago, it is estimated that manufacturing in the United States has incurred a net loss of over 3 million jobs. Manufacturing employment peaked in 1979, when there were approximately 19.6 million workers employed in the manufacturing sector. By 2013, this number had decreased to 12 million. However, since hitting a low in 2009 (11.475 million), employment in manufacturing increased to 12.308 million in 2014, and is projected to continue this increase to 12.330 million in 2015. Though the entirety of the decrease was not specifically due to off-shoring, it has had a significant negative impact on manufacturing employment in the United States. Also, not all of the recent increase in manufacturing employment is due to re-shoring, but the trend is also related to the net-additions to manufacturing employment. The Boston Consulting Group (BCG) estimates that re-shoring could potentially add as many as 1 million new manufacturing jobs in the United States by the year 2020.
Increasing labor costs in China and other over-seas locations Increased transportation/freight costs Long lead-times for raw materials, component parts, sub-assemblies, semi-finished and finished-goods Potential labor/management discord and congestion issues at U.S. ports Customs duties/fees and delays Poor/inconsistent product quality Intellectual property/regulatory compliance Issues Inability to make rapid adjustments to products/services Advantages of Re-Shoring:
For your company:
Reduces unit/total product costs
Reduces logistics-related expenses
Reduces safety stock inventory and increases inventory turns
Makes product/service innovation more effective
Increases responsiveness to and services customers more effectively
Improves product/service quality
Eliminates waste; as a part of a continuous improvement program
Closer to suppliers
Improves innovation by having engineering and production/assembly operations proximate
Ability to make more rapid changes to products and business processes
Can respond more quickly to changes in the market
Can differentiate versus competitors by adding “Made in USA” brand equity
For the United States and its Economy:
Increases US Gross Domestic Product
Helps to reduce the trade and budget deficits
Can reduce US unemployment by adding well-paying manufacturing jobs
Can increase consumer spending
Increases the overall skill level of the US workforce
Examples of Companies that have Re-Shored Manufacturing Jobs:
General Electric: Added one thousand jobs in its Appliance Park facility in Louisville, Kentucky by re-shoring the production of several products.
Caterpillar: Added 1,400 jobs by opening a $200 million facility in Athens, GA, producing tractors formerly made in Japan.
Whirlpool: Brought back production from Mexico and China to a facility in Ohio, adding 80 to 100 new jobs.
Hanes Brands: Adding 120 jobs to its Clarksville, Arkansas facility by bringing the manufacture of department store and fashion hosiery back to the United States from Honduras.
Peerless Industries: A manufacturer of audio-visual mounting systems, recently moved their production back to Illinois due to rising labor costs, and now is manufacturing locally, closer to their suppliers and customers.
Intertech Plastics: A manufacturer of custom injection-molded plastic products, is growing sales and satisfying this growth by re-shoring because customers were expressing a preference for domestic suppliers.
Buck Knives: Previously out-sourced 30% of its knife production to save money, but brought back the production to the United States due to strong customer preference for domestically-manufactured knives.
All-Clad Metalcrafters: Implemented re-shoring to eliminate steps in their supply-chain, which lowered their production costs and freed up cash flow that could be utilized on other value-added programs.
Clothing/Fashion firms: Can bring new designs to market more quickly by producing locally and are better-positioned to capitalize on rapidly-changing fashion-preferences.
It is important to consider the total cost of ownership, which includes inventory carrying costs, lead-times, and the impact of innovation when engineering and manufacturing are separated.
Most companies make sourcing decisions solely based upon price, which can ignore many of the additional costs and risks associated with off-shoring. Once the total cost is computed, the assumed savings from off-shoring can be negligible, or negated.
In 2015, it is projected that it will cost about the same to manufacture products destined for the US market in certain parts of the United States as in China for many industries, including: computers, electronics, machinery, appliances, electrical equipment and furniture. This projection takes into account direct costs (labor, property, transportation) as well as indirect costs, such as supply-chain risk. In addition, 3D printing / additive manufacturing and other advanced manufacturing techniques will substantially reduce labor costs and provide low-cost domestic production alternatives to off-shore production.
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