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From SCDigest's On-Target E-Magazine

Oct. 10, 2011

Supply Chain News: How Real Is The “Made-in-America” Repatriation Of Jobs Back To The U.S.?

Is Now The Time To Rethink The ‘Invent It Here & Make It There’ Strategy?


SCDigest Editorial Staff

We have been hearing the phrase “Made in America” quite a bit recently. The question is whether it’s just sloganeering or something more substantial. Because of its obvious impact on logistics and the supply chain we thought we would take a closer look. What we found is that both domestic and foreign manufacturers appear to be stepping up manufacturing in the United States. What is most interesting is that a growing number of large foreign-based global corporations are recently reported to be seriously considering opening manufacturing plants in the United States.


This is of course very good news for manufacturing labor here in the U.S. The question is – is this real, and, if yes, what’s driving this rather abrupt change in strategy?

SCDigest Says:

As the labor equation has balanced out, companies - particularly the small to medium-size businesses that make up the bulk of America's entrepreneurial force - are taking a long hard look at the downsides of extending their supply chains to the other side of the planet.
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A “Made-in-America” Google search reveals a huge list of United States based manufacturers. However, this may not be all that apparent to the consuming public because popular everyday finished goods like shoes, apparel, furniture, electronics, etc., have “made-in” labels from overseas countries. They would be surprised to know that often the components of these items are being produced in highly automated U.S. manufacturing plants, where they are then shipped abroad for final assembly (which is usually the most labor intensive part of the operation).


Nevertheless, it’s clear that three decades after off-shoring emerged as the best way for many domestic corporations to lower their cost of doing business, we are now seeing a rethinking of that strategy. It appears that corporations are becoming less focused on hourly wages in favor of the “big” picture.


There are several practical reasons for this about-face: rapidly rising production costs in China, India, as well as other Asian countries; soaring transportation cost; increased risk of supply chain disruptions when doing business in faraway locations; and, the flight from unregulated overseas markets where companies have found that they cannot assert their rights to quality control and intellectual property - just to mention a few.

But, it’s not just all about the negatives associated with off-shoring. Companies, foreign and domestic, are finding that the U.S. of A. offers advantages over developing countries such as: access to an educated and highly skilled labor force; easy adoption of automated manufacturing, assembly, and packaging technology contributing to the world’s highest productivity rates; proximity to the world’s largest market as well as the U.S. transportation network, which (in spite of its flaws) is still the most comprehensive and vital in the world; and, of course political stability, which can never be taken for granted even in the most developed countries.


Still, make no mistake - outsourcing will continue to be a viable alternative for selected manufactures well into the future. This is in part due to U.S. EPA regulations that discourage many small to medium businesses from expanding their operations domestically. For some large international conglomerates like GE, globalization of their manufacturing operations is a necessary and practical business strategy.


(Distribution/Materials Handling Story Continues Below )


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How Important is Manufacturing to the United States?


For prospective on this subject, below we have summarized from recent material written by Louis Uchitelle, who writes on economics topics, including business issues, monetary and fiscal policy, and labor trends for The New York Times and other publications:


Ask Ronald Bloom, the assistant to President Obama for manufacturing policy, whether manufacturing within the United States matters to the administration, and he replies that it certainly does. The military, for starters, depends on American weapons manufacturers. Workers without college degrees, Bloom notes, make higher wages in manufacturing than they do in any other sector, and tens of millions of Americans have only a high school diploma. Then there is the issue of kick-starting a recovery as the economy emerges from recession. Manufacturing historically performed this role, but now its shrinking presence accounts somewhat for the sluggish recoveries from the last two recessions.


Finally, Bloom continues, there is the issue of research and development. Manufacturing has proved to be the most important breeding ground for innovation, and innovation can’t be separated from production. “If you let manufacturing go, over time that will have a negative gravitational pull on innovation,” Bloom says. “Recognizing this is very important. Many people said that we can have a strategy of ‘invent it here and make it there,’ but now they are realizing the two can’t be separated.”


By the standards of the day, that is strong language coming from the White House. The actual policies, however, haven’t been so strong. To be sure, the administration pushed through as part of its stimulus package a tax credit to encourage the production of solar panels and wind turbines in this country. The “buy America” clause in the stimulus served a similar purpose, requiring contractors to purchase American-made equipment, whenever possible, for the infrastructure projects that the federal government funded.


But President Obama could have done more. He could have appointed a secretary of commerce who would have campaigned more forcefully for manufacturing in America than Gary Locke, the current secretary, has done. He could impose tariffs and import quotas as Reagan did in the 1980s. He could also push Congress to cancel a corporate tax break that exempts from taxation profits earned abroad by American companies, until those profits are repatriated. The tax exemption is, in effect, an invitation to reinvest the profits in overseas operations, not back home. On another front, the president could bang the desk in favor of an international agreement that lowers the value of the dollar and thus makes merchandise exported from the United States less costly to buyers abroad.


So why isn’t there a drumbeat of public concern? Why has the once lusty debate over manufacturing’s importance all but disappeared? And why has making things – craftsmanship - lost importance as a form of learning and knowledge?


As Ron Hira, an electrical engineer and a professor of public policy at the Rochester Institute of Technology put it: “You have a culture within the elites of both political parties that says manufacturing does not matter, and industrial policy will do more harm than good.”


Another problem is clout. As manufacturing’s presence shrinks, so does its influence. Not that the nation’s manufacturers are milquetoasts when it comes to lobbying, but the voices from the growing financial and service sectors are louder, and globalization continues to be the flavor of the day. “If anything, business schools are teaching their students the importance of off shoring,” says Yoshi Tsurumi, a professor at the Zicklin School of Business, Baruch College, City University of New York.


Even labor has a diminished stake in defending manufacturing, since the portion of the workforce employed in the sector has shrunk to 10 percent today from 26 percent in 1960 and 13 percent as recently as 2000.


That decline can be reversed, but the will to do so - the laser-like focus on making things in America - may no longer exist or may be too compromised to be easily revived. The most powerful lobbyist on behalf of manufacturing is the National Association of Manufacturers (NAM). But its members include multinationals like Dow Chemical and Caterpillar with factory networks across the globe, thus dividing their loyalties. Even the NAM’s numerous small members aren’t as rooted in America as they once were which helps to explain the NAM’s support of free-trade agreements that suppress barriers to the movement of goods across borders.



Manufacturing in the USA - Going Forward by Reversing Direction


Labor costs in China and other developing nations have been so cheap that for U.S. firms manufacturing in Asia was irresistible. But labor cost in China have been steady increasing to the point where, when compared to the significantly higher productivity of the U.S. worker, it is no longer the bargain it once was. As the labor equation has balanced out, companies – particularly the small to medium-size businesses that make up the bulk of America’s entrepreneurial force – are taking a long hard look at the downsides of extending their supply chains to the other side of the planet. To reduce the inventory they have to carry, they must shorten lead times.


In a recent example – a customer (who just happens to be an SCD staff member) purchased new bedroom furniture; components of which were manufactured in South Carolina, but then sent to China for final assembly. It took 10 weeks to deliver three of the items that were not in stock and had to be backordered. The customer came very close to cancelling the order even though it had been specially expedited.


Quality also presents a significant issue. If a defect is discovered in items reaching customers in the United States, the fault could have occurred anywhere in the supply chain stretching all the way across continents. That makes the true cost of manufacturing off-shore in places such as China much more than the quoted price of the parts on the RFQ.


For reasons like this, companies are being forced to base their outsourcing decisions on more than just labor cost. Now labor costs (once the determining factor) are being ranked below product quality, fluctuations in shipping rates, and currency values. This kind of reevaluation is said to be the reason U.S. factories managed to add 136,000 new jobs last year – the first new jobs increase in manufacturing since 1997.



Final Thoughts


It would be an exaggeration to say that the U.S. is on the verge of recapturing its past industrial glory. Some of America’s biggest conglomerates and those that are committed to selling the cheapest goods possible will for various reasons continue to benefit from off-shoring. But for companies that actually build quality tangible goods “Made in America” is once again proving to be a viable and competitively sound strategy.


What's your take on this story on How Real Is The "Made-in-America" Repatriation Of Jobs Back To The U.S.? Let us know your thoughts at the Feedback button below.

Recent Feedback

Thanks for the great article on reshoring. I am writing a book, Simply American, which
hopes to convince American consumers to buy more US manufactured consumer goods. I
am also blogging on the subject at Check out my blog if you get a

John Briggs
Simply American
Oct, 10 2011

In late 2008/early 2009, while researching the impact of the recession on my company's
potential customers, I learned that many companies had quit calculating total landed cost
during the boom times. As long as demand held up, they ignored "extra" inventory, long
lead times, quality control problems, and so on. Sourcing from Asia, sourcing from Mexico,
or sourcing here in the US somehow ought to be more a matter of hard-headed
calculation and less of "group think."

Karen Owsowitz
marketing consultant/SC security
Oct, 12 2011

I wonder how easy it is to bring manufacturing back to the US? Or if it's entirely
possible at all now? When companies were given the opportunity to divest their assets
and downsize labor resources in order to realize lower production cost by offshoring,
those assets and resources were lost for good. At the very least a substantial amount
of capital will be needed to bring prodcution facilities back on line. More likely, in order
to compete, those facilities will need to be built by the standards and demands of the
contemporary business world and the workers in those plants will need to learn a whole
new set of skills. The investment/return tradeoff will tip in our favor only when the
cost of offshoring surpasses the equilibrium point by enough points to offset those
aforementioned costs. I believe there will always be a cheaper place to manufacture
our goods until the rest of the world elevates to the US lifestyle standard both in terms
of civil liberties and cost of living. With this assertion I maintain that broad-based
general manufacturing cannot "come back" from its offshore hiatus and never will.

3PL Manager
Manufacturing Company
Oct, 12 2011

I think we may see, for those consumer goods where the labor equation has substantially
balanced, a shift to the west, but not yet all the way back to the United States. India,
Brazil, Central America are continuing to be top of the developing sources of supply.

Eric Hargraves
Director of Supply Chain
Upward Sports
Oct, 13 2011

With the rising costs of labor, infrastructure, fuel and desire to supply it's own
economy the playing field will eventually level out between China and the US so
"American Manufacturing" will start to show growth once again. It may take some time
yet I firmly believe it will happen. There are signs of it now especially with the poor
quality coming from China some jobs have already come back. It's cheaper to
manufacture here when you weigh the costs of re-work before you can bring the
product to market.
"Made in America" means high quality and high value goods that aren't necessarily over
priced. American made goods are not filled with poor quality materials, as the
regulations everyone hates, keep lead out of your paint and poisons out of our drinking
cups. There's a reason why we once supplied over 40% of all goods manufactured in
the world. Quality and innovation which may have become somewhat un-important are
once again beoming highly valuable to consumers who make more informed shopping
decisions with the influx of data at their fingertips.

As an American Manufacturer we are proud to have weathered some of the economic
storms and we continue to find ways to reduce cost to remain competative. American
Manufacturing is not dead yet it's been written off before but still remains vital to the
US economy.

Operations Manager
Arrow Plastic Mfg. Co.
Oct, 27 2011

I have a plausible and hospitable way to keep American employees happy at their work location. Hint:
Google is already doing it. Mexican workers that I observed building a hand built road from bricks are
reaping the benefits of nurturing employers. They bring them HEALTHY lunches on a truck and water
breaks. So many employees don't want to think about food or even know what a healthy diet is. People
work better when you feed their brain. It is not about a full stomach. And if you implement feeding your
employees lunch, you will see productivity and morale and their health improve. Your benefit rates go
down as their health improves. You retain employees longer on the job and they don't have to leave the
site for lunch to eat a high carb and high fat lunch perhaps washing it down with a couple of adult
beverages of choice. Then there is in house daycare. We have an abundance of cheap commercial real
estate presently. Grab it and expand your space, including a daycare and a cafeteria.

Nov, 03 2011