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Focus: Manufacturing

Feature Article from Our Manufacturing Subject Area - See All

From SCDigest's On-Target E-Magazine

- May 9, 2013 -

 
Supply Chain News: Yet Another Study Shows US Gaining Manufacturing Advantage

 

AlixPartners Research Finds US will Reach Cost Parity with China by 2015, Is Tied with Mexico as Location for Nearshoring, but Neither Trend Ensures Major Reshoring Move in the End

 

SCDigest Editorial Staff

Yet another in what has been a series of studies in recent years that show the US is indeed growing in manufacturing competiveness has just been released by the consultants at AlixPartners, and it also finds the US has been gaining on Mexico as a location source as well.

SCDigest Says:

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Of course, growing cost equality and opinion survey results do not mean that the US will in fact see a manufacturing renaissance in the end.

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Over the past two years or so, studies from Boston Consulting, Accenture, MIT and others have found that the US is becoming increasingly cost competitive with China, more specifically with China's manufacturing centers on its East Coast, where wages have been rising rapidly. Several of these studies have also found growing interest by US manufacturers in bringing back at least some production to US soil, and/or not moving factory work that might have gone offshore before.

Some of these studies have in fact predicted a "manufacturing renaissance" from some of these changes. While there are many anecdotal stories of moves back to US soil by manufacturers, the evidence of such a renaissance has to date been hard to find in much of the data, especially trade statistics. However, Alix says that there has been an increase in the portion of US manufactured goods that are produced domestically. In 2005, 67.6% of the total manufactured goods consumed in the US were made domestically. As of 2011, that portion had risen to 71.9%.

The research by AlixPartners comes to some similar conclusions as some of the previous studies, estimating that the US will become cost competitive with China by 2015, similar to the predictions offered previously by Boston Consulting Group. (See New Study from Boston Consulting Finds China Manufacturing Cost Advantage Over US to Disappear by 2015.)

Alix said that for this research, took an in-depth look at three different product types: fabricated parts (machined or stamped parts as well as molded-plastic and precision medical equipment), assemblies (including complex electromechanical devices and auto-welded assemblies), and consumer products (including personal care products and packaging). It then compared total costs for production in the US to total landed costs from China, India and Mexico.

As shown in the right-hand side of the chart below, currently the comparable costs are about 5% lower from China, 15% lower in Mexico, and about 20% lower from India. But, the gap with China will have been closed by 2015 (largely by increases in China costs, especially labor rates and currency appreciation), while the gaps with India and China will have closed just a couple off percentage points. Alix notes that if ocean carriers can ever managed to get rates back up to more normal and sustainable levels, those rising shipper costs would also eat into the current cost gaps with China and India.


Source: AlixPartners

 


(Manufacturing Article Continued Below)

CATEGORY SPONSOR: SOFTEON

 

 

In terms of where companies would most likely look to "nearshore" production, this year the US score reached parity with Mexico, each at 37%. Canada, and South and Latin America accounted for the rest of the field, all with small numbers.

That parity between the US and Mexico is new: in a 2011 version of this same study, the US score was at just 19%, versus 63% for Mexico.

Of course, growing cost equality and opinion survey results do not mean that the US will in fact see a manufacturing renaissance in the end.

First, cost and other dynamics of course vary for different industry sectors and product categories.

Second, as the report notes, "despite China's landed cost trends, the country maintains a labor and plant/equipment capacity - not to mention a scale -that is unique. It also has an aggressive industrial policy, with emphasis placed on training and incentives for investment."

There are also switching costs and investment capital considerations for reshoring moves, for example, and in many cases a weakened or even decimated US supply base can be an issue in some sectors in bringing production back home.

"Not only do product-cost variables vary widely by product type but several factors such as exchange rates, materials costs, and labor agreements can have dramatic impact on the outcome [from reshoring] as well," Alix concludes.

It is also possible that US manufacturers leaving China will not bring that worked back domestically but to a lower cost country such as India that can once again present a substantial cost gap versus US manufacturing.


What is your reaction to these new "reshoring" data points? Will US manufacturing really come home?
Let us know your thoughts at the Feedback section below.



Recent Feedback

Great article and information!  We have ancedotal evidence from working with large clients who say they are reshoring, at least to Mexico, if not to the US. We have not come across anyone yet who has told us they are moving from China to India but that seems a logical move.  One other item to consider is that the reason that manufacturing has moved offshore is that there are big markets overseas. If I want to take advantage of China's growth as a country, I want to be manufacturing in China. That doesn't mean that I have anything against manufacturing in the US. From that stand point, a big driver of reshoring would be growth of the economy in the US. 


Ed Pound
COO
Factory Physics Inc.
May, 09 2013
 
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