Heeding the call that outsourcing is not always the best bet, big companies are taking notice and re-shoring operations.
Retired machine tools salesman and executive Harry Moser grew up in Elizabeth N.J., home of the sprawling Singer sewing machine factory. His father and grandfather spent their careers at Singer, the former in management and the latter as a foreman on the factory floor.
“In my day, the factory was something,” said Moser, who had summer jobs at Singer during high school and college. “It’s gone now, and the country is no longer the industrial power it once was, but I don’t want to see any more U.S. manufacturing disappear.”
That’s what propelled him to start the “Re-shoring Initiative” to wean companies away from reflexively sending manufacturing overseas to cut costs and, instead, encourage them to return to U.S. soil.
American companies too often don’t take into consideration all the costs involved in sending their manufacturing offshore, says Moser, who was president for 22 years of machine tool maker GF AgieCharmilles.
Moser isn’t just urging companies to bring manufacturing back. He’s providing them with free software, called the Total Cost of Ownership Estimator, which provides a broad range of factors to weigh when calculating whether to move manufacturing off — or on — shore.
He has been crisscrossing the country in recent months to spread his return-manufacturing-home message at trade shows, conferences, chamber of commerce meetings, and other venues to urge companies to revise their rudimentary offshoring calculus.
“Labor costs were 80% of what companies considered in locating manufacturing,” says Moser, who operates out of his home in Kildeer, Ill. Other factors include workforce skills, taxes and transportation costs, and government regulations.
He is trying to prompt manufacturers plagued by poor quality, theft of trade secrets, supply chain disruptions, and lengthy delivery times to take a second look. His website includes stories of companies who re-shore.
Industrial giants NCR NCR and General Electric GE are already repatriating some manufacturing. GE recently opened a Louisville, Ky., appliance park, and says it will create 830 jobs by 2012. The company, which received more than $20 million in state and local tax credits, invested $600 million to produce energy-efficient electric water heaters that used to be assembled in China, along with smart washing machines and dryers.
NCR returned its ATM manufacturing to Columbus, Ga. from China in late 2009. It aims to add 900 full-time employees there, says Peter Dorsman, head of global operations. Such re-shoring “will accelerate,” Dorsman predicts. NCR’s Columbus facility, he says, is part of “Industrial Revolution 2.0. When you talk about products, you have to determine how to get highly innovative products into the market faster.”
Companies are not jumping on board all at once though. Re-shoring “is still a trickle, not a tidal wave,” says Scott Paul, CEO of the trade group Alliance for American Manufacturing. “Of the 250,000 new manufacturing jobs created in the last year, only a fraction involve re-shoring.”
“But companies are rethinking their supply chain after recent disruptions; labor costs continue to rise in China; the value of the dollar is relatively weaker; and the demand for salary increases here is stifled right now,” he says. “There is a premium for goods made in America.”
A recent study from consultancy Accenture underscores the willingness of manufacturers to examine repatriating operations. Companies are realizing that “in order to compete effectively, [they] need to rebalance their existing supply footprint to better match” customer location, according to the report.
Almost two-thirds of the 287 companies surveyed say they are considering shifting their operations closer to home base because long-distance manufacturing has hindered their ability to rapidly deliver goods, maintain low inventories and competitive costs, and meet demand for rapid adjustments to unique products.
Almost half of manufacturers surveyed said they had issues with delivery times or experienced product quality concerns as a result of offshoring, says John Ferreira, executive director of Accenture’s North American Manufacturing Practice, and a coauthor of the report.
The Accenture study notes that companies have taken into account only direct costs — logistics, product unit costs, overhead, labor, commodity and packaging — in deciding to send operations overseas. This “distorts the business case for offshoring and likely many decisions to offshore were incorrectly made,” the study says.
Labor was once the trump card in persuading companies to go overseas, but it is becoming a decreasing percentage of the overall cost picture, according to Accenture and a Boston Consulting Group study, which predicts a “renaissance” in U.S.-based manufacturing, which, despite its decline, still makes up almost 12% of U.S. gross domestic product.
Even so, Harry Moser says re-shoring “is growing rapidly from a very small base. My rough guess would be it’s $50 billion a year, growing at 10% to 20% a year.”
He wants blue-chip manufacturers to use their clout to take the process even further: “Imagine the political capital if Jeffrey Immelt at General Electric told his supply chain departments to re-evaluate their offshore operations.”