In my recent piece on Is Your Supply Chain Reversible, I noted that the US is now a low cost country source for (Western) Europe and that those manufacturers ready to take advantage of the situation are going to lead the turnaround in US manufacturing. Shortly after, I found an article in Industry Week that wanted to welcome back US manufacturing on the basis that high fuel and energy prices along with rising labor costs in traditionally low-wage markets have some manufacturers rethinking how far they are willing to extend their supply chains. This article caught my attention as it pointed out that some mid-size companies are already bringing manufacturing back home, as they are unable to control shipping costs that are spiraling out of control.
The article mentions Desa LLC, a manufacturer of residential heaters based in Bowling Green, KY, as a case in point. Despite the low production costs in China, the high shipping costs, combined with the recent VAT reductions in China, give local manufacturing a lower TCO. Then there’s the relative price increases in some raw materials in China compared to the US, the falling dollar, and across-the-board energy costs. When everything is put together, the perceived advantages of China-based manufacturing for many (large, bulky) products disappear.
Of course, as the article notes, not all manufacturers are going to return to the US, since labor costs are higher than in other countries, but, as the article notes, many are likely to return to the continent and “near-shore” to Mexico (and, if the dollar rebounds, to Canada for complex products and services). But many are considering the US. A recent AMR survey of manufacturing executives found that 21% are planning to increase US-based manufacturing over the next year and Caterpillar Inc., for example, is investing 1 Billion in a multi-year capacity expansion plan for five Illinois plants.
But when you consider that the smart US manufacturers, like CEI who recently invested in an robotic palletizing system that automated a formerly manual stacking procedure, are investing in better technology that makes production more cost efficient, it’s going to make more and more sense for many manufacturers to return home. After all, it’s all about competitiveness, and those companies who invest money into new equipment, processes, and innovation are always going to have an edge. And considering that the US has been the center-point for innovation over the last few decades, there’s no reason that US manufacturers can’t bring jobs back if they put a bit of effort and investment into it.