Few subjects are as important - or as controversial - as whether there is a return to the U.S. of manufacturing jobs from China and other offshore markets (and that jobs are staying here in the first place). It’s a controversial subject that, for one thing, politicians like to talk about and take credit for. CEO Tim Cook was in the gallery of the Congress for the State of the Union address last January, when President Obama hailed Apple’s then-recent decision to situate (at least a little more of) of its manufacturing/assembly in the U.S.
Reshoring: Is It real?
First, is this trend actually true? It depends on who you are listening to. A recent Boston Consulting Group (BCG) study suggests that, after decades of decline during which U.S. manufacturing has been “hollowed out,” we are regaining some advantage. The flexibility- and innovation-powered U.S. factory sector, enjoying the long-term prospect of cheaper energy and relatively lower wages, stands to lay claim to up to $115 billion more in export business from rivals by 2020, the BCG report says. The report predicts that within six years production will capture $70 billion to $115 billion in annual exports that would have previously gone to our main competitors. The study says that with wages rising in China, the shift could add from 2.5 to 5 million American jobs.
I hear anecdotal evidence from my peers in consumer products companies that some of the “reshoring” that BCG describes may be happening. But not everyone agrees. Tompkins International, a leading supply chain consulting firm, says that the reshoring trend is overstated, citing the still very large gap between Chinese and American labor costs and the fact that many American workers have come to find manufacturing jobs unappealing.
Cost: Only Part of the Story
As a CEO of consumer goods companies (including in the sporting equipment, home furnishings, gifts and toys industries) and advisor to CEOs in this industry, I see product cost as only part of the story. A central issue for consumer goods company profitability and growth is creating and executing a global strategy to blend manufacturing and sourcing. Often this means sourcing from manufacturers in low cost countries--blended with manufacturing in the U.S., which adds value that consumers are willing to pay for. The goal of the “blended” approach should be to optimize production and logistics relative to your:
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Product design
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Geography/niche targeting
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Channel and alliance marketing strategies
Large Products with High Shipping Costs
Another scenario for manufactured jobs to return to the U.S.: products that are too large in size relative to product cost to justify shipping costs. An example of this is the Coleman Co. which manufactures coolers among several other products. Their products are made in both the U.S. and China. Based on rising manufacturing and shipping costs, the company decided recently to shift manufacturing capacity back to the U.S. from China. Understanding the complete end to end supply chain cost structure is vital in determining where your products should be manufactured.
Understand All Costs
I have sourced globally for many years and have made over 50 trips to China, to get it right with manufacturing partners there. What wins is working as transparently as possible with Chinese manufacturing partners and understanding all costs in the supply chain. These include raw materials cost and manufacturing costs. Product packaging decisions that drive container counts and resulting shipping costs per product are critical to competitive advantage. I also see decisions about where to source as dependent on many “intangibles,” which - like costs - are rapidly changing.
My next article in this series will address some of the “intangibles” around a decision to source production in the U.S. - and how that factors into the relative cost equation.
About the Author
Jack is an executive with 30 years of experience in consumer products, in both private equity-backed middle market companies and large multinational corporations. Contact or learn more about Jack here.
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