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Is “Buy American” a Domestic Growth Tool or Hindrance?

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Al Bredenberg
Many feel that having U.S. consumers and businesses and especially the government buy exclusively American-made products would support domestic jobs and bolster the U.S. economy. But many others argue that “Buy American” policies are restrictive and could do more harm than good.
Critics of “Buy American” often refer to such policies as protectionist efforts that seek to give preference to domestic manufacturers, as opposed to “free trade” policies that support unrestricted trade internationally and allow procurers to seek out the lowest-cost suppliers for goods.

The Buy American issue recently reheated due to Texas House Bill 558, which is now in committee in the state’s legislature. It would require the purchase of iron, steel, and manufactured goods made in the United States for certain state, state-aided, and governmental entity construction projects.

Lobbyist Perry Fowler, who represents construction companies working on water and wastewater plants, says it’s a bad idea. “Well-intentioned ‘Buy American’ measures have unintended costs, consequences, and liabilities,” he told the Dallas Business Journal. “This won’t level the playing field for U.S. companies who stand to benefit more from selling their goods across the U.S. and abroad.”

Fowler explained that construction companies’ costs would go up if they were required to source materials only from domestic manufacturers. The way engineering specifications are written makes these restrictions unfeasible, he claimed.

State Representative Yvonne Davis (D-Dallas), who filed the bill, argued, “Is it protectionism when Texans want to promote and support Texas businesses? Over the past few years, we have witnessed a number of Texas manufacturing companies close, and some companies have even moved overseas.” Spending Texas tax money on U.S.- and Texas-made products supports domestic business, she asserted.

In exploring the long history of Buy American laws, it’s important to keep in mind that there are two primary laws that apply: the Buy American Act of 1933 and the Buy American provision of the Surface Transportation Assistance Act of 1982. These laws limit some federal-funded purchases of certain materials to domestic sources or create a price preference for domestic products. The American Recovery and Reinvestment Act of 2009 (ARRA) also contains Buy American provisions.

The Alliance for American Manufacturing (AAM) claims that domestic sourcing requirements, such as those in the ARRA, are “the most effective way to ensure taxpayer dollars are used to create and maintain jobs and manufacturing capacity to the maximum extent possible, thereby vastly improving the stimulative effect of government spending.” The group calls Buy American “a proven job creation tool that is broadly supported by Congress, the American people, and hundreds of local governments throughout the United States.”

The AAM cites a number of examples of U.S. companies that gained from Buy American provisions. Pennsylvania steel manufacturer ArcelorMittal benefited from public rail transportation projects funded in part by ARRA. AAM makes the point that “ArcelorMittal’s Steelton plant is one of three rail-producing plants in the U.S. that compete with imported products.” Because of the Buy American provisions of the 1982 legislation, United Streetcar of Clackamas, Ore., won a contract to build streetcars for new public transit projects in Oregon and Arizona.

The U.S. Chamber of Commerce says Buy American rules are counterproductive and expensive. In fact, the Chamber maintains that such rules “invite foreign retaliation and threaten U.S. access to export markets and the American jobs they support.” The organization says that Chinese officials frequently cite Buy American rules “as a justification for their own discriminatory policies.”

Fox Business commentator John Stossel bluntly said that “’Buy American’ is a dumb idea.” In a column on Reason.com, he quoted Hoover Institution economist David R. Henderson, who told him that “almost all economists say it’s nonsense, and the reason is: We should buy things where they’re cheapest. That frees up more of our resources to buy other things, and other Americans get jobs producing those things.”

Buy American advocate Todd Lipscomb, of MadeinUSAForever.com, presents some additional arguments for purchasing American-made products. He points out that many other countries do not have the worker-safety, minimum-wage, and environmental-protection laws in the U.S. that make manufacturing costlier. Lipscomb argues that “no Western nation can ultimately compete on price with a country willing to massively exploit and pollute its own people. When you buy only American-made products, you insist on a higher standard.”

Henderson counters this point, saying that while working conditions might be difficult for people in developing nations, they’re still better off taking those jobs: “The mistake Americans make is they think they would never work in a sweatshop and therefore say these people shouldn’t. They’re choosing their best of a bunch of bad options. And when you take away someone’s best of a bad option, they’re worse off.”

Reshoring: Beware the Hype

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Reshoring is getting a great deal of hype. Some see it as evidenceof a new renaissance of American manufacturing. Some see it as hope for reducing long term unemployed. Some see it as a business opportunity to sell manufacturing-related equipment, software, and services in the US. And some see it as a business opportunity for managing extended supply chains.
I have participated in some successful reshoring activities,and I have found that the most successful are actually a rebalancing between existing manufacturing plants – one or more in Asia and one or more in the US. Rarely can reshoring be justified on manufacturing savings alone. In most cases where it is successful, reshoring works because it delivers competitive advantage through differentiation.

A review of products, profitability, and market demand will sometimes help management determine that some products are better made in the US, and some products are better made in Asia from a total cost standpoint.This is especially true when the company gets revenue from sales in Asia and, experience suggests, has expectations of 25% or more of its revenue coming from Asia.

Cold start reshoring is more difficult. The first step tends to be US assembly of components imported from Asia and seems to be most successful when the US market wants near-customized selection or a made-to-order product. Zero Motorcycles in Santa Cruz, CA, has been cited in media as a reshoring hero. In fact, Zero would be a good example of reshoring-to-assemble in the US to customer orders. For companies such as Zero, it is too wasteful to guess the market and have the wrong inventory in transit for six weeks. It is better to have basic building blocks in transit and to assemble those building blocks to order. The customer gets quick delivery on a built-to-spec product,and the company has adequate inventory with little waste.

While reshoring heroes are easy to find in the media, reshoring false-starts, failures, and disasters are something people do not broadcast.  I was recently involved with a false start. The team was assembled, and the announcements were made with a speech I have heard many, many times: “We are tired of the hassles of an overseas supplier who is unable to meet our promise of quality and on-time delivery. We have capacity in the US, so let’s join our fellow Americans in reshoring our product. Let’s employ Americans, manufacture with a focus on quality, and deliver what we promise on time.”

Staff were pulled from their regular duties, drawings were updated, and new BOM item vendors were solicited, some in Asia and some in the US.

Then the numbers were put together and presented to management, and…management did not like the numbers. Instead of ordering one part number from a contract manufacturer in Asia, reshoring meant they needed to order more than 40 parts from a number of vendors. When added together, these costs were higher than the original SKU. In addition there was more overhead needed to support so many new vendors and logistics and new employees for assembly, etc. In the end, they chose to stay with the lower prices and higher hassles involved with offshore outsourcing.

The outcome was predictable. They put too much hope in the media hype that China manufacturing costs are rising and becoming nearly on par with US manufacturing costs. Local media has found that people buy newspapers to read about positive reshoring stories. Just like people buy newspapers to read about their favorite team winning a championship.

In order to justify reshoring on savings, one needs to have a highly automated process making something in high volumes where the competitive forces drive pricing near the cost of materials.  At that point, energy costs and not labor costs are the greatest influence of success. The US has a competitive advantage at the moment regarding energy costs.

Managers considering reshoring need to be able to put a price on the market value of the quick response that local manufacturing allows. They need to be able to put a price on the market value of assembly that is close to the customer. They need to be able to put a price on service and repairs and determine if local assembly can provide some competitive advantage there.

Author Michael Porter suggests that companies can only makea profit with one of two strategies: cost advantage or differentiation.  He suggests that every business decision can be boiled down to impacting one of these strategies.  Reshoring is almost always a differentiation play. It is rarely a cost advantage play. But too many managers are buying into the media hype regarding cost trends. These supposed  trends have not been fully realized, and it is still unclear if they ever will be.

Every company should consider reshoring, but they should view it from the perspective of competitive advantage related to differentiation. Reshoring has costs. Reshoring means more vendors and increased management overhead related to extended supply chains. The challenge is to make your company better and more competitive through reshoring, so increased profits can cover increased costs.

EverettePhillips is CEO and president of Global Manufacturing Network, a provider of contract manufacturing, sourcing, and logistics services for products and components with a focus on items with special engineering requirements.
SOURCE:  Manufacturing Executive

The Made in America Movement is a proud Supporting Sponsor of this years Manufacturing Leadership Summit.

ABOUT THE SUMMIT:
The manufacturing industry is at a turning point. Delivering more ROI than any other conference, the 2013 Manufacturing Leadership Summit is built to address what you need most to succeed. Don’t miss this gathering.

New Successes Still Can Be Forged From Manufacturing, Tech and Innovation

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In the nine years of the Michigan 50 Companies to Watch awards program, the manufacturing sector has played a leading role, although its numbers fluctuated. In recent years, it is back with a vengeance, accompanied by successful companies in technology and other industries. 
In the early years, manufacturing companies made up about 10-15 of the 50. In 2008, the number dropped to four. Then in 2011, the number jumped to 18, followed by 24 last year and 21 this year. 

“We’ve been hearing for the past three years that manufacturing is down. With the organizations I work with, we do see that manufacturing is very active. It shows that manufacturers are learning how to diversify,” said Jennifer Deamud, associate state director for the Michigan Small Business & Technology Development Center and managing partner for the Michigan Celebrates Small Business awards, which includes the 50 Companies to Watch. 

“These are second-stage companies,” Deamud said, “and they’ve found the resources and capital here in Michigan not only to stay alive but to grow.” 

Manufacturers are healthier, and state support from programs such as Pure Michigan Business Connect has helped, Deamud said. 

To be considered for the program, businesses must be privately held, second-stage companies facing issues of growth — not survival. They must be based in Michigan, employ six to 99 full-time people and have between $750,000 and $50 million in annual revenue or working capital in place from investors or grants. There also must be a growth trend over the past three years. 

Collectively, the 2013 class of Michigan 50 Companies to Watch generated $333 million in revenue and employed 1,284 Michigan workers in the past year, according to data collected by the program organizers. The 50 companies project 46 percent revenue growth and a 25 percent increase in employees for 2013. 

An example of manufacturing’s comeback in Michigan can be seen in one of the highlighted company profiles that are linked from the list below. 

Panther Global Technologies in Wixom makes engine parts for lawn equipment. In 2004, it began manufacturing parts in China to compete on cost with Asian competitors. 

“We had to do that because we went from 200 people in Wixom to 15 or 20. That broke my heart,” said the founder of the company, Don Leith. “I vowed to myself we would someday rise again in the U.S.” 

On May 2, small and second-stage businesses will be honored for their achievements at the ninth annual Michigan Celebrates Small Business event. The event is a collaborative effort of the U.S. Small Business Administration, Small Business Association of Michigan, MSBTDC, Michigan Economic Development Corp. and the Cassopolis-based Edward Lowe Foundation. PNC Bank is the founding sponsor.


Michigan’s 50 Companies to Watch
Here is the list of 50 companies to watch. There are profiles of all 50 companies:

Also in Southeast Michigan:

Companies outside Southeast Michigan

  • 906 Technologies LLC
  • Air Advantage LLC
  • Altus Brands LLC
  • Automated Process Equipment Corp., dba APEC USA
  • BGL Asset Services LLC
  • Cadillac Culvert Inc.
  • Cherry Capital Foods LLC
  • Critter Control Inc.
  • Ferrier Brand LLC, dba Mindscape at Hanon McKendry
  • Gazelle Sports Inc.
  • Genemarkers LLC
  • Global Lift Corp.
  • Grand Traverse Distillery LLC
  • Gravity Works Design LLC, dba Gravity Works Design & Development
  • H&H Wildlife Design and Fur Dressing Inc.
  • Ideomed Inc.
  • ITB Packaging LLC
  • Jollay Orchards LLC
  • M22 LLC
  • M&S Extrusions Inc., dba Vintech Industries
  • MPF Acquisitions Inc., dba Marshall Plastic Film
  • Micron Mfg. Co.
  • Moomers Homemade Ice Cream LLC
  • Newmind Group Inc.
  • NobisAgri Service Inc., dba NobisAgri Science Inc.
  • Northern Fab & Machine LLC
  • Pro-Vision Inc., dba Pro-Vision Video Systems
  • QST Consultations Ltd.
  • Supermercado Mexico – Division Inc., dba Supermercado Mexico
  • WizWheelz Inc., dba TerraTrike
  • Uckele Health & Nutrition Inc.

Bill Seeks To Help Manufacturing In Florida

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TALLAHASSEE, Fla. (AP) — A bill touted as a way to boost Florida’s manufacturing sector by extending a sales tax break passed its first test in a state House panel Wednesday, overcoming scattered objections that it amounts to a giveaway without guarantees it would stimulate job growth.
The measure seeks to exempt Florida manufacturers from paying the 6 percent sales tax on equipment purchases. The proposal reflects one of Republican Gov. Rick Scott’s top legislative priorities this year.Supporters said manufacturing has lagged in a state that relies on a vast services industry tied to its sunshine, beaches and theme parks to generate much of its economic activity.

As for manufacturing, “we are woefully behind compared to the rest of the nation in producing those jobs,” said Rep. MaryLynn Magar, R-Tequesta.

Her measure (HB 391) was approved by the House Economic Development and Tourism Subcommittee. It was opposed by three of the panel’s Democrats.

“I’m not against manufacturing, but I’m not for giving away everything to one industry,” said Rep. Hazelle Rogers, D-Lauderdale Lakes. “They need to pay something, and there needs to be some accountability.”

Rep. Bruce Antone, D-Orlando, questioned whether such tax breaks actually attract jobs and investment. Rep. Betty Reed, D-Tampa, said the revenue lost from the tax break could go to help Florida’s neediest residents.

The tax break could cost the state more than $100 million in revenue by the second year, according to forecasts. A similar measure is being considered in the Senate.

But Magar and other supporters said the tax incentive would result in a net gain in revenues by encouraging manufacturers to hire more workers and boost investment in the Sunshine State. The result would be more workers paying taxes, they said.

Afterward, Magar sounded upbeat about the chances of eliminating the sales tax charged on equipment purchased by manufacturers.

But the proposed tax cut has drawn a lukewarm response from some Republican legislative leaders.

House Speaker Will Weatherford recently said the governor’s push for the tax cut was still alive but added that it’s not cheap.

Senate President Don Gaetz said Wednesday he supports the idea of the manufacturing tax break, but said he would like to see it tied to job creation.

The effort to assist manufacturers comes amid signs of an economic rebound in Florida.

Florida’s seasonally adjusted unemployment dipped to its lowest level in more than four years in February to 7.7 percent, and officials have pointed to the state’s rising tax revenue.

The tax break legislation seeks to capitalize on a sector that flexes plenty of economic muscle.

The state’s manufacturers employ more than 300,000 workers. Those workers earn $53,000 per year on average, well above many other private-sector jobs, Magar said.

Every manufacturing job created spins off more than two other jobs to handle such tasks as shipping and logistics, she said, and every $1 spent in manufacturing generates another $1.43 in economic activity.

But Florida has failed to capitalize on its manufacturing potential, ranking just 43rd nationally in manufacturing employment, she said.

Supporters said the tax break would enhance Florida’s bargaining position in competing with regional states for manufacturers.

“We cannot create wealth or improve our standard of living by cooking each other a hamburger or washing each other’s car or washing each other’s clothes or mowing each other’s lawn,” said Rep. Neil Combee, R-Polk City.

The sales tax exemption on equipment purchases already exists, Magar said, but many manufacturers have been unable to capitalize on it. The bill seeks to remedy that situation.

One company that hasn’t benefited is The Ronco Group, which designs and builds manufacturing equipment at its operations in Florida and Pennsylvania.

Ron Avery, the company’s chairman, said the tax break on equipment purchases would be an incentive to do more of the work in Florida.

His company generally purchases new equipment whenever it develops new product lines, he said. Those equipment purchases range from $250,000 to $1 million each year.

SOURCE:  Business Week

Associated Press Writers Gary Fineout and James L. Rosica in Tallahassee contributed to this report.

Small Companies Cashing In On Consumers Desire To Buy American Made Furniture.

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Peggy Farabaugh was inspired to sell American-made furniture seven years ago after reading about animal habitats with her children. In the process, she discovered that the wood used to make most of the furniture sold in the U.S. is harvested from rainforests. A desire to raise awareness about wood sources, sustainability and forest conservation led her to found Vermont Woods Studio, which boasts a selection of furniture handmade in Vermont.”We [in Vermont] have this 250-year-old tradition of furniture made with local wood. I thought this could be a good way to accomplish my environmental goal, as well as helping Vermont furniture makers,” she says. The company sells tables, chairs and beds in solid cherry, walnut, maple and oak and more artistic, one-of-a-kind pieces.

Farabaugh, who promotes the made-in-America products on the company website and in a blog, has sold products across the country.
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This Astrid bedroom collection, with its dramatic legs and defined edges, is made by Copeland Furniture. (Photo: Vermont Woods Studio)
Customers are drawn more to the simple, natural designs of the furniture than its pedigree. “People are mostly going for style. Made in America isn’t a requirement—it’s a bonus,” she says.Her company’s sales were up 60 percent in 2012. Though she can’t fully attribute the growth to a made-in-America trend, she has seen increased traffic to her site from Google searches for that phrase.

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This dining room set by Ernest Thompson is a good example of the company’s handcrafted workmanship. (Photo: Ernest Thompson Furniture)
In Jamestown, N.Y., El Greco Woodworking purchases local hardwoods from companies that practice responsible and sustainable forestry. The company makes baby cribs for Land of Nod and modern/contemporary furniture for Room & Board home furnishings. Sales of their American-made baby cribs have grown steadily for the last six years—even during the recession.

El Greco also uses domestic finishes and coatings. “These things we care about—it’s not possible unless we do them here, which is why we ended up being made-in-America in the first place,” explains vice president Alexis Singleton.

And in Albuquerque, N.M., Mike and Doreen Godwin own Ernest Thompson Furniture, one of four companies they now own that represent New Mexico’s 400-year history of woodworking. With 24 employees, the company produces cabinets and alder and pine furniture with hand-carved details.

The company sells to homeowners and hotels, and the Godwins have noticed that more customers have an interest in made-in-America products. “Even in a recovering economy where price is a factor, people are willing to pay more money for furniture that is made in America,” Mike says.
Doreen notes that a few high-end hotel clients have contracts that require the seller to confirm that their products are made in America. “The five-star properties are doing it more because they are already in that price point,” she says. Though some luxury hotels like the cache of European furnishings, others tell her they plan to promote their made-in-America furniture in ads.Sittin’ Easy has been making white oak outdoor gliders, rockers, porch swings and tables in Eagle Spring, N.C., for 35 years. Owners Walter and Kim Harper promote the products at a circuit of home and garden shows along both coasts.

Plant manager Arthur Morfin says sales declined when products from China came on the market, but they are now picking back up. Orders from one of the company’s clients, Plow & Hearth, which had declined during the recession, are increasing again. The furniture is pricier than outdoor pieces sold at Lowe’s or Walmart, but “the longevity makes it a good return on investment,” Morfin says.

Annie O’Carroll of Annie O’Carroll Interior Design, Santa Fe, N.M., is working on a remodel with a client who wants to use made-in-America products. She’s sourcing furniture, iron and tin products from local artisans. Many of these artisans are more conscious of pricing and working harder to be competitive in today’s difficult economy.

SOURCE:  USA Today

New Gillette Store Fights To Sell Only Made in USA Goods

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Small American flags are displayed April 11 at the My Made in America Store in Gillette. All of the products sold from the store are 100 percent made in America. The store opened in November 2012 after owners Rod and Susan Mathis had conceptualized it earlier in the year. Rod came up with the idea after visiting a boot shop where he requested a shoe made 100 percent in America and had trouble finding the right kind.
GILLETTE — Selling merchandise that’s made in America involves sending a lot of it back to the manufacturer.

Store owners Rod and Susan Mathis, owners of My Made in America Store in Gillette, ordered American flags from Annin Flagmakers of Roseland, N.J. But Rod had to send back some of the poles because they were outsourced to a foreign country. He now sells poles from EZPole Flagpoles of Eastlake, Ohio.

They ordered cast iron cookware from Lodge Manufacturing Co. of South Pittsburg, Tenn. But Rod had to send some glass lids back because they were made in China. He also cannot sell the company’s cookbook because it’s printed outside the United States.

Rod Mathis has discovered labels can be deceiving. Companies will list products as made in the United States when sometimes nearly half of the product was made elsewhere.

For instance, he planned to sell mugs with logos for each branch of the U.S. military. But he had to give up the idea when he learned that, while the mugs were made in the United States, the logos were going to be made elsewhere.

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Rod Mathis poses April 11 in front of a 100 percent cotton, 100 percent made-in-America flag at the My Made in America Store he co-owns with his wife, Susan, in Gillette. All of the products sold from the store are 100 percent American-made. The store opened in November 2012 after Rod and Susan had conceptualized it earlier in the year. Rod came up with the idea after visiting a boot shop where he requested a shoe made in America and had trouble finding the right kind. PHOTO CREDIT: Leah Mills/Star Tribune

Sometimes, buying American-made can be more expensive. After all, labor costs are higher in the United States than in China. But Rod held up an Annin flag and showed the quality. The materials were heavier. He believes the flag is worth the value.

“It’s hard to find an American-made flag,” he said.

The store is a place where you can find items of all kinds — including patriotic gear such as American flags, prisoner of war “Never Forgotten” wall hangings, fierce-looking eagles stitched on clothing, organic soap and raw honey.

Appealing to the camo-wearing biker daddy with some stuff for the earth goddess and people in between, Rod and Susan Mathis named their store for the obvious demographic: Shoppers who want to buy goods made in the United States.

“People are unemployed,” Mathis said. “Yet we’re buying stuff made in China.”

It’s not easy to find products made in the United States anymore. It’s even harder to stock a 900-square-foot retail space with solely U.S.-made goods, Mathis said.

Shoppers who want to support local businesses will find baskets and silvery jewelry made in Upton, wall art made in Moorcroft and Cheyenne, coffee tables from Hulett, soaps and lip balms from Douglas, tissue-box holders made in Gillette.

Five percent of the store’s profits will go in an account to assist wounded veterans, Rod said.

Military veterans receive a 10 percent discount at the store.

Recently, when the Star-Tribune visited the store, no one stopped by. But business is “good when they can find us,” Rod Mathis said. They’re located in a building at 203 Carey Ave., Suite 3, where Rod, who also owns Gillette-based D&P Electric, did electrical work in exchange for three months of free rent.

“We’re not quite six months into it,” he said. “It’s an experiment still.”

SOURCE: Casper Star-Tribune

Most American Made Cars

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GMC – The 2013 GMC Acadia, Buick Enclave, and Chevrolet Traverse share first place for most ‘American made.’
Index uses expanded criteria to score 253 vehicles.
Domestic brands have the most American-made content in the United States according to a new index released by American University’s Kogod School of Business. Professor Frank DuBois, a global supply chain management expert, led the analysis, which considered not only where each vehicle’s parts were produced, but also the location of the manufacturer’s headquarters and other details, all in an effort to help consumers buy American.

“If you break down a single ‘American-made’ transmission, you’ll find many smaller parts, each stamped with its own country of origin. You may well find 80 percent of the parts inside that transmission didn’t come from the U.S.,” said Dubois.

To narrow down the options, DuBois’ team collected data from several sources, including recent American Automobile Labeling Act reports. The AALA was enacted in 1992 to inform consumers about the percentage of American content which comprises each car. AALA data specifies the percentage of U.S./Canadian parts content for each vehicle, including where the engine and transmissions were built.

DuBois’ index used these details as well as each vehicle’s overall AALA score, but also factored in:

— Profit margin; Where the automaker’s global headquarters is located

— Where research and development took place

— Location of production for the body, interior, chassis, electrical

Below, we’ve listed the top-five most American-made 2013 models from DuBois’ index. Several vehicles ended up with tied scores, resulting in multiple winners for each position. View the complete list here.

1. GMC Acadia, Buick Enclave, Chevrolet Traverse

2. Dodge Avenger, Ford F-Series pickup

3. Chrysler 200

4. Jeep Compass, Patriot, and Wrangler

5. Chevrolet Corvette, Chevrolet Equinox, Ford Mustang, and GMC Terrain

How Walmart Plans to Bring Back ‘Made in America’

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Bill Saporito
Walmart doesn’t make anything. But the giant retailer could play a part in the manufacturing rebound that is taking place in the U.S. with its promise to buy $50 billion more U.S. made goods over the next decade for its Walmart and Sam’s Club stores.
It’s a bit ironic, given Walmart’s vast global sourcing organization. But the same forces that are making the U.S. a more hospitable place for manufacturing —higher shipping costs and wage rates overseas among them—have prompted the company to reevaluate its sourcing on a variety of products. “This is a commitment around manufacturing and more economic renewal.  We see it as a critical issue for us in the American economy,” says Duncan Mac Naughton chief merchandising and marketing officer for Walmart U.S.

What Walmart sees is a way to lower costs while smoothing its supply cycle by looking more broadly at its distribution system. Although the company may be able to buy an item cheaper from China, the price it pays per piece doesn’t always reflect what it spends to get the product to the shelves.  “When we buy from overseas, we may buy more than we need to fill the container,” says Mac Naughton. “We’re looking at carrying costs through the system in addition to landed costs.” (Walmart has recently been criticized for being out of stock on items, due to a lack of store employees, but the company says its in-stock position is at record levels and that it hasn’t cut employee hours.)

Walmart is also hitting some unexpected supply snags as local demand increases in the developing countries where it buys goods. Recently, it found itself short of memory foam for mattress toppers and had to add a U.S. supplier, Sleep Studio, to augment its foreign source. That need to increase capacity can only increase as the middle class grows in India, China and elsewhere. The company will still likely rely on foreign suppliers for those products, such as cut-and-sew garments, that have a very high labor input. But given the more robust regulatory environment in the U.S., domestic suppliers are far less likely to run shoddy plants that endanger workers, as some of Walmart’s overseas subcontracters have been accused of doing.

Which suppliers stand to benefit from Walmart’s strategy? The company says that products with a “high cube”  (supply-chain speak for big and/or bulky, such as furniture) are candidates. So are products that have more highly-automated production, meaning lower direct labor, or products that have a less predictable sales curves and might have to be produced quickly to meet a sharp rise in demand. The company says items such as sporting goods, storage products, games and paper products are likely categories.

One of the first companies to benefit is 1888 Mills in Griffin, Georgia, which makes better-quality towels. Walmart’s version will be labeled “Made Here.”  1888 Mills had some spare manufacturing capacity, but since the size of Walmart’s orders can distort any vendor’s production, 1888 Mills needed a longer-term deal to be able to make the investment required to produce the needed quantities. “We made a commitment that was longer term than we would normally do. There’s transparency on the part of both parties: we worked with collaboratively with them,” says Michelle Gloeckler, Walmart’s senior vice president of home.

Camping, throwing knives and outdoor goods company Coleman is another participant. The firm, owned by Jarden Corp. is manufacturing its hard-sided coolers and personal flotation devices in the U.S., adding 160 jobs according to Walmart.  Jarden, whose brands range from Quickie mops to K2 skis, has been ahead of Walmart on domestic manufacturing. Jarden has been on a reshoring kick for about two years.

Some of Walmart’s vendors will get a chuckle out of the idea that Walmart is willing to become more transparent. Walmart has a reputation for getting vendors into its buying rooms and beating the hell out of them on price, essentially leaving them with little margin. But Mac Naughton says that Walmart has to start thinking longer term, rather than season-to-season and that this kind of collaboration will reduce costs for both parties over time, paving the way for lower prices for consumers. For instance, a U.S. manufacturer can bypass Walmart’s distribution centers and deliver directly to stores, so-called “no touch” distribution.

Although $50 billion is a lot of goods, it’s about 10% of what Walmart will sell this year at retail. The company says the $50 billion is just a starting point, and that if other retailers joined the party the figure could be much, much higher, perhaps $500 billion. Walmart’s U.S. president, Bill Simon, suggested in a speech to fellow retailers that the power of their order books can help reshore U.S. production in textiles, furniture, pet supplies, some outdoor categories, and higher end appliances.

This isn’t Walmart’s first crack at a Made in America program. An earlier one fizzled, amid some bad publicity, because Walmart couldn’t get enough low-priced merchandise to sell. Americans may love their country, but they will buy Chinese if the price differential is too high. This time Walmart says consumers won’t have to pay up to buy domestic. “I hope the American consumer values this and we’ll make it easy for them,” says Mac Naughton. If not, consumers won’t make it easy for Walmart.

SOURCE:  Time

Is U.S. Manufacturing Really Back?

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Rana Foroohar
Is America in the middle of a manufacturing job revival? The latest numbers would make it seem so. The U.S. has added more net manufacturing jobs since the start of 2010 than the rest of the G7 nations put together, with only two other economies, Germany and Canada, increasing factory employment at all.
The jump is due to a number of factors, including American productivity growth (which has outpaced Europe as a whole), compressed wages, and higher energy costs (which make it more costly to ship products back from locations with cheaper labor, like Asia). As the FT recently reported, from 2002-10, U.S. manufacturing unit labor costs in dollar terms fell 11 percent, compared with rises of 3 percent rise in Japan and 41 percent in Germany. Companies that are now bringing jobs back home include some of America’s largest blue chip multinationals, like Ford, GE, and United Technologies.

Does this mean the end of the shrinking middle? After all, decently paid manufacturing positions were the core of the middle income jobs bracket since the 1950s; the hollowing out of the manufacturing sector is a key reason that workers in rich countries haven’t gotten a real raise since the 1970s. Democrats would like us to think so. With jobs and the economy still the major campaign issue, the Obama administration has been making hay with the numbers in various speeches and press releases. The rhetoric will likely increase if Mitt Romney gets the Republican nomination, and Obama tries to position himself as the defender of the 99% in comparison to the former Bain “quarter billionaire.”
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ARIANA LINDQUIST / BLOOMBERG VIA GETTY IMAGES

A worker inspects the body of a vehicle on the production line at the Bayerische Motoren Werke AG (BMW) manufacturing plant in Spartanburg, South Carolina, U.S., on Wednesday, Jan. 11, 2012. Bayerische Motoren Werke AG (BMW), the world’s largest maker of luxury autos, will invest about $900 million in its South Carolina factory to expand capacity and prepare the facility to produce a new sport-utility vehicle.
As much as I’d like to believe that the insourcing trend has legs, and that manufacturing is coming back to American en mass, I think there are two important caveats to remember. First, as the McKinsey Global Institute’s James Manyika wrote in a recent report, “History shows that recessions—particularly those that follow a financial crisis—accelerate the growth or decline already underway in industries. In this [last] recession, for example, the auto, financial-services, and residential-real-estate industries have contracted significantly and won’t regain their peak employment anytime soon.” Yes, some jobs are being insourced, but so far it’s a trickle. The numbers look very good in comparison to other rich countries because investors and factory owners alike are afraid to put money into Europe right now. One CEO of a major European multinational industrial firm that I spoke with recently says he’s thinking of moving factories out of the Continent, because he’s worried about continuing social unrest due to the debt crisis, and permanently dampened consumer demand.

The bigger issue is that the displacement of human workers by technology (arguably the largest factor in the shrinking middle) is far from over – in fact, it may have only just begun. A number of big thinkers I’ve talked with recently, including not only the folks at McKinsey Global, but scientists at MIT, Stanford, and macro-economists like Ken Rogoff, have spoken of a growing digital economy that will have profound changes on labor markets. Machines have already replaced humans in many factory jobs, and an increasingly number of white collar gigs, too (computers can now do journalism, write music, and come up with trading algorithms). The real seismic shift will be when they start talking to each other; refrigerators bypassing purchasing officers to order more milk directly from factories, air traffic controllers made obsolete by interconnected web based systems, etc., etc. It’s been the stuff of heady articles in tech magazines for years, but it’s starting to happen. Brian Arthur, an economist at the Sante Fe Institute, estimates that the activity generated by the digital economy (that is, the economy created by machines alone) could equal that of the $62 trillion real world economy within two decades. The shift would shake manufacturing and service jobs alike.

So where does that leave manufacturing, and more importantly, all of us? Optimists like Rogoff would argue that all this innovation will inevitably create new positions that we can’t even dream up right now. There will be a period of great disruption, but then, some time later, we’ll all be happier and more prosperous for it. But pessimists (which may be greater in number) are worried that we need to start circling the wagons, focusing on more self-interested trade policies to keep decently paid jobs at home. I’m hearing the word “industrial policy” a lot these days, and not just in hyper-liberal circles. The Council on Foreign Relations recently put out a report calling for a rethinking of global trade rules and enforcement as countries like the U.S. struggle to hold their own against emerging market giants like China. Bottom line: (1) the corporate giants that have brought jobs back to the U.S. can send them abroad again just as quickly; and (2) we’re at the beginning of some very interesting policy discussions about how the global economy should be structured and policed in the 21st century.

SOURCE:  Times

How ‘Made in the USA’ is Making a Comeback

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“Manufacturing represents a whopping 67% of private-sector R&D spending as well as 30% of the country’s productivity growth”
The U.S. economy continues to struggle, and the weak March jobs report — just 88,000 positions were added — briefly spooked the market. But step back and you’ll see a bright spot, perhaps the best economic news the U.S. has witnessed since the rise of Silicon Valley: Made in the USA is making a comeback. Climbing out of the recession, the U.S. has seen its manufacturing growth outpace that of other advanced nations, with some 500,000 jobs created in the past three years. It marks the first time in more than a decade that the number of factory jobs has gone up instead of down. From ExOne’s 3-D manufacturing plant near Pittsburgh to Dow Chemical’s expanding ethylene and propylene production in Louisiana and Texas, which could create 35,000 jobs, American workers are busy making things that customers around the world want to buy — and defying the narrative of the nation’s supposedly inevitable manufacturing decline.

The past several months alone have seen some surprising reversals. Apple, famous for the city-size factories in China that produce its gadgets, decided to assemble one of its Mac computer lines in the U.S. Walmart, which pioneered global sourcing to find the lowest-priced goods for customers, said it would pump up spending with American suppliers by $50 billion over the next decade — and save money by doing so. And Airbus will build JetBlue’s new jets in Alabama.

Some economists argue that the gains are a natural part of the business cycle, rather than a sustainable recovery in the sector. But I would argue that the improvements of the last three years aren’t a blip. They are the sum of a powerful equation refiguring the global economy. U.S. factories increasingly have access to cheap energy thanks to oil and gas from the shale boom. For companies outside the U.S., it’s the opposite: high global oil prices translate into costlier fuel for ships and planes — which means some labor savings from low-cost plants in China evaporate when the goods are shipped thousands of miles. And about those low-cost plants: workers from China to India are demanding and getting bigger paychecks, while U.S. companies have won massive concessions from unions over the past decade. Suddenly the math on outsourcing doesn’t look quite as attractive. Paul Ashworth, the North America economist for research firm Capital Economics, is willing to go a step further. “The offshoring boom,” Ashworth wrote in a recent report, “does appear to have largely run its course.”

Today’s U.S. factories aren’t the noisy places where your grandfather knocked in four bolts a minute for eight hours a day. Dungarees and lunch pails are out; computer skills and specialized training are in, since the new made-in-America economics is centered largely on cutting-edge technologies. The trick for U.S. companies is to develop new manufacturing techniques ahead of global competitors and then use them to produce goods more efficiently on superautomated factory floors. These factories of the future have more machines and fewer workers — and those workers must be able to master the machines. Many new manufacturing jobs require at least a two-year tech degree to complement artisan skills such as welding or milling. The bar will only get higher: Some experts believe it won’t be too long before employers will expect a four-year degree — a job qualification that will eventually be required in many other places around the world too.

Understanding this new look is critical if the U.S. wants to nurture manufacturing and grow jobs. There are implications for educators (who must ensure that future workers have the right skills) as well as policy-makers (who may have to set new educational standards). “Manufacturing is coming back, but it’s evolving into a very different type of animal than the one most people recognize today,” says James Manyika, a director at McKinsey Global Institute who specializes in global high tech. “We’re going to see new jobs, but nowhere near the number some people expect, especially in the short term.”

Still, if the U.S. can get this right, though, the payoff will be tremendous. Manufacturing represents a whopping 67% of private-sector R&D spending as well as 30% of the country’s productivity growth. Every $1 of manufacturing activity returns $1.48 to the economy. “The ability to make things is fundamental to the ability to innovate things over the long term,” says Willy Shih, a Harvard Business School professor and co-author of Producing Prosperity: Why America Needs a Manufacturing Renaissance. “When you give up making products, you lose a lot of the added value.” In other words, what you make makes you. 
SOURCE:  Time

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