Manufacturing “Insourcing” to Gather Steam in 2013
by Morris Beschloss
December 25, 2
With the traumatic impact of “outsourcing” jobs and production, especially by America’s manufacturing giants, it may come as a surprise to many that the U.S.A. is still the world’s number one generator of manufactured goods production at $1.8 trillion annually.
The misconception of America rapidly becoming a nation of “hamburger flippers and insurance salesmen,” is a misplaced parody of the U.S. of yesterday’s loss of dominant steel production, textiles, leather, electronics, etc. This has been turned on its head by a comprehensive essay in the Atlantic Monthly tracking the current “insourcing” turnaround to the evolving cost factors of secure product quality, transportation costs, and the accelerating evolution of technology and changing customer demand tastes.
In the wake of the BP drilling rig failure in the Gulf of Mexico almost 18 months ago, costing untold billions of dollars in penalties and losses, this unfortunate incident has added to the importance of “ultimate responsibility” by the “front line” installer and ultimate user.
Added to these changing circumstances are both escalating and time consuming overseas transportation costs, plus the shrinking of direct labor costs that have actually dropped in the U.S., but quintupled in China during the last 10 years. In the case of high technology, the imbalance has even grown tighter as the cost of labor in finished goods have continued to be less important as part of the total price picture.
But what surprised me most in the Atlantic Monthly article is the fact that GE, universally derided as the “champion of outsourcing,” has taken a leadership role in reopening production facilities in the U.S.
Although dismissed by some as a public relations gesture, due to CEO Jeff Immelt’s previous collaboration as the White House chief of non-existing domestic job creation, the GE “insourcing turnaround is primarily due to the rapid need for constant product innovation, and the shift to “just-in-time” inventory control. This is made almost impossible by today’s multi-month delivery time and the volume of purchases necessary from abroad to achieve a satisfactory cost preference. Other major American multi-nationals are indicating a similar predisposition.
When viewing America’s 2013 domestic production expansion through the prism of “insourcing” rapidity, trade deficit shrinkage. and setting new export records, especially in energy, heavy machinery, military equipment, technology and agriculture, guarded optimism has entered the picture. But it still leaves in doubt economic direction, so heavily colored with questionable politico-economic leadership emanating from Washington, D.C.
In the wake of the BP drilling rig failure in the Gulf of Mexico almost 18 months ago, costing untold billions of dollars in penalties and losses, this unfortunate incident has added to the importance of “ultimate responsibility” by the “front line” installer and ultimate user.
Added to these changing circumstances are both escalating and time consuming overseas transportation costs, plus the shrinking of direct labor costs that have actually dropped in the U.S., but quintupled in China during the last 10 years. In the case of high technology, the imbalance has even grown tighter as the cost of labor in finished goods have continued to be less important as part of the total price picture.
But what surprised me most in the Atlantic Monthly article is the fact that GE, universally derided as the “champion of outsourcing,” has taken a leadership role in reopening production facilities in the U.S.
Although dismissed by some as a public relations gesture, due to CEO Jeff Immelt’s previous collaboration as the White House chief of non-existing domestic job creation, the GE “insourcing turnaround is primarily due to the rapid need for constant product innovation, and the shift to “just-in-time” inventory control. This is made almost impossible by today’s multi-month delivery time and the volume of purchases necessary from abroad to achieve a satisfactory cost preference. Other major American multi-nationals are indicating a similar predisposition.
When viewing America’s 2013 domestic production expansion through the prism of “insourcing” rapidity, trade deficit shrinkage. and setting new export records, especially in energy, heavy machinery, military equipment, technology and agriculture, guarded optimism has entered the picture. But it still leaves in doubt economic direction, so heavily colored with questionable politico-economic leadership emanating from Washington, D.C.
SOURCE: MyDesert.com
I agree that the Atlantic article was excellent. The Reshoring Initiative was honored to be quoted in the Atlantic.
Everyone who works for or sells to a manufacturing company can help by urging their employer or customer to make more objective sourcing decisions. Much of the offshoring occurred because companies looked only at wages or prices and not total cost. The Reshoring Initiative’s free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. Current research shows most companies can reshore about 25% of what they have offshored and improve their profitability.
About 10% of the approx. 500,000 manufacturing job growth since the low in January 2010 is due to reshoring. Based on the 309 published reshoring articles in our Reshoring Library http://www.reshorenow.org/resources/library.cfm, we calculate that at least 50,000 manufacturing jobs have been reshored.
I was one of the business experts in Pres. Obama’s Jan 11, 2012 Insourcing Forum. I emphasized, and the assembled executives supported, the need for companies to more consistently utilize TCO analysis instead of price variance in making their sourcing decisions.
You can reach me at harry.moser@reshorenow.org