David Mantey recently published the article “Is It Possible to Bring Manufacturing Back to the U.S.?” The article offers some good insight on the reshoring debate, as well as some common misinterpretation of the subject.
Mr. Mantey and his subject Mr. Young acknowledge that reshoring, or not offshoring, has become a viable alternative in the consciousness of the business world. They point to some of the drivers of the trend: the shrinking wage gap, which allows other factors such as relative worker productivity, labor laws, transportation costs, infrastructure, clustering, tax and regulation – to carry more weight when it comes to sourcing decisions. Those factors mentioned include just a few of the “hidden” costs associated with offshoring. In order to make informed sourcing decisions it is more important than ever for companies to use a total cost of ownership analysis, which accounts for all associated costs, not just landed cost.
In response to the question the article’s title poses: Yes, manufacturing is already coming back to the U.S. The actual rate of reshoring is greater than implied in the article. Approximately 50,000 manufacturing jobs have been reshored in the last three years, 10% of the total increase in manufacturing jobs. The number of companies that have reshored is much greater: at least 200 OEMs (more than double what was quoted from the Economist.) In addition, MFG.com’s surveys and the structure of U.S. manufacturing suggest that thousands of domestic suppliers have benefited from the 200 OEM’s reshoring decisions.
A more insightful title might have been “Is it possible for manufacturing employment again to reach the levels of the 1990s?” Reshoring is a necessary but not sufficient condition for a general resurgence of manufacturing, especially manufacturing employment.
Much of the confusion surrounding reshoring stems from two issues: unclear definitions, and a lack of data. Previously there was no mechanism to record the number of jobs that went offshore, nor those that are returning. The Reshoring Initiative is the first to tabulate such data, using as the main source published articles, which are accessible in the Initiative’s Reshoring Library, as well as a few cases reported privately by companies.
We define reshoring as the return of offshored manufacturing to its country of origin. In contrast, Young’s suggestion that “reshoring” encompasses any move of production from one county to another is too broad and by definition can not be “re” shoring. And while it is a dubious claim that Washington delineates reshoring solely as operations returning from China to the US, it is true that China accounts for a substantial portion of the trend. From the Reshoring Initiative’s database, approximately 60% of the 200+ reported cases involve reshoring from China to the U.S.
Mr. Mantey casts doubt on the economic impact of reshoring with a quote from The Hackett Group suggesting “the continued outflow of capacity from advanced economies will more than offset any capacity being reshored.” U.S. companies increasing capacity in developing countries to serve those markets is good business, does not, per se, impact U.S. manufacturing and is 100% consistent with reshoring’s principle that the vast majority of manufacturing should be performed in the region in which it will be consumed. What is relevant is that the economic benefit of producing in the U.S. (combination of reshoring, transplants) has stopped the net offshoring of jobs. We are not saying that offshoring has stopped, but reshoring has unambiguously started.
It is important not to downplay the actual progress of reshoring since we need to motivate companies to reevaluate their sourcing decisions. Companies need to abandon past, often poor, decisions and a long-embedded sourcing culture that rewards purchasing and management based on purchase price variance and start to do the math. It is essential to challenge their current beliefs by showing the immense progress that has been made. Without that challenge, the rate of change will be much slower. Boston Consulting Group’s 2012 report on the 7 industries headed to reshore, predicted the trend would become economical in 3-5 years from the time of publication. Overall we find the current numbers to be encouraging, ahead of the curve, and expect to see them improve exponentially in the coming years as long as the media objectively reports the actual reshoring successes.
The Reshoring Initiative calls on companies to reevaluate sourcing and make objective decisions, to do the math. The Initiative offers a free Total Cost of Ownership Estimator™, a Case Studies feature for reporting your reshoring successes, and the Reshoring Library, all free at www.reshorenow.org. Please contact the Reshoring Initiative for help convincing your company or your customers to reevaluate their sourcing decisions.