The New Math on Outsourcing/Reshoring

American manufacturers take their businesses back with combination of strategies

The numbers tell the story—U.S.-based manufacturers and supply chain businesses are taking their jobs back.

Such is evident by companies like Master Lock, which the company cites brought back approximately 100 union jobs back to the U.S. from China since mid-2010, and GE, which in April announced it would add 300 new jobs in Michigan at its Advanced Manufacturing and Software Technology Center (AMSTC) in Van Buren Township. And while the U.S. will not witness a resurgence in all jobs originally outsourced—nor will reshoring jobs alone solve the issues that the American economy faces—businesses in the U.S. supply chain are working to revitalize the economy by: creating more jobs at home; internally applying new formulas to determine whether a particular business process should be outsourced; and strengthening their company’s or product’s position. But to do so, requires enforcement of a combination of new strategies to go after market investments and succeed.

Industry needs

“Will reshoring serve as the silver bullet to reduce the nine percent chronic unemployment rate that we have? Absolutely not,” confirmed Jeff Wissink, a Change Management Consultant for Chicago-based Navint. “Will it help? Yes. But the unemployment problems that we have in this country are much more structural and deeper than any one particular solution would ever be able to provide.”

The need for improved customer service, increasing product demand—such as in the automotive industry (flip back to page 22 for our coverage on this topic)—labor costs, lack of skilled labor—all these factors serve as overriding themes—if addressed effectively and proactively—to manufacturing companies’ success. And a number of manufacturing companies are already predicting strong growth and a great deal of confidence in their growth—part of which has to do with the return of the “Made in America” quality approach, according to Susan Orr, Senior Director of Strategic Marketing for ThomasNet.

According to ThomasNet.com’s Industry Market Barometer report, “Commitment to America Takes Center Stage As Manufacturing Sector Continues Growth,” of the 3,700 survey respondents—1,600 of which were from manufacturing companies—75 percent expect their business to grow in 2012, followed by confirmation that 53 percent did grow in 2011. And while a lot of that growth does come from sales, when you look at the hiring and investment, 83 percent of respondents said that they were going to increase their production capacity; 71 percent said they were going to upgrade their facilities; and 66 percent were going to add new products or services.

“And to support that, 22 percent said they were going to invest in capital equipment—which goes hand in hand with their goal of increasing production capacity,” said Donna Cicale, Director of Marketing Communications, ThomasNet.com. “And to support that, 33 percent said they were going to invest in software to manage their inventory, to improve or automate their customer service, to improve their financial and business reporting and to manage their costs.”

“American manufacturers are in fact capturing more international business and taking business back from China,” Orr confirmed. While outsourcing jobs and business processes serves as an internal financial strategy that lessens a company’s cost to provide that service or product out-of-pocket (i.e., countries such as China being able to pay lower wages and charge less for product), with the reshoring of jobs, manufacturers in the U.S. are taking pride in their quality of produced goods. The Rodon Group, Hatfield, Pa., an injection molder and member of the American Made Matters consortium, was one such company that focused on such U.S.-made awareness for those of their customers who expressed an interest in outsourcing to China, according to the Industry Market Barometer report.

“We’ve been picking up reshoring opportunities for the past three years, and we go through our own analysis process to address such questions as: ‘How are larger businesses going to reshore? Who are they going to do that with? And do the businesses they are hiring to do it with have the capacity to do it?’” said Michael Araten, President and Chief Executive Officer of The Rodon Group. “

Industry education initiatives

To generate industry awareness about not only the benefits of reshoring versus outsourcing but the state of manufacturing today, The Rodon Group formed a manufacturing consortium with about 50 other companies to go to technical schools and middle schools and provide that outreach.

“Today, when you say the word ‘manufacturing’ to people, they think it’s the ‘I’m on the assembly line wearing a hairnet’ type of scenario,” continued Araten. “But that’s not what manufacturing is anymore. It’s not turning a screw to the right every day for eight hours a day. Now, it’s using robotics and science and tools. It’s engineering and using your creativity and imagination to solve problems. And that is something that is under-reported and not understood by the general population.”

Second Chance Partners is another initiative that combine high school learning with onsite work experiences to provide students with marketable skills necessary in an economy where there is demand to hire.

“These current jobs that merge physical skills, engineering, logic and technology—they are not the station wagon with the wooden side panels of yesterday,” confirmed Orr. “These jobs are Ferrari-esque in terms of their challenges.”

Survey respondents of the Industry Barometer Report agreed, citing that “high schools should bring back shop classes but call them something else to elevate the image—call them metal labs or robotics to make them more attractive to the younger generation,” confirmed Orr. “Lots of people at the top of the supply chain started at the shop floor. And these folks want to ignite the same passion that they have for their careers in the younger generation.”

Decision-making processes

From labor resources, to the quality of goods, to facilities costs to the yen—U.S.-based manufacturers and suppliers are looking at all business and economic factors before implementing manufacturing and distribution on location.

“As ecommerce blossoms and more people will seek goods outside of the traditional retail channels, companies are going to have to rethink the ways they distribute product and handle returns,” said Wissink. “At the end of the day, you’re going to make decisions based on changing service levels,”

When it comes to product, manufacturers also have to consider the benefits of producing product here versus outsourcing production overseas.

“Sometimes with big items like cars, it may logistically provide more of a cost advantage to make those products here to avoid distribution costs,” he continued. ‘At the end of the day, these decisions are going to be made by companies because it is in their best financial interest to do so. It’s really going to come down to a bottom-line consideration of whether or not it makes sense from a logistics and manufacturing standpoint to make those products in the U.S. as opposed to somewhere else.”

The horizon ahead

The reshoring of jobs is kick-starting manufacturers’ economic investments to meet consumer and market demand in the U.S. With continued spend on capital equipment, facilities expansion, training, software and technology, the U.S. supply chain is taking the reins on current growth and continues to push the limits to overall business improvements. Are you on board?