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The Onshoring Debate Rages

On the face of it, bringing electronics manufacturing jobs back to the US from more affordable foreign locations is all the rage. At EBN, though, the debate remains evenly split.

In our recent poll (and it's not too late to weigh in here), our readers remain pretty evenly divided on the question of whether electronics OEMs will bring jobs back to the US. In fact, the “yes” votes and the “no” votes have each drawn 38 percent of respondents.

Another 24 percent, nearly one quarter, are taking more of a wait-and-see approach. Still others wished we had offered an “It depends” option. “With increasing logistics costs, onshore manufacturing becomes a better option for heavy and bulky items (cars are an example),” commented EBN blogger Ken Bradley. “For smaller lighter items, offshore still wins.”

There's a lot to be said for domestic manufacturing, and there is an increase in OEM efforts. In fact, onshoring efforts have created between 250,000 and 500,000 jobs in three years, claims Michael Rackley, senior director of product completion for Ryder Supply Chain Solutions.

The benefits range from an opportunity to shorten the distance between manufacturing and the end consumer, to better quality, lower costs in some situations, and potential tax credits, Rackley contends.

Our readers saw some “softer” benefits of re-shoring for OEMs. Commented a reader who posts as Supply Network Guru:

[There's] also the opportunity to sell the American pride of saying the product was made in the USA. That has an impact on most buyers – they associate it with better quality but I'm sure they will pay a few extra bucks just to help. It won't apply to all products but there's room for it.

Of course, balancing that out is the reality of higher wages, higher setup and retooling costs, and a need for workforce training.

“I don't think companies can derive any benefits by re-shoring their production/development facility to US,” said one EBN site member called Jacob. “More than logistic issues, cheap manpower and availability of raw materials/skills are important.”

Others say that these concerns are overrated. For example, in an October 2012 report, the Boston Consulting Group (BCG) estimated that the US is short between 80,000 and 100,000 highly skilled manufacturing workers. That sounds like a big number, until you consider that it is only about 1 percent of the total number of US manufacturing workers, BCG said.

“Shortages of highly skilled manufacturing workers exist and must be addressed, but the numbers aren't as bad as many believe,” said Harold L. Sirkin, a BCG senior partner and coauthor of the research in a press statement. “The problem is very localized. It's much less of an issue in larger communities, where supply and demand evens out more efficiently thanks to the bigger pool of workers.”

Clearly, it's a complicated issue. Let's keep the discussion going, whether you are optimistic or pessimistic about the future of US manufacturing. Share your favorite examples of success and failure. We'd like to hear from you.

36 comments on “The Onshoring Debate Rages

  1. Kishore Jethanandani
    July 25, 2013

    Way back Mark Andressen predicted that increasing share of software in electronics devices will bring them back for manufacturing in the USA. Some of these devices are still under development–wearables comes to mind. 

  2. _hm
    July 25, 2013

    Google is establishing very good example for this and making thier best effort to make products in USA. I will purchase all products made in USA, price difference does not matter.

    Organization can provide training to prepare work force they need. It does not need so much of time and effort.

    Let us look forward to bring back good old days.

     

  3. Finance guy
    July 26, 2013

     

    From a purely economic standpoint. It stands to reason that in a contracting economy profit margins contract, and controlling costs drive the decision on where to manufacture.

     

    In an expanding economy, profit margins increase and there is room for higher costs as long as quality and convenience can be demonstrated.

     

    This has been a tepid expansion. I believe that when the business cycle hits true lift off, on shoring will become even more attractive.

     

     

  4. Sandy Montalbano
    July 26, 2013

    Yes, I agree with you that Reshoring will become even more attractive as the economy gets better.  Other reasons include: a growing U.S. market will attract more local manufacturing and a stronger mfg. sector will improve recruiting of the needed skilled professionals, tool makers, precision machinists, etc.

    Much of the offshoring occurred because companies looked only at wages or prices and not total cost. The not-for-profit Reshoring Initiative's free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring.  Current research shows many companies can reshore about 25% of what they have offshored and improve their profitability.  Reshoring is far from the whole solution to the trade deficit problem, but it is one important and growing part.

    Here are a few reasons to consider reshoring
    1. Higher offshore wages, e.g. China up 500% since 2000.
    2. Recognition of many costs previously ignored
    3. American consumers starting to prefer Made in America products
    4. Quality and delivery
    5. Need to respond to customers
    6. IP

    For example, Motorola Mobility, which is owned by Google, is opening a factory in Fort Worth, Texas. The company plans to manufacture its top-of-the-line Moto X cell phone at the facility, which was previously used to produce Nokia cell phones. Motorola will employ 2,000 workers at the Fort Worth factory. The company cites lean practice, proximity to customers, R & D and consumer preference for Made in U.S. as the main reasons for bringing manufacturing back to the U.S.

    You can reach Harry Moser, founder/president of The Reshoring Initiative, at

    http://www.ReshoreNow.org

  5. hash.era
    July 26, 2013

    @Kishore: I think still USA is behind the technological manufacturing sector. Im not sure why but they are still behind the ladder to many which does not have that kind of resources like USA does.      

  6. Kishore Jethanandani
    July 26, 2013

    @Hash: USA's biggest advantage is its lead in 3D printing and an innovation culture. Manufacturing is not the same anymore. Backyard manufacturing is springing up for hundreds of niche products. For example, you can now produce parts for the 1925 Ford cars for vintage car freaks.

  7. ahdand
    July 27, 2013

    @Kishore: Good point but don't you think it will not be a bad idea to start it all over again ?           

  8. Daniel
    July 27, 2013

    Hailey, onshoring and out shoring are hot topics in industry for a long time. eventhoug governments are very keen for onshoring, most of the time they are failing to provide necessary infrastructure and facilities, to promoting internal industrialization

  9. Daniel
    July 27, 2013

    kishore, most of the politicians talk about onshoring, as part of grab the attention or as a part of poli-tricks. But how many of them will really want to establish companies in their home land? will they provide necessary amminities for them? very rairley

  10. SunitaT
    July 28, 2013

    A company must only settle for offshore markets if 1. Raw materials are cheap and easy to get. 2. Market production value. Most of the onshore production work benefits from having locally available raw materials and familiar markets.

  11. SunitaT
    July 28, 2013

    US car manufacturers control a healthy fraction of total output of cars in a financial year. Why would they risk their share without having defining logistics among offshore markets? Moreover relocating employees abroad proves costly, and the output in the starting years are low as the employees get accustomed to the market, which brings down the output value.

  12. ahdand
    July 28, 2013

    @Rich: Ohh I thought when you said that DeusM Is involved. Anyway it's a good move regardless whether its been done by inside or outside.        

  13. SunitaT
    July 28, 2013

    onshoring and out shoring are hot topics in industry for a long time

    @Jacob, true people are discussing merits of onshoring and outsourcing. But these days more and more companies are preferring onshoring over outsourcing because cost saving because of outsourcing is not that significant. 

  14. SunitaT
    July 28, 2013

    For example, you can now produce parts for the 1925 Ford cars for vintage car freaks.

    @Kishore, thats a very good point. I totally agree with you 3D printing has enabled people to print things themselves all jus they need is the design which they can feed into 3D printer.

  15. SunitaT
    July 28, 2013

     I think still USA is behind the technological manufacturing sector.

    @hash.era, i.e bit surprising to hear. Which country do you think is leading in technological manufacturing sector ?

  16. Nemos
    July 28, 2013

    The USA must show the way, if don't then soon we will be front of the biggest unemployment crisis in the world. The signs are very clear, the unemployment rate is going up year by year almost in every country. The outsourcing joke must be stopped before is too late.

    en → el
    ανεργία
    ουσιαστικό : ανεργία

  17. Nemos
    July 28, 2013

    I am surprised too , as far I know the USA is the leading country especially in the technology sector. Probably @hash.era means there are not many factories, and that is true China is ahead (the factory of the world). 

    en → el
    τεχνολογία
    ουσιαστικό : τεχνολογία

  18. SunitaT
    July 29, 2013

    @Nemos I second that. The unemployment rate is indeed going up and that is
    mainly because of factors like below quality employees, market
    crunches, a step in a wrong direction by the company: for eg Google
    invested a huge sum of money in its X-labs for the Google Glass
    Project. So far, they haven't been able to get enough handlers and
    sponsors who would be interested enough to carry on with this project.
    Although, this did not result in a wave of firing employees inside the
    company, mainly due to its fantastic HR and Management departments,
    had this been some less significant company, it was bound to have
    problems getting back up.

  19. Daniel
    July 29, 2013

    “people are discussing merits of onshoring and outsourcing. But these days more and more companies are preferring onshoring over outsourcing because cost saving because of outsourcing is not that significant. “

    Tirlapur, you may be right but my question is, whether the internal market is equipped for accommodating more business/production unit with necessary infrastructural facilities and manpower

  20. Daniel
    July 29, 2013

    “A company must only settle for offshore markets if 1. Raw materials are cheap and easy to get. 2. Market production value. Most of the onshore production work benefits from having locally available raw materials and familiar markets.”

    Tirlapur, the condense of all such factors are profit. For any company the final intension is maximizing the profit

  21. Hailey Lynne McKeefry
    July 29, 2013

    Wearables is a hugely hot topic and one that we'll hear more about in the future. The software component is an interesting piece of the puzzle. Many US software companies are outsourcing all or part of their software development to engineers in other countries.. The question then would be, is it then really being manufactured in the US? some portion of the intellectual property is being developed elsewhere.

  22. Hailey Lynne McKeefry
    July 29, 2013

    Google is an interesting example. The company is promising to deliver the first smartphone assembled in the US later this summer. Their manufacturing is in Ft. Worth Texas.  I read an intersting piece on this recently that said 80 percent of US consumers are willing to pay more for US goods, but the question is how much more? The same Boston Consulting study found chinese buyers were also willing to pay more for US goods. Here's a link if you want to take a look: http://www.theverge.com/2013/7/24/4549624/made-in-america-2-behind-new-tech-patriotism

  23. Hailey Lynne McKeefry
    July 29, 2013

    @Finance Guy, I'd be interested in hearing more about this. If the cycles are fairly short,wouldn't it be hard to shift manufacturing to address them? I'm thinking that a manufacturing facility is a long-term committment. How do you see that factoring into the discussion?

  24. Hailey Lynne McKeefry
    July 29, 2013

    Thanks for the link, Reshore Now. Interesting stuff.

  25. Hailey Lynne McKeefry
    July 29, 2013

    Thanks for the link, Reshore Now. Interesting stuff.

  26. Finance guy
    July 29, 2013

    It appears over the last two recessions that the cycle is expanding. The supposed reason is that we do not have t 4-6 % growth rate typical in the recovery part of the cycle. However no one really knows why this is taking place.

    The reduced speed of recovery slows the chances of inflation taking hold which bumps up interest rates and supports a recession. If in fact the business cycle does expand at a slower rate, it stands to reason that the shifting of production issues won't be as rapid, and   easier to control. 

     No one really knows if the cycle will structurally lengthen in the years ahead.

     One nice thing about the private market, industries expand and contract quite efficiently as economic factors demand. That's what makes it interesting!

     

  27. elctrnx_lyf
    July 30, 2013

    As long as the USA maintains the helathy financial status to take care of the country they should probably do not need to build factories. But at the same time there could be lot of scope for new products that are being developed can be definitely built in USA to reduce the logistics costs.

  28. Daniel
    July 30, 2013

    “I read an intersting piece on this recently that said 80 percent of US consumers are willing to pay more for US goods, but the question is how much more?”

    Hailey, personally I am against such sentimental business. In globalization era, peoples have to look and think in a broader manner. It's not possible for all companies to start their own production units in all countries. Moreover that's not a fair business too.

  29. Wale Bakare
    July 30, 2013

    >>For any company the final intension is maximizing the profit<<

    That's key to the issue/debate. Until companies that are cash-loaded in the last few years show sincerity that may not be easily possible.

     

  30. Hailey Lynne McKeefry
    July 30, 2013

    @Finance Guy, well you are living up to your handle. that makes a lot of sense… I wonder how much the average supply chain company takes this into consideration as it plans its roadmaps for development and investment. It's important.

  31. Hailey Lynne McKeefry
    July 30, 2013

    US manufacturing will never be a complete panacea. The answer for should we onshore will always be “It depends.” It's a complex recipe that includes costs, lead times, corprote culture, marketing and brand development and a hundred other things. IT's interesting, though, to see how some of these big name players in the electronics industry are making it happen.

  32. SunitaT
    July 31, 2013

    By 2025, a fresh global consuming class will emerge, and the mainstream of consumption will take place in developing economies. This will generate rich new market opportunities. In the meantime, in established markets, demand is fragmenting as clients ask for greater variation and more types of after-sales service. A rich pipeline of inventions in materials and processes—from nano materials to 3-D printing to progressive robotics—also promises to generate fresh demand and drive additional productivity gains across manufacturing industries and geographies.
    These opportunities arise in an exceptionally challenging environment. In some low-cost labor marketplaces, wage rates are increasing rapidly. Volatile resource prices, a looming lack of highly skilled talent, and heightened supply-chain and regulatory risks create a situation that is far more uncertain than it was before the Great Recession.

  33. ahdand
    July 31, 2013

    @Hailey : Yes but I feel it depends on how well they perform. In the end its all on performance.  

  34. Daniel
    July 31, 2013

    “That's key to the issue/debate. Until companies that are cash-loaded in the last few years show sincerity that may not be easily possible.”

    Wale, eventhough that's the true factor, they will strive hard for that.

  35. Daniel
    July 31, 2013

    “US manufacturing will never be a complete panacea. The answer for should we onshore will always be “It depends.””

    Hailey, agreed and depends up on various factors like availability of raw materials, skilled labors, logistics etc. one cannot easily stop outsourcing and prefer in shoring.

  36. kilamna
    August 6, 2013

    As I recall Ford made sure that his employees could afford what they made.

    Today what is happeneing (with this shortsighted focus on near-term/ quarterly profits and bonuses) that Americans will not be able to afford what we make (or import). That will keep the 'shrinking economy' last longer than usual.

    I have not seen in the commenst yet any reference to the closure of the experience loop between R&D-Design-Manufacturing-Development. As the manufacturing is now 'distant' the osmotic sharing-transfer of experince is not as effective, so product improvements are not made with manufacturability in mind. Onshoring will help immensely.

    At the risk of being 'nationalistic'/ 'protectionist' I am also concerned for the greater national good. A stronger local economy leads to many other longer lasting benefits, maybe not so much to the best and most immediate quarterly financials.

     

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