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Re-shoring in America: Why Manufacturing Orders are Returning Home

The American off-shoring movement has its roots back in the 1960’s and 70’s, but didn’t really take hold until the early millennium when businesses began shipping manufacturing and knowledge worker jobs overseas in droves.  For many companies, the promise of massive cost savings trumped lead times, customer service, control over the manufacturing environment, and a host of other supply chain uncertainties and complexities. But like many other facets of the economy, the great recession has forced companies to re-examine how they do business.  Within the last few years, a new buzz word has crept onto our shop floors and conference rooms: reshoring.

In a recent article entitled, Is the Re-shoring of Manufacturing a Trend or a Trickle, Forbes and MFG.com reported that some 40% of American manufacturers have recently won business that was previously off-shored.  The re-shoring movement is not only due to a multitude of economic factors, but also a changing of attitudes.  A decade ago, boards of directors across the country were asking their executive teams why they weren’t in China.  Now, the conversation has shifted, and executives are deliberating whether it even makes sense to go to China or not.

Like the California gold rush of the 1800’s, some companies have been able to realize the cost savings of off-shoring, while many others have come away with little improvement to their bottom line and plenty of additional headaches.  In many instances, there’s data to support that companies are worse off after attempting to off-shore vs. when they started.

This conversation is beginning to reverberate across the country and a host of factors are being cited for driving the on-shoring movement.  At Peridot, we’re experiencing three in particular that are having the biggest impact:

Expertise and craftsmanship: Innovate or die as the old saying goes, but as any company that regularly engages in the process of innovation knows, the odds are stacked against you.  Upwards 1 / 2 new consumer products introduced in America will be considered a failure this year, and those increase significantly the more complicated the product gets. Especially when it comes to new product development, a manufacturing partner is a designer’s best friend and the final step before significant investments are made. Peridot has worked with hundreds of clients over the years, providing design and material recommendations that have both saved countless dollars and contributed to products’ success in the marketplace.

Companies are going lean, whether they realize it or not: The Forbes/MFG.com study indicated that recently, many companies are ordering parts in smaller lot sizes due to the uncertainties of a global economy that can shift on a dime.  Whether they realize it or not, the economy has forced procurement and operations to embrace lean manufacturing principles such as JIT inventory to ensure they’re not caught with large lots and no immediate demand, or worse, a lack of interest in a product that has became obsolete as consumer preferences rapidly evolve.  As forecasting becomes more difficult in the new economy, OEMs and other small and medium manufacturers are seeking out partners that are dependable yet flexible.

The great promise of lowering costs has been a shell game for some: The bottom line for manufactured products is often expressed as the total cost of ownership, and for many companies, the off-shoring math equation isn’t adding up to the promises of 2000.  As the number of variables climbs and more partnership choices are made available to manufacturers, considering total cost of ownership will become even more critical.  The Reshoring Initiative, a group dedicated to bringing manufacturing jobs back to the United States, provides a total cost of ownership calculator on their website to aid executives who are weighing their options.

As visually portrayed by these infographics (generated by GE), the US manufacturing sector has surely undergone seismic shifts since the 1960s.  The sector has fallen from America’s largest in 1960, to our third largest in 2000, to 6th in 2011.  But, thanks to technology advances such as CNC machining, the wide spread digitization of the industry including the use of CAD, and our base of expert craftsmen trained in both the old school and new school way of operating, America is still in the strongest position to lead the world forward in next-gen manufactured goods.

 

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