Republished from cerasis.com, on June 24, 2015, by Adam Robinson
Yesterday we spoke about the top motivations and reasons why reshoring in America from offshored facilities has several benefits and what are the statistics of reshoring since 2013. To reiterate that reshoring is more than just hype and a very important topic for us to consider the Boston Consulting Group (BCG) study found that 54% of companies with above one billion in revenues are now considering reshoring. This is a great first look and is a great dovetail into today’s second post in our reshoring update blog series where we will discuss the future outlook of reshoring in America, tackle head on what are some of the issues, and then conclude by speaking about ways that the government and others can help spark reshoring from only a consideration, but to a reality.
Future Outlook of Reshoring in America
Jobs & The Slow Movement of Reshoring
Notwithstanding many sound reasons for reshoring, an Information Technology and Innovation Foundation report indicates that U.S. manufacturing is not experiencing a “renaissance”. Industry experts conservatively acknowledge that off-shoring has slowed, and perhaps “stabilized”. Although around 80,000 manufacturing jobs have come back to the U.S. in the past 3 years, (about 60% from China), per research by BCG and others, there’s no indication that a great number of additional jobs will soon return from Mexico and China.
In fact, since the recession, more manufacturing companies have been lost than gained in the U.S. There were 10% fewer manufacturers in 2011 than in 2008—a record low since 1977, when the Census Bureau started collecting Business Dynamics data. And, the labor force was 35% smaller in those days. Manufacturing has gained 700,000 jobs since 2010. However, there are a million fewer manufacturing jobs than in 2008. Job gains are largely due to increasing consumer demand, not to reshoring production back to the U.S. Productivity in factories continues to improve, however, and are more efficient than ever, so the best jobs picture we can hope for is flat as we don’t believe that US Manufacturing jobs will ever be at the percentage they were at the peak in the late 70s.
Reshoring in America Outlook in the News & New Polls
Decreased off-shoring is partly due to the U.S. dollar decline and to the wage spiral during the recession. Also, the majority of factories that could leave may have already gone.
According to Forbes magazine,
The greatest reshoring will occur in industries that benefit most from cheap natural gas and have access to global markets… [industries such as] chemicals and metals… for products that change rapidly, including fashion apparel and technology… whose product value/weight ratios do not justify air freight.
By contrast, strong foreign demand for products will negate the benefits of reshoring production, and as offshore productions continue, geographic diversification will be a key insurance policy against natural disasters in foreign production sites.
In addition, products that are made with relatively little labor will be more likely to reshore. Chemicals plants, for instance, have little labor relative to the value of production, so offshore production does not save much. Most of them, however, never left our shores.
Nexant conducted a survey of the plastics industry, in collaboration with Plastics News, to understand reshoring trends and the effect on the North American market. Nexant received about 200 survey responses from compounders, fabricators, equipment suppliers and toolers.
About 70 percent of the survey responses mentioned that they had either reshored or were planning to reshore in the near future.
Reshoring in America: Hindrances & Current Issues Stifling Reshoring
Successfully reshoring a manufacturing facility demands extensive analysis, and expert planning and execution. Failure can result from attempting too much at once, disregarding inclusion of some affected internal departments or other stakeholders in the decision-making (thereby leaving gaps in plans), and/or from any number of other monumental errors. Harry Moser, Reshoring Initiative Founder and President, offered insights to economic developers at the 2013 IEDC conference, including some of the points listed below.
- Extensive automation needed to cut production costs requires investment in machinery, and redesigning production lines and/or building configurations.
- Some manufacturers still resist the costs of conformance to U.S safety requirements.
- Despite the disaster at the Savar garment factory in Dhaka, Bangladesh, data indicates that many consumers continue to demand the cheapest obtainable goods, regardless of human cost.
- Skilled workforces aren’t available everywhere, despite the presence of very numerous job applicants. Strategic planning must validate sight selection only where there is abundant labor, or must devise realistic means of attracting new workers to the region.
Transitioning from off-shore operation is challenging—ending contracts, absorbing exit taxes, obtaining permission to leave, removing your equipment from a foreign facility that now views it as their property. International logistics experts and attorneys can facilitate to avoid extreme delays and surprise costs. Noncompliance with any of a country’s exit rules might prohibit a company from future operation there. Failure to resolve all exit issues prior to scheduling activities in the U.S. can seize up reshoring efforts.
Otis Elevator (as well as NCR, GE, and Whirlpool) became overwhelmed by reshoring complications. Sales increased in 2012, but productivity ran far below projections in their new U.S. facility, burying the plant in back orders. Customers canceled orders. Robert McDonough, CEO of the United Technologies’ division that includes Otis, as quoted by The Wall Street Journal, explained, “I think we failed on both the planning and the execution side,” Other Otis representatives added that the company tried to accomplish too much simultaneously, including SAP implementation (a major undertaking for even the most well-established operations). And, after building the new U.S. plant, Otis discovered that the region didn’t have the skilled workers they needed—a profound complication.
Further a hindrance to Reshoring in AMerica, the STEM and skills shortage presents another impediment to U.S. manufacturing. For example, Apple cannot launch iPhone production in the U.S. due to unavailability of 30,000 engineers needed for the manufacturing facilities.
More Regulation Hindrances to Reshoring In America: Sourcing New Minerals and Metals Mines
As the U.S. manufacturing sector continues to grow, the importance of a secure, stable and reliable raw material supply is increasing. However, Harry Moser, founder of the Reshoring Initiative, explains that the current permitting process for new minerals and metals mines in the U.S. makes it harder for U.S. manufacturers to obtain the raw materials they need when they need them.
Stimulating Reshoring in America
The U.S. corporate tax structure should be as conducive as is feasible to domestic manufacturing.
Development of robotics, manufacturing additives, and other progressive technologies is needed to increase productivity and make manufacturing in the U.S. more economically attractive.
Modern manufacturers grapple with vast issues threatening profitability in the dynamic global marketplace. Location of factories is fundamental strategy. Due diligence includes obtaining expert analysis of ERP data and support by experts in handling international issues of reshoring. Harry Moser and Millar Kelley provides much information on reshoring and hidden risks of outsourcing to foreign countries, useful preliminary reading.
Instead of only striving to win a giant reshoring project, Economic Development Organizations (EDOs) should endeavor to cultivate a robust supply chain. An EDO should identify offshore OEMs, and help them identify processes that would be better financially served by reshoring. Connect them with compatible regional manufacturers. Build up a supply chain “ecosystem” around the major producer, developing a supplier network within a 100 mile radius. Then, naturally, as Moser advises, “They will bring jobs back to your region because it is in their self-interest.”
Join Reshoring Initiative Programs to Stimulate Reshoring in America
The Reshoring Initiative not only provides tools and information to help manufacturers make sourcing decisions, but also programs to help economic development organizations, manufacturing extension partnerships, universities, community colleges and other organizations bring back offshored work in their region and develop a stronger skilled workforce.
The Economic Development Program is high impact with minimal cost. It combines resources from the Reshoring Initiative and Datamyne, a top ranked provider of U.S. import data, to identify opportunities for products that could be economically reshored, and helps educate importers on the benefits of doing so. The Reshoring Initiative is currently implementing this program with several states, and believe that it is the most cost-effective economic development program.
The Skilled Workforce Development Program is designed to help communities motivate a higher quantity and quality of manufacturing skilled workforce recruits. The Reshoring Initiative does this by raising awareness of the realities of choosing careers in manufacturing today, including the importance of training, the revitalization of manufacturing, and opportunities for prestigious and financially rewarding careers.
Where do you think reshoring is going? Will we continue to reshore? At Cerasis, we want more reshoring as it helps our economy and in our post yestereday we found 31 reasons, which are but the tip of the iceberg.