Reshoring, or moving manufacturing back to the U.S. from overseas, continues to be a hot topic. For example, at a recent “Insourcing American Jobs” forum at the White House, the President, Vice President, members of the Cabinet, and other Senior Administration Officials lead a discussion on ways to encourage U.S. companies to insource American jobs and make additional investments to help rebuild the economy.
There’s a great deal of merit to bringing manufacturing back to the U.S., or in some cases, to keeping it in the U.S. in the first place. As has been previously noted, wages in China and other low-cost countries have been rising quickly. Indeed, some analysts expect that in a few years, there won’t be much difference at all between wages in China and those of U.S. workers. At the same time, increasing fuel prices continue to push transportation costs higher. Finally, and perhaps most significantly, the overall total cost of ownership—ranging from labor and quality to inventory carrying and shipping costs—makes manufacturing in the U.S. (or at least closer to home) more appealing.
With all that in mind, I have been interested to see news that large companies are taking note of the situation, and are taking significant steps. For instance, last week, I saw a Reuters story reporting that executives at some large manufacturers now say they realize they moved production out of the U.S. too quickly over the past decades. Furthermore, they now see a competitive advantage to building their footprint in the U.S. For example, Boeing and General Electric now find that the benefit of lower wages overseas may be offset by higher logistics and materials costs, the story notes.
Speaking at an event organized by GE aimed at promoting the competitiveness of the U.S. economy, Jim McNerney, chief executive of Boeing, said that “lemming-like,” companies over the last 15 years extended their supply chains a little too far globally in the search for low cost. He added that in some cases, companies lost control over quality and service, and in some cases, companies also underestimated the value of workers in the U.S.
People will now see more manufacturing return to the U.S., partly for business reasons, and partly because companies want to be good U.S. citizens, McNerney said.
GE CEO Jeff Immelt said at the same event that GE’s thinking on the value of manufacturing in the U.S. versus offshore has evolved. Consequently, GE is essentially moving appliance manufacturing back from Mexico and China to Louisville, Ky., he said. When the company evaluated the business on a cost basis, U.S. labor is still higher, but it’s more competitive now than it has been. Additionally, both materials and distribution are less expensive in the U.S. So GE now sees an opportunity to bring jobs—certain jobs, but not every job—back to the U.S., he says.
Other companies also are reaching a similar conclusion. For example, Industryweek reported last week that Caterpillar recently announced it will shift production of small tractors and excavators from its Sagami, Japan, plant to the U.S. The company actually will build a new $200 million facility near Athens, Ga., to produce small track-type tractors and mini hydraulic excavators. That facility is expected to directly employ 1,400 people and generate another 2,800 jobs among suppliers and other supporting businesses, the article explains.
The decision to shift production from Japan to the U.S. is driven by the proximity to a large base of customers in North America and Europe, Mary Bell, head of the Caterpillar division, said in a statement noted in the Industryweek article. The company’s objective is to better serve those customers from this new factory. The Athens site was selected because of its proximity to the major ports of Savannah and Charleston, Bell said, as well as the region’s strong base of potential suppliers and skilled manufacturing employees.
Has your company reached similar conclusions? And if so, what action is being taken?