Analyst: Manufacturers could benefit from “reshoring” operations

Phil Castle, The Business Times

U.S. companies that evaluate all of the costs involved in manufacturing products overseas, and not just wages, could discover it actually might be less expensive to bring those operations, and jobs, back home.

“It’s possible to bring manufacturing back and have it work greatly to your advantage,” said Millar Kelley, a research analyst with the Reshoring Initiative. The not-for-profit group promotes efforts to bring manufacturing jobs back to the U.S. by helping companies analyze their sourcing decisions.

Kelley was among the featured speakers at a manufacturing summit in Grand Junction presented by the Western Colorado Manufacturing Alliance.

Cheap labor, container shipping and improved telecommunications prompted many companies to relocate manufacturing operations offshore and ship products back to the U.S., Kelley said.

But those trends are changing as wages in foreign countries rise and higher energy costs drive up shipping costs, she said.

Unit labor costs have risen in China over the past decade along with wages there even as that measure has held steady in the United States as productivity has increased. It’s expected that by 2015, the gap will close, Kelley said. “It will no longer be cheaper to make it in China and bring it here.”

Moreover, many commonly used models used to compare the cost of manufacturing miss as much as 20 percent of the total costs actually involved, she said.

Along with what can be lower costs, there are other benefits to reshoring, Kelley said. Companies tend to be more competitive in local markets and can appeal to increasing consumer demand for products made in the U.S. Maintaining manufacturing facilities in the U.S. also helps to promote the long-term stability of a company.

Reshoring benefits the U.S. as well in reducing the trade deficit and improving the economy, she said. Along with bringing back manufacturing jobs, reshoring leads to the creation of additional jobs not only among suppliers, but also other sectors. By one estimate, bringing back all manufacturing jobs to the U.S.  could  lead to the creation of a total of 7 million to 8 million jobs.

Reducing the long-distance shipment of products would help the environment as well, Kelley said, in reducing emissions of so-called greenhouse gases believed to cause global warming. And while that’s not a set cost now, it could become one if carbon emissions are capped, she added.

While heavy equipment, appliance and electronics companies are among the manufacturers that have most frequently brought operations back to the U.S., thousands of firms in a range of industries have done so, Kelley said. “It’s a very broad spectrum.”

She cited as an one prominent example General Electric. After redesigned its water heaters, refrigerators and washing machines, GE brought production of those appliances back to the U.S. and found it could sell higher-quality products for less. GE Aviation plans to invest almost $100 million and create 200 jobs in a jet engine manufacturing plant in Indiana. The company already has 6,000 orders for the new engines.

Wal-Mart has announced a program to spend an additional $50 million over the next 10 years on products made in the U.S.  as part of efforts to increase domestic production, Kelley said.

A projected increase in chemical manufacturing spurred by low-cost natural gas in the U.S. could have implications for Western Colorado in promoting production in the region, she added.

“You can’t miss these kinds of opportunities,” she said. “You have to seek them out.” 

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