The Pendulum Swings

Anecdotal evidence of a US manufacturing rebound has been building for the past two years. Here and there manufacturers “reshored” production to address problems encountered in the rush to low labor costs in China and elsewhere. New statistical evidence supports the anecdotes with strong evidence of a trend towards a greater production share for the US.

Manufacturing’s share of GDP rose in 2011 to 12.2 percent from 11 percent in 2009, the best streak since the ’50s. During the first half of 2012 the U.S. factory sector grew by another 3.1 percent versus a 4.8-percent global decline.

This year manufacturing grew in the US compared to a decline globally. The reasons have to do with US strengths as much as off shore challenges.

The Chief Executive article highlights several strengths:

    American plants have become vastly more productive.

    American advantages in technological innovation are becoming more important as manufacturing becomes more complex. Smart automation, lightweight materials, nanomanufacturing and rapid prototyping—all are areas where U.S. companies excel.

    As American consumers have become pickier, demanding more options in the goods they buy, it’s easier to satisfy them by building close to them.

Each of these strengths is supported by improvements in manufacturing ERP systems. Richer functionality combines with deeper integration to eliminate administrative delays in processing configured orders to satisfy customer demanded options – it is now possible to release orders for customer selected options directly to the factory floor. In this order management environment combined with first time quality improvements the automation reduces delays to physical production and transport times.

Off shore supply chains take too much time for transport, and have provided iffy quality.

Darlene Miller, owner of Permac Industries, a high-precision machine shop, is one. In 2006, she hired a Chinese contractor to make machine blades to exacting specs. But each shipment arrived flawed, with some blades not uniform, made of the wrong material or falsely labeled “certified.” Complicating matters, she had to buy a year’s worth of blades at a time.

For Dan Shimek, owner of the Outdoor GreatRoom Co., offshoring became too inefficient. Shimek used to buy all his wooden pergolas from China and fiberglass fire pits and pergolas from India, but minor problems on hardware orders created major issues because reshipping took six weeks. And sometimes reorders on a hot product arrived too late, costing him a season’s worth of sales.

The lower price of off shore production cannot compete with the business speed, flexibility and reduced overhead of production in the US. The reshoring trend is based on sound fundamentals and will continue in the face of economic headwinds.

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