The Move to Bring Manufacturing Back to America
In May of next year, Andrew Liveris, Chairman and CEO of The Dow Chemical Company will be awarded the 2013 international Palladium Medal at a dinner in his honor in New York City.
The prestigious award is presented by the Société de Chimie Industrielle to individuals who have made outstanding contributions to the chemical and allied industries. The award dates to 1958 when the medal was first presented to Ernest-John Solvay of Belgium.
The society itself was founded in 1918 in Paris. Over the years it has morphed into a New York-based trade organization that works to promote understanding of the chemical industry.
Liveris is no stranger to awards. In 2011 alone, he was honored by the Committee for Economic Development, the United States Council for Economic Development, the United States Council for International Business, and the Yale Chief Executive Institute. The native born Australian has been with Dow for 36 years and has become know for his outspoken views on the need for a robust manufacturing sector to maintain the long-term health of a nations’ economy.
His book, Make it in America, published in 2011 and updated in paperback this year, bluntly states what he feels is wrong with this country’s approach to manufacturing, and presents a set of proposals to address these problems, including a startling call for more government, not less.
He says in the book’s introduction, “As the world’s largest economy, the United States…has an obligation not to just its own people, but to the people of the world, to get this right. To no longer accept the shuttering of factories and the offshoring of jobs as inevitable. To reject once and for all the idea that manufacturing is somehow optional, or incidental to our future.
“On the contrary: manufacturing is America’s future. Not just its past. Manufacturing is the foundation upon which our economic prosperity, our growth and wealth and jobs depend. At the center of our economic problems lies the hole that was left when manufacturing started to disappear. At the center of our solution is a strategy to rebuild that once vibrant sector.”
In his chapter on “Fighting Offshoring” Liveris debunks the notion that labor costs were the primary reason U.S. companies have offshored manufacturing. It’s true, he notes, that lower wages have been a factor – sometimes a major one – in a company’s decision to move its operations overseas. But favorable tax structures, low interest loans and a variety of other incentives that have evolved in the global marketplace play an even greater role in enticing American companies to take their business elsewhere. Liveris writes, “Where other countries gave chemical companies stable contract prices on their feedstocks – as a way of bringing a measure of certainty to the equation – the United States said, once again, just let the markets rule. And the markets ruled. Half a million chemical manufacturing jobs moved offshore.”
But the times are changing.
As Harry Moser, founder and president of the two year old Reshoring Initiative comments on his web site, “American companies often don’t consider all of the costs involved in sending their manufacturing offshore, such as inventory carrying costs, traveling costs to check on suppliers, intellectual property risks and opportunity costs from product pipelines being too long.”
Well, now some of those companies are taking a harder look at their decisions. Says Moser, “Reshoring is more than a trickle, but les than a torrent. Approximately 50,000 manufacturing jobs have been reshored since the manufacturing employment low of January, 2010. Manufacturing jobs are up by about 500,000 since then, so reshoring has contributed about 10 percent of that growth.”
The Reshoring Initiative provides a Total Cost of Ownership (TCO) Estimator, a complimentary on-line tool that allows companies to calculate the real costs of offshoring, including overhead, balance sheet, corporate strategy and other external and internal business costs.
“OEMs can use the TCO Estimator to make better sourcing decisions,” notes Moser. “Contract manufacturers can use the system as a sales tool to convince the OEMs to buy from them instead of offshore.”
Reshoring at GE
Another CEO who recently weighed in on this issue is Jeffrey Immelt, who heads up General Electric. Like many other companies, lower labor costs overseas prompted GE to outsource part of its manufacturing. But, as Immelt wrote in a March 2012 Harvard Business Review article, “A broader set of metrics has led GE to reverse course and invest heavily in renewing American manufacturing operations.”
Part of that investment is the construction of a state of the art, $40 million data center at the company’s Appliance Park in Louisville, Ky. as well as a multi-year IT project. Both are part of a larger $800 million investment in Louisville. Immelt says the company will create some 1,000 jobs in the U.S. by 2014.
GE is redesigning all its product lines in Appliance Park and, in some cases, rehabilitating factories that have been idle for 15 years.
Now, Immelt is not saying the company will move away from performing research and development and manufacturing outside the U.S. Where it makes more sense to source commodities, manufacture or conduct R&D overseas, GE will do it. But today the company is outsourcing less and producing more in the U.S.
Writes Immelt, “When we are deciding where to manufacture, we ask, ‘Will our people and technology in the U.S. provide us with a competitive advantage?’ Increasingly the answer is yes.”
This is the message that the indefatigable Harry Moser has labored long and hard to bring to U.S. manufacturers and members of the government at all levels. He points out that the benefits of reshoring are on the rise as offshoring solutions run up against such problems as escalating wages and currencies, high transportation and fuel costs, and all the problems that long-range communications can bring. U.S. companies are returning their operations to these shores because offshoring has hampered the rapid delivery of goods, and their ability to maintain low inventories, keep costs competitive, and respond to rapid changes in the marketplace.
A blog on the MIT Forum for Supply Chain Innovation states, “…there exists a huge opportunity for U.S.-based companies and American policy makers to return the country to an era of manufacturing growth. The biggest hurdle may be that a new mind-set is needed — a sense of urgency, an acceptance of new ideas, and an acknowledgement that the playing field is often uneven and that hyper-aggressive programs and policies must be enacted.”
Will the reshoring trend continue? Will it accelerate or fade in the stretch? Will U.S. state and federal governments be able to fashion new policies and incentives to bring a significant amount of American manufacturing back home? Obviously, manufacturing in the USA is in a major state of transition. Stay tuned.