Reshoring on the Rise
Major Companies Bringing Jobs Back to the U.S.
Whether you call it insourcing, onshoring, or reshoring, it is defined as the reversal of outsourcing: the transfer of a business operation back to its country of origin. This relatively recent phenomenon has come to define the rebirth of American manufacturing.
The reshoring trend started back in 2009 and has continuously gained momentum for a variety of reasons the most common being the problems that come from outsourcing overseas, including:
- Extended delivery times
- Rising product costs
- Customs duties/fees
- Poor quality
- Overall risk
- Customer dissatisfaction
- Language and cultural differences
- Transportation costs that increase by 10% annually
Other contributing factors have been the Buy American Movement; the narrowing cost differential between China and the US; the much publicized fear of knock-offs; and the abuse of workers' rights and poor working conditions overseas. According to the International Labor Organization, real wages in China rose by a mere 19% between 2005 and 2010, and the Chinese government has set a target for an annual minimum wage increase of only 13% through 2015.
At Tri-Star Industries, we have witnessed industry trends come and go, and we have seen firsthand that the offshoring trend appears to be reversing its course. According to Harold Sirkin, a partner at Boston Consulting Group and one of the co-authors of a recent indepth study Made in America, "There is a pendulum that swings all the time, and it is now swinging back." In a recent New York Times column, journalist Thomas Friedman observed that "CEOs view their businesses globally and are most concerned with accessing the best quality talent at the lowest cost possible, wherever it may exist."
As CEOs review their Total Landed Costs (TLC), many have come to understand that reshoring is worth the exercise. "It's incredible what you find when you step back and seriously evaluate purchasing the components offshore," reported Columbia Marking Tools CEO Tom Phipps after reviewing his company's TLC. "The paperwork is ridiculous and Customs hold-ups at both ends are common. The crating, handling and shipping costs are becoming out-of-site, and God forbid the parts aren't right when they arrive, making you have to start all over again."
Some reports indicate that 15-20% of product received from overseas is incorrect, damaged or non-conforming. In some circles this is expected and accepted because the base cost of the offshore P/O is lower than the inshore cost. "Somewhere along the way the rules got changed," said Phipps, "If my non-conformance rate was 15-20%, regardless of my price, I'd be out of business. Why is it acceptable for some offshore suppliers to perform in this manner and retain the business?"
Manufacturers are coming to realize that the offshoring model does not always work in today's business environment. According to Sirkin, "Where once Asia was a source of cheap yet productive labor, U.S. productivity is now 3.4 times higher than it is in China
a more flexible workforce makes the U.S. a more cost-effective option. Manufacturers are finding that onshoring reduces lead times, thus reducing inventory carrying costs, transportation costs, and the hassle of regulatory red tape."
It's a wonderful thing that companies such as Apple, Caterpillar, Ford, Honda, Lenovo and Otis Elevator have recently insourced jobs. GE opened new assembly lines in Kentucky to manufacture appliances, and Wal-Mart has pledged to spend $50 billion in U.S. goods over the next decade. It's equally refreshing that the national news networks and print media are recognizing these companies for their efforts to bring jobs back to the U.S. However, how about recognizing the thousands of small and medium-sized businesses that have had the opportunity to source offshore but chose not to? Tri-Star Industries is one of these companies!