Top 5 Reasons to Make it in America

Top 5 Reasons to Make it in America

MadeInUsaWe’ve been hearing a lot about US manufacturing this year. It’s positioned at the top of American priorities, and appears to be gaining momentum.

A closer look reveals the Made-in-America resurgence is opening up opportunities for reshoring. The White House emphasis on USA manufacturing combined with rapid domestic technology innovation has created optimism and space for growth in the American-made component market.

At PMT, we’ve seen an uptick in customers and potential clients requesting information on the cost of reshoring components. With the intent of localizing supply chains, many sourcing managers find the gap between U.S.-made and off-shored products is not nearly as wide as perceived.

With this in mind, here’s our top 5 reasons why it’s time to Make it in America:

1. “Made in the USA” is more than a tagline.

It’s a modern manufacturing reality. Just look to Walmart’s Made in USA initiative, a promise to purchase $250 billion in U.S.–made products by 2023. Some American manufacturers can compete with pricing from low-cost countries, but if they can’t, consumers—and therefore their customers—may be willing to pay a bit more for a Made-in-USA product.

Over the past 20 years, the offshoring boom drove the goods trade deficit up by about $640 billion a year, and cost around three to four million manufacturing jobs, according to an article in Market Watch written by the Reshoring Institute. With these statistics behind us, how do we drive manufacturing back to the US?

“The most direct way to reduce the trade deficit…is to substitute domestic production for imports, i.e. via reshoring and foreign direct investment (FDI) in the U.S.,” according to the article. Eliminating the trade deficit would result in a rapidly growing manufacturing workforce for the first time in 40 years, a rise in average wages and a manufacturing output increase of up to 30 percent, according to the authors.

Opportunities for USA manufacturing growth continue to appear. Taiwanese electronics giant Foxconn announced plans to build a $10 billion factory in Wisconsin, creating 3,000 jobs in manufacturing liquid-crystal-display screens. This may be only the first of multiple announcements from the company, sources say.

China recently notified the World Trade Organization it will no longer accept exported scrap commodities from the United States. Clare Goldsberry wrote an opinion piece in Plastics Today pointing out the silver lining—America exported $5.6 billion in scrap to China last year. If the goal is to bring manufacturing back, create jobs, shorten the supply chain and have a more sustainable carbon footprint, then reshoring the plastic scrap industry answers all of these objectives, Goldsberry writes.

2. Advanced manufacturing in America levels the playing field.

With robotics and automation now widely integrated throughout the American manufacturing supply chain, the industry is able to compete with lower-cost countries.

According to the Made in America Movement, advanced manufacturing helps level the global playing field for the U.S. by reducing the number of labor hours per unit of output, and shrinking the gap in labor cost per hour.

“For example, a highly skilled robot engineer in China makes a third to a half of American pay, and not the small fraction (5 or 10 percent) of the low-skilled Chinese workers,” according to the site. And in countries like China, acquiring capital equipment is more expensive due to value-added taxes up to 17 percent on imports.

The U.S. is ramping up its commitment to technology, and collaborative robots are helping small- to medium-sized manufacturers like PMT stay cost-competitive against lower cost countries like Mexico and China.

3. The off-shoring math no longer adds up.

According to reshoring experts, many companies that off-shored manufacturing didn’t really do the math. An often-cited Archstone study revealed 60 percent of offshoring decisions used rudimentary cost calculations, typically just price or labor costs. This left out a variety of other real costs, including freight, duty, inventory carrying cost, delivery and impact on innovation.

The Reshoring Initiative estimates about 25 percent of what is now off-shored would come back if companies quantified total cost. Products with high freight costs, frequent design changes, demand volatility, intellectual property risk and complex regulatory and compliance requirements are the best candidates for reshoring, according to the group.

Aside from requesting state-side quotes from American companies, online tools are available to evaluate the cost of domestic vs. offshore production. The Reshoring Initiative launched the Total Cost of Ownership tool, calculating 36 variables that impact final cost.

“For these most-reshorable products, such as large appliances with high freight costs, medical devices requiring high technology and quality standards, and plastic products that are getting cheaper thanks to declining natural gas and oil prices, the offshore manufacturing cost gap vs. the U.S. is now smaller,” according to the Institute. The Wall Street Journal recently published an article touting an impending U.S. plastics boom, complete with a steady rise in demand due to low resin material prices.

Changing costs continue to be a major factor in reshoring. When manufacturers off-shored production and supply functions, they were looking for the best foothold to stay competitive in a global marketplace, according to an article from American Machinist. But the factors that made offshoring attractive shifted dramatically, and now many of those savings have eroded, according to the article. Wages, taxes and cost of living are on the rise in throughout Southeastern Asia.

And some savings have increased—like low oil and gas prices—allowing the pendulum to swing back to the United States. On-shore production is becoming more viable and competitive for a significant number of producers.

4. The risk of proprietary information theft is too great in the Age of Innovation.

As written recently in Plastics Today, outsourcing to low-cost countries—especially China—is like the Hotel California. As the article put it: “You can check out any time you like, but your equipment (and IP) can never leave.” So not only will your biggest investments stay—your best ideas could live on indefinitely without your knowledge.

Most companies who run production in Asia know the red tape involved with moving their molds back to the U.S., and most decide to start from scratch when reshoring. Rosemary Coates, executive director of the Reshoring Institute, recently told to Plastics Today: “If you have shipped a mold or die to China, don’t plan on getting it back. Once it’s there it’s considered to be part of their infrastructure. They feel they own it. If you have proprietary molds or designs built into your tool, advance with your eyes open.”

According to an AMR Research report, intellectual property infringement, quality failures and regulatory compliance issues are the most-cited risks in sourcing in China. In our experience, after the initial investment of rebuilding molds, companies who reshore from China find costs recovered through higher quality parts, significant logistics improvements and the security of knowing their molds will be properly run and maintained.

Then there’s the complex area of Intellectual Property. Your great design ideas can be replicated by contract manufacturers in China and other lower-cost countries. Even if you have all the right contracts in place, ideas can be copied and commoditized despite your best efforts. Take it from the experiences of American companies exhibiting at U.S. industry trade shows, where counterfeit products have been known to pop up.

5. A renewed focus on workforce development in the U.S. ensures skilled workers are ready for a manufacturing resurgence.

The U.S. will need to fill approximately 3.5 million manufacturing jobs over the next 10 years, according to a recent study from Deloitte and The Manufacturing Institute. Of those 3.5 million jobs, 2 million considered highly skilled. Because of this new reality, the efforts to close this gap are becoming stronger and more effective.

According to Reshoring Initiative data, the availability of both a skilled workforce and training are essential for bringing jobs back. When companies re-shored and failed to find the needed workforce, the transition was painful. The availability of quality and quantity skilled workers is often a main criterion in selecting factory location, and a key issue for retention and expansion.

Fortunately, the high visibility of the manufacturing industry is increasing the rate of recruitment, as students begin to understand that manufacturing is, once again, a solid career choice. Initiatives like Manufacturing Day work to engage the next generation of skilled workers, with almost 600,000 people reached last year (nearly half of which were students).

Industry is also stepping up to bridge the skills gap. For example, PMT has an active internship program for college students, a state grant for in-house workforce development and a just-launched apprenticeship program to fill anticipated industry voids in highly skilled areas like tool making and process engineering.

Adding approximately two million skilled manufacturing jobs over the next decade is feasible. Research by the Manufacturers Alliance for Productivity and Innovation estimates the value added multiplier effect for manufacturing is at 3.6, meaning for every $1.00 of value added by domestic manufacturing, the sector generates $3.60 of value-added elsewhere in the U.S. economy. This leads to estimates of about 7 million jobs added across the U.S. economy over the next decade.

So far, reshoring and related FDI trends have increased. 77,000 jobs were added in 2016, bringing the total number of manufacturing jobs brought from offshore to over 338,000 since the manufacturing employment low of 2010. This year, the combination of a renewed government focus on manufacturing, a deeper understanding of the costs of offshoring and an emphasis on skilled trades as viable career paths can reignite the Made in America movement.