Wal-Mart attracted headlines earlier this year when it announced that the retail giant would spend $50 billion over a ten-year period sourcing and buying American-made goods. The goal is to help manufacturers bring production back to the U.S. from overseas—a movement known as “reshoring”.
In addition, Wal-Mart created a $10-million fund to promote American manufacturing, while also announcing that Kent International, a bike manufacturer and Wal-Mart supplier, planned to move its overseas operations from China to South Carolina, creating 175 American jobs.
Compare that to the experience of Core Products International Inc., a 26-year-old manufacturer of orthopedic soft goods and supports. In 2012, company president Philip Mattisondecided to close its 25-employee sewing and assembly facility in Mexico and bring production back to the company’s headquarters in Osceola, Wisconsin, home to 75 employees, and Chetek, Wisconsin, home to 25 employees.
The Wal-Mart decision attracted national headlines. Mattison’s decision barely made it to the local papers. Still, he says the decision to bring production back to the U.S. was the right financial move for his company. The increasing cost of offshore labor, combined with flat wages here at home since the recession, were part of the reason, he says. In addition, fuel costs have doubled, driving up freight costs in the process.
“We had also developed more processes and people to manage Mexican production,” says Mattison. “We often needed to send our staff to Mexico. They would travel there whenever we introduced a new item, added new equipment, or changed a process. That got expensive. It’s not nearly as effective to go offshore as some people think.”
That’s what Harry Moser emphasizes through the Reshoring Initiative, an organization he founded with the mission to bring good, well-paying manufacturing jobs back to the United States. Moser’s grandfather was a foreman and his father a manager at the Singer Sewing Machine Company factory in Elizabeth, New Jersey. Moser, who has 45 years experience in the manufacturing industry in a variety of capacities, also spent his summers working at the plant. But now, that plant is barren and Moser says “it brings tears to my eyes” to see that its production was sent overseas.
But times are changing and Moser has the numbers to prove it. In 2003, his data showed that over 150,000 American manufacturing jobs were lost per year to offshoring, while only 2,000 were gained from reshoring. In 2016, Moser’s data estimates that just 20,000 manufacturing jobs per year will be lost to offshoring, while 70,000 new jobs will be created in America because of reshoring.
To help companies of all sizes decide if reshoring makes financial sense, Moser helped create The Total Cost of Ownership Estimator, a user-friendly software program to walk owners through the process.
“When considering increasing transportation and fuel costs, increasing overseas wage rates, high reject rates, substandard quality issues and unreliable timelines and deliveries, plus a number of other hidden costs, the total cost of manufacturing in developing countries can be greater than most realize,” he says.
Patrick Van Den Bossche, a partner with A.T. Kearney, a leading global management consulting firm, says economic change and labor and currency issues have led to increasing costs in many developing countries, while energy and other costs have become more competitive in the U.S. Other factors, including the need for shorter delivery times and a renewed consumer interest in buying “Made in the USA” products, are making companies at least consider reshoring operations.
“There is a recent increase in cases mentioning the need to improve their image and/or brand by moving back to the U.S.,” says Van Den Bossche.
AT Kearney has a proprietary database of over 700 cases where companies reshored. Based on that database, the industries where reshoring is occurring the most include:
- Transportation equipment
- Plastics & rubber
- Fabricated metal
Reshoring has its challenges
“Reshoring is certainly not a one-size-fits-all solution and executives should consider the specific characteristics and value proposition of their own business model to see if it fits them,” says Van Den Bossche.
And even if reshoring may fit a business model today, that may not be the case a few years down the road, he adds. In order to establish a successful strategy, business owners should first identify and understand the key drivers that will determine if reshoring will make sense in the future.
Using Moser’s Total Cost of Ownership Estimator is a good place to start. Being back in the United States is a good place to end, says Mattison, who added that closing down the Mexico plant didn’t come without costs. It took nearly three months to move all equipment back to the U.S., and every piece with a serial number had to get cleared through customs before it was sent back to Wisconsin.
“People don’t want to get out of their comfort zone,” says Mattison. “So it’s hard for them to see the benefit of reshoring. But in manufacturing you have to think long-term.”
In the meantime, his two American plants are able to produce the same amount of product at the same cost as when the company was manufacturing in Mexico, Mattison says. “Because of automation and the skilled American workforce, our operations in Mexico couldn’t come near the production capacity that we have in the U.S.,” adds Mattison. “It just made sense for us.”