Exposing the Myths About American Manufacturing

American Giant, an apparel line launched today, signals that American manufacturing is making a comeback. Still, there are obstacles--and misconceptions--to overcome.

SFO Apparel in Brisbane, California is the exclusive manufacturer for American Giant.

Don't ring the death knell yet.

Manufacturing is alive and well and living in America. For proof, look no further than Bayard Winthrop, a San Francisco-based entrepreneur who on February 1 is launching American Giant, a clothing brand whose garments are exclusively made in the United States, and are sold exclusively online. The collection itself isn't exactly cut for the runway—the line is composed of cotton sweatshirts, cardigans, and sweaters for men. But Winthrop's attitude about the state of U.S. manufacturing, and his dedication to it, is becoming a noteworthy trend among many American retailers.

"This idea that technological innovation is liberating the best of American manufacturing is a fascinating business idea," he says. "And it's one that has me really optimistic about the American manufacturing sector looking forward."

Over the past two years, the U.S. economy has created some 330,000 manufacturing jobs. Manufacturing production has increased by about 5.7 percent since June 2009—its fastest pace in a decade. At the same time, rising wages in China are making overseas manufacturing more expensive.

330,000: Manufacturing jobs created in U.S. in two years
5.7 percent: Increase in manufacturing production in U.S. since June 2009

Even President Obama is putting his chips behind American manufacturing. In his State of the Union address last month, the President urged businesses to consider manufacturing locally. "Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that's built to last," the President said. "This blueprint begins with American manufacturing."

Better Quality Control and Quicker Turnaround

American Giant's office, which houses its 10 employees, is located on a busy street in the Castro District of San Francisco. Six miles south, in Brisbane, sits the company's contracted manufacturer, SFO Apparel, where American Giant has become their biggest client. Getting from the offices to the manufacturer is a breezy 15-minute drive along the San Francisco Bay that, Winthrop says, is perhaps the company's greatest asset. Why?

Beyond the brand value that comes with a "Made in America" tag, keeping American Giant local gives Winthrop more creative control, better quality control, and faster manufacturing cycles.

It's also, he believes, cheaper than it ever was.

For more on this, check out How American Giant
Hacked the Supply Chain. 

He offers an example. Say you're working with a manufacturer in Shenzhen, China, and you've just ordered 15,000 garments that will arrive by boat. You have someone overseeing production, but he makes a slight mistake.

"When the shipment comes, you realize 'Oh crap, once we wash these things the threading frays.' What do you do about that?"

There are a few options, he says. None of them are good. A company can either go to market with an inferior product and hope the customer doesn't notice, or your company can do a secondary rush job to reinforce the stitching. The third option, equally unattractive, is to send the product back and lose 90 to 120 days in time to market, which is enormously expensive. 

By keeping it local, Winthrop avoids the anxiety—and the potential downside of mismanaged product.

"We not only have members of our own staff down there watching stuff getting made and coming off the line, but if we see things that we're less than happy with, you can adjust on the fly," he says.

It's a lesson learned from companies such as Zara, which can design and distribute a garment to market in fifteen days. Time is money.

Local manufacturers are also much, much faster. When working with a manufacturer overseas, a brand will have to make a purchase decision about 18 months in advance. For clothing retailers, having to make that decision is nearly impossible. Not only does manufacturing locally cut down the buy cycle to about four to six weeks, but it allows Winthrop the opportunity to restock on products that are selling exceptionally well, and avoid any inventory shortages. It's a lesson learned from companies such as Zara, which can design and distribute a garment to market in fifteen days. Time is money.

"I can drive down to SFO tomorrow and say, 'Hey, the crew-neck is really selling much better than we thought so let's get more on the line.' I can be back in stock in a week and not in 30 or 60 days," he says.

Saving the Soft Costs of Going Abroad

Winthrop acknowledges that manufacturing locally is ideal for most entrepreneurs, but entrepreneurs often believe it's too expensive. After all, labor wages and materials prices are higher in the United States. But there are other costs of going abroad—the soft costs—that Winthrop believes are too often underestimated by retailers.

"A lot of my peers in the manufacturing world understand inherently the benefit of making stuff close versus far away," Winthrop says. "I don't think there's anything that's unclear to people. But navigating the cost-benefit analysis has been more complicated historically."

Bill Waddell, a manufacturing consultant and author of Rebirth of American Industry, agrees. Soft costs, he says, are "terribly underestimated by American retailers."

Waddell explains that when most companies do their yearly cost benefit analyses, they focus too highly on labor and material costs (because they're easy to trace to the product) but they do a lousy job of taking into account all overhead costs—like setting up the facilities, travel, and executive pay.

"For most companies, overhead is responsible for up to 600 percent of labor," he says. "That's where all the money is. When you look at direct labor, it's actually a very small percentage of the total cost. But all of our accounting systems and measurement systems and what they teach in school has got this labor-centered approach to manufacturing management that is not only misleading, but downright destructive. It leads companies to do dumb things."

What's Changing?

Eric Markowitz reports on start-ups, entrepreneurs, and issues that affect small businesses. Previously, he worked at Vanity Fair. He lives in New York City. @EricMarkowitz