When total cost of a purchase is taken into account, in many cases, the U.S. is not only better quality, but cheaper.
Conventional wisdom says the cheapest price can only be found in China. Shortsighted purchasing managers have pursued this strategy to the detriment of their employer.
A.T. Kearney recently looked into the matter. And while the global management consultancy didn't declare reshoring a panacea, it did confirm that the trend is real and momentum is accelerating. Here are 10 reasons why companies are bringing their manufacturing back to North America:
- Shorter delivery time--Marlin Steel is a one to two day point to Chicago or four to five days to California on the back of a truck. China takes 4-8 weeks on a boat and this does not include the typical snafus unloading containers through customs and homeland security at our clogged ports. Shipping via boats adds a mystery element that gives purchasing managers grey hairs. By the way, dockworkers may be going on strike soon on the Pacific Coast. This could have an additional chilling impact of your speed to market.
- Total cost of ownership--When you add in all the costs of importing like custom duties, insurance, overseas quality inspections, freight damage, etc the American factories shine. Check out the simple tool developed by the Reshoring Initiative (Thank you Harry Moser) to evaluate objectively whether USA Made or China Made is cheaper. http://www.reshorenow.org/TCO_Estimator.cfm
- Higher quality--US Companies are devoted to making great quality. Making it right the first time is ingrained in our genes. Marlin Steel's laser and punch are both 0.004" tolerance (thickness of a human hair) and we have a press brake that bends sheet metal within 0.1 microns tolerance (1/40th of a human hair). This exceptional quality is common in US Factories. US manufacturers have superior technology and well-trained talent running these amazing tools.
- Reduced freight costs--A container of freight from Shanghai to New York is $4,000.00+ however US factories can get goods delivered to your door step for a fraction of this price.
- Wage cost improvement--Chinese Factories have to pay their labor 20% more each year for five years. Despite these pay increases, a third of the employee base does not return annually after Chinese New Year. The strains in the Chinese labor system will intensify in coming years as decades of "One Child" policy causes an accelerating labor shortage in China (you read that right)! To make matters worse, Chinese labor has a 50% social security tax burdening them so they are becoming less competitive faster.
- Improved customer responsiveness--When issues arise, US Factories own up to our errors and fix the problem. If problems are not resolved, US Companies are bound by the rule of law. Many overseas companies are hard to find when problems arise. Good luck dealing with the local Communist Party official in China adjudicating your cross border conflict vs. a local Chinese employer.
- Image/brand--Selling products is easier when the marketing department can boast "Made in the USA." Sales will improve further justifying keeping the manufacturing at home. When was the last time your sales team demanded the packaging be reconfigured so they can more prominently trumpet, "Made in China?"
- Higher productivity--Nathan at Marlin Steel is a dedicated robot set up operator that runs over a million dollar cell of four wire forming robots. Because of these tools and his exceptional acumen, Nathan can bend over 20,000 complex high precision bends an hour with stunning consistency. Every day he comes up with new solutions and suggestions to make a better product. In China, bends are done by hand. Maybe 300 per hour in a Charles Dickens novel format. The USA and Nathan will continue running productivity circles around low labor countries.
- Better innovation/product differentiation--having a USA factory build for your firm will improve collaboration and profits. Ideas will occur on the factory floor, which can be easily tried. Improving cross-pollination with the domestic marketing and engineering team is easy because we all speak the same language in the same time zone. American factory workers are quick to make suggestions because suggestions are appreciated. It is our culture. This feedback and new client tastes can be quickly adapted into new revision levels of the product. This will make sure your inventory does not become stale--staying relevant in a dynamic fast changing market is critical.
- Inventory management--when some of your finished goods are on a boat and some are in customs, it is hard to manage with confidence when critical components will arrive. Naturally, purchasing managers without confidence of when things will arrive and in what condition, "over buy" inventory. "Purchasing manager job preservation" is an expensive wasteful plan for your company.