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6 comments

Are Manufacturing Jobs Coming Home?

Posted October 18, 2011 7:00 AM

A recent IndustryWeek article cites a survey showing that many companies are now considering moving their manufacturing operations closer to customers. This supposedly offers advantages that outweigh the advantage of minimizing labor costs in low-wage countries. Do you buy it, or do you expect manufacturing jobs to continue to flow to the countries offering the cheapest labor?

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Power-User

Join Date: Apr 2011
Posts: 100
Good Answers: 5
#1

Re: Are Manufacturing Jobs Coming Home?

10/19/2011 8:34 AM

As the standard of living in other countries rises, the cost advantage might finally be small enough that other factors come into play. It might take a bit more in-depth analysis to show that the business advantages of keeping work here are real, tangible (albeit harder to see) and worth it.

But quite frankly, until management thinking changes, I still expect jobs will go overseas. Once a management mantra takes hold, the numbers aren't crunched and a true cost analysis will be considered unnecessary and won't be done.

Case in point: in the early 90's the buzzwords were downsizing (and it's various substitutes like "right-sizing") and outsourcing. Companies did it and Wall Street reacted b driving up stock prices.....until suddenly it was discovered that companies downsized and outsourced to the point of not being able to take on any increased business. They simply didn't look at the numbers, they took the actions whch were getting certain results, but didn't do any homework. Wall Street finally reversed its trend of raising stock prices when a company announced job cuts, and started lowering prices instead. Still, it took American management generally about 9 more months before they got the word.

So yes, I believe ther are real advantages to bringing some manufacturing jobs back home....whether or not we do it is still a question.

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Participant

Join Date: Jun 2011
Posts: 1
#2
In reply to #1

Re: Are Manufacturing Jobs Coming Home?

10/19/2011 1:05 PM

There is another factor, energy and transportation costs. It is one thing to move operations to the lowest labor cost region containing workers who can be trained when oil sells for less than $20/bbl and quite another when it's above $100. With the advent of shale oil in many of the world's region, for example, the developing fields, Bakken in North Dakota, Montana and Saskatchawan, Eagle Ford in Texas and Niobrara in Colorado, profitable recovery prices of more than $80/bbl, seem to indicate that this will be the low crude cost. It remains to be seen if $80/bbl oil is enough to initiate a trend toward local manufacturing and processing or if a higher hurdle rate is necessary. At some point petroleum-driven transportation costs will offset any labor advantage.

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Power-User

Join Date: Oct 2010
Location: OZ, otherwise known as Oklahoma were the wind comes sweeping down the plains.
Posts: 160
Good Answers: 4
#3

Re: Are Manufacturing Jobs Coming Home?

10/19/2011 3:05 PM

I have heard some anecdotal evidence, that quality can suffer in high-skill manufacturing in low-wage countries. This along with the higher transportation costs, increasing wage cost, and increasing environmental controls may be enough to drive manufacturing back to the USA. Also, if we eliminate the taxes that encourage off shore operations would help bring manufacturing back.

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Power-User

Join Date: Apr 2011
Posts: 100
Good Answers: 5
#4
In reply to #3

Re: Are Manufacturing Jobs Coming Home?

10/19/2011 3:15 PM

I have heard similar anecdotes, and have some direct experience with poor quality coming from low wage countries.

When I worked for a major pharmaceutical manufacturer, the company attempted to outsource production of some drug active ingredients to lower wage countries. The reject rate because of poor quality was so bad that we had to pull the manufacture back. When a second attmept was made, the company finally decided to send experts to help that particular country learn how to run a pharmaceutical plant. I think that any savings expected from this outsourcing disappeared and it probably cost money in the long run.

I heartily agree that the corporate tax structure in this country has for too long encouraged sending work off shore. Not only are we shipping jobs overseas, we are shipping our money to countries who aren't buying as much from the US as we send out. No wonder our trade deficits look so dismal. It's about time we started taking care of our citizenry rather than our corporations.

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Active Contributor

Join Date: Apr 2011
Posts: 12
Good Answers: 1
#5

Re: Are Manufacturing Jobs Coming Home?

10/27/2011 6:16 AM

It's the same reason as why Toyota set up a manufacturing plant in the US. There are more factors to consider rather than cash cost, such as delivery schedules and delivery reliability, stability of a country's government in regards to uninterrupted manufacturing, transportation, labor, currency stability, and tax base. Then there's the difference in currency valuation. Of course, the problem is to know the system well enough to see if you will be able to maintain market share to make it worthwhile, which includes political influence to make sure that once you're set up, your model isn't waylaid by financial or political whims.

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Power-User

Join Date: Oct 2009
Location: Hydro, Oklahoma
Posts: 184
Good Answers: 2
#6

Re: Are Manufacturing Jobs Coming Home?

11/02/2011 3:23 PM

When I was a young man, in the late 30's, 40's, 50's, my dad was a mechanic, mechanic, mechanic. He could pick up a v/8 engine complete out of the trunk of his 39 ford take it into the garage and rebuild it and take it back to the auto and install it with a hydraulic 2 ton jack in the field. He could overhaul a standard transmission or an automatic pushbutton, on the column or in the floor. Truck, Car, Airplane and brand made no difference. He knew gear ratios to set up with dye the rear end with the right amount of clearences and could set up the caster and camber on the front end on all brands and the point settings and electrical wiring of most cars. Price was not an item, pride in doing a good efficient job was..I can recall him saying that there will soon be, transmission Mechanics, Front end Mechanic, V/8, '6cyl., Electrical wiring experts that have no knowledge of how an engine is suppose to run and they will have to have the money before they start the job. And that day came and in todays market we have engineers only understanding only minute properties of a circuit and they can adapt that circuit or pattern or motherboard to many different occasions, having no idea what the end result would be. And we have a new generation of people that only understand that Circuit board moving it to greater heights. In the near future we will see that the copy taken from the source, legally or illegally and made cheaper and cheaper will not sustain its purpose and must be replaced or re-invented to a better operating system. Be it auto or computer, the Engineer has to give thought to a better system. The colleges and tech. Schools in the U.S. are the birth place of most all the manufactured products in the world today. They can be produced cheaper elsewhere because of the cost of labor. When we bring this in line with the well guarded information created by our engineers the Corporations will move the production closer to the customer. Jobs and the economy will start an upswing.

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Jim
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