Reshoring brings manufacturing jobs back to the West

Economic growth

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Reshoring May13.pngOutsourcing and offshoring took off in western industry during the 1990s. The babyboomers’ demand supercycle meant new manufacturing capacity was urgently needed. And the entry of East Europe, China and India into the global economy offered a seemingly cheap way of achieving this. But today, new factors are reversing this trend.

The tragic deaths of 1100 Bangladesh textile factory workers will clearly accelerate the process, as consumers pressure retailers to increase manufacturing standards. But the trend has been developing for some time, led by major companies such as GE, whose map above highlights their creation of 16k new US jobs since 2009.

A major MIT study last year highlighted several key reasons for the new approach:

• Desire to bring products to market faster, by making them in the West
• Need to respond more rapidly to customer orders
• Reduced costs for transportation and warehousing
• Better protection of IP
• Higher quality

As an important article in Atlantic magazine noted last December, GE expects 75% of its $5bn Appliance Division’s sales to come from US production by next year, up from 55% in 2012. It notes the real benefit comes from applying new thinking – particularly the concepts of lean manufacturing. Simply recreating old-fashioned assembly lines will miss the point:

“In the simplest terms, an assembly line is a way of putting parts together to make a product; lean production is a way of putting the assembly line itself together so the work is as easy and efficient as possible.

GE trialled the approach with its dishwasher team and successfully eliminated 35% of the labour required. And once they had reshored assembly, they began to manufacture key parts as well.

The key, as the Reshoring Initiative argues, is to focus on the total cost of ownership, not just wage costs. This is because today’s manufacturing environment is quite different from 20 years ago. Companies who reshore using lean manufacturing models will often find they can achieve lower ‘delivered cost’, even if the initial ‘purchase cost’ appears to be cheaper.

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