An excellent article appeared recently in the Fabricator - a Journal for  the Metals  Fabrication industry, by Bruce Hagenau, President of Alpharetta-based Metcam, and a long time B2B CFO client.  The article explores the recent welcome news that some manufacturing work formerly outsourced to other countries is beginning to return to the U.S.

In January 2004, according to the Congressional Budget Office, U.S. manufacturing reached a historical bottom, with employment in the sector at its lowest since 1950. At the time manufacturing had lost some 5.2 million jobs since its peak in 1979.  Factors in the decline included the recession that started in 2001,  and a drop in demand for manufactured goods, both in the U.S. and overseas. 

Coupled with the rise of manufacturing output in China, many analysts proclaimed U.S. manufacturing would never recover. Today, however, manufacturing firms—and those that order their goods—are spurring a reversal of that trend, with many actively rebalancing manufacturing strategies to include U.S. production.  

The article highlights four key factors working against outsourcing of manufacturing:

1. Market Forces - GE and other repatriating firms (including corporate giant NCR) have discovered that for certain products and markets, U.S. manufacturing once again makes perfect sense.  In particular, for lower-volume, specialty items for which design changes are fairly common, the case for U.S. manufacturing is far more compelling. U.S. companies that have started insourcing point to the superior agility, speed to market, and quality they find with U.S. fabricators and manufacturing operations.

2. Customer Driven - Another factor fueling insourcing of manufactured goods is that customers are increasingly demanding green supply chains.  The U.S. , is known for its strong environmental quality controls, as well as for other positive stances on issues such as workplace safety and human rights that are tipping the scales in favor of production here. Other positive factors are reduction of  environmental footprints (not to mention shipping costs). Finally, customers are increasingly demanding sustainability and lean operations from their manufacturers.

3. Financial - Because of the time lag involved with bringing products from overseas, companies cannot simply look at the price of a product plus freight to determine their import expense.  They must consider the many and significant indirect costs: increased inventory, increased material handling, increased impact of quality problems, and negative impact on cash flow. Take all of these factors into account, and some estimates indicate the price differential between U.S. and Chinese manufacturing operations has dropped from 22 percent in 2008 to only 5 percent today.

4. Competiveness - Companies looking to source their products in the U.S. also seek evidence of stable growth and business momentum from their partners, paired with a dynamic spirit and nimble operational model. Evidence will include attainment of ISO Quality and Environmental Standards, and a progressive approach to lean manufacturing and minimal waste.

I have personally witnessed the opportunities for manufacturing companies that embrace these ideas, with the exciting growth potential now available to Metcam , and its impact on local jobs, taxes and stability.

Good news for Manufacturing in America.