As originally reported in a Wall Street Journal article in April 2011, US Department of Commerce data shows that major US corporations cut their work forces in the US by 2.9 million jobs during the 2000s while increasing their employment overseas by 2.4 million.
This trend continues according to data revealed by Trade Assistance Adjustment (TAA) filings made to the US Department of Labor in a recent article in Manufacturing & Technology News. TAA provides benefits and training to workers displaced by trade and shifting manufacturing offshore. The article lists 50 companies that laid off workers in the first three weeks of July, about 80% of which were manufacturing jobs. Other types of jobs displaced were customer service, technical support, information technology, data processing and even engineering design. TPA assistance is like putting a bandage on after your arm was cut off.
While over 25 companies were shifting manufacturing offshore to China or India, it was surprising to see that Mexico was the next highest location to which manufacturing was being shifted. New data produced by the Bank of America shows the reason for this: labor rates in Mexico can be lower than China by as much as 20%, quite a change from 10 years ago when Mexican labor rates were 188% higher than China.
Other reasons for this switch to Mexico are lower transportation costs, faster delivery, higher productivity from automation, more reliable quality, and better payment terms than from China. As a resident of the border region of California and Mexico, I have seen this first hand. "Nearsourcing" to Mexico is occurring when reshoring to the US is not economically justifiable at the present time.
Our major regional organization, CONNECT, has a Nearsourcing Initiative focused on matching San Diego companies in need of outsourcing with the region's local manufacturers. "The program includes workshops that educate the region's innovation entrepreneurs on the benefits of contracting with local manufacturers, including reduced time to market, increased innovation and reduced risk and costs; and a matchmaking program that helps San Diego innovation companies in need of outsourcing to Innovate Locally, Grow Globally – to connect and contract with qualified San Diego production resources." Educational workshops and networking meetings have been held over the past two years, and manufacturers are encouraged to seek local vendors or even be matched with regional vendors by using the www.connectory.comdatabase of primary industries, developed by the East County Economic Development Council, and the CONNECT Resource Guide.
CONNECT's SME (Small-Medium Enterprises) Operations Roundtable group has also taken the lead in educating San Diego's regional manufacturers on how to use the Total Cost of Ownership Estimator developed by Harry Moser of the Reshoring Initiative, by means of a presentation I gave with a local contract manufacturer in February as an authorized speaker on behalf of the Reshoring Initiative.
Learning the Total Cost of Ownership
It is crucial for American companies that do not have offshore plants to be trained on how to do a true Total Cost of Ownership Analysis using the TCO Estimator as a counter to the continuing trend of offshoring manufacturing jobs by multinational corporations that have facilities all over the world. For multinational corporations, the US market represents a smaller piece of a bigger whole in the global economy. While offshoring may no longer be a relentless search for the lowest wages, many corporations go to Brazil, to China, to India, and other countries because that is where their customers are located.
I believe that training of people performing two particular job functions is a key to facilitating more reshoring ─ supply chain personnel and chief financial officers (CFOs). I have had the pleasure in the past year of speaking to three regional APICS' chapters and a four-state regional conference last weekend. APICS is composed of supply chain/logistics people. I learned that in the 13thedition of APICS' dictionary, the definition of Total Cost of Ownership is: "In supply chain management, the total cost of ownership of the supply delivery system is the sum of all the costs associated with every activity of the supply stream." This is a good definition, not as complete as mine, but good. If supply chain personnel had utilized this definition in the past decade, a great deal of offshoring would never have occurred.
My question to conference attendees was what prevented the utilization of this good definition. One answer was: We were not allowed to consider anything but the piece price and sometimes transportation costs in making the decision to select domestic versus offshore vendors. Another answer was: We were being mandated by upper management to outsource to China to save money. Others thought that their managers were doing what everyone else was doing; i.e., going to China to save money. In other words, they were following the "herd mentality" like buffalo were driven off a cliff by American Indians in our past history.
Another problem mentioned was that in the cost accounting systems used by most corporations, transportation costs, travel costs to vendors, rework costs of defective parts, cost of inventory, etc. are in separate accounting categories and there wasn't any software available to do a true Total Cost of Ownership analysis until Harry Moser developed his TCO estimator. This is why I believe that CFOs are critical in turning the tide towards reshoring versus offshoring.
Yes, I believe that as wages continue to rise offshore, especially in China, transportation costs continue to increase, and risk factors such as political instability, intellectual property theft, and counterfeit parts take their toll, more and more companies will see the economic advantage and wisdom of reshoring.
However, we can accelerate reshoring if we can expand the reach of our education and training on understanding and using a true Total Cost of Ownership analysis to CFOs and other C-level management. Harry Moser and I are no longer the only persons singing the "reshoring" tune. Consultants at the Manufacturing Extension Programs nationwide, such as California Manufacturing Technology Consulting (CMTC) and Manex, are being trained in how to use the Reshoring Initiative's Total Cost of Ownership Estimator. I have even met former "offshoring" consultants who are rebranding themselves to be reshoring consultants. I urge everyone to do what you can to promote reshoring if you want to help create jobs and save American manufacturing.
Michele Nash-Hoff is president of ElectroFab Sales and author of "Can American Manufacturing Be Saved? Why we should and how we can."