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Small Manufacturers Lose the Farm

… and Tesla’s sourcing problem.

I’ve gotten a lot of reader feedback recently, both in the comments section of my articles and to my personal email. I want to share two online comments because I think they add important perspective to what I’ve written.

In response to “Don’t Let Small Manufacturers Go the Way of the Small Farmer,” Harry Moser of the nonprofit Reshoring Initiative pointed out that “one economic difference between the loss of small farms and the loss of manufacturing to offshore: All of the land is still being farmed. Thirty percent of the manufacturing capacity and workforce was eliminated by offshoring.”

Good point. I've seen data that shows when the machinery and equipment of these small- and medium-sized manufacturing firms are auctioned off, much of it goes to foreign buyers. So the impact of the loss is actually worse (to the American economy). Losing small- and medium-sized manufacturers reduces U.S. manufacturing capacity and increases foreign manufacturing capacity.

In response to “Better have a Plan B for your China Supply Chain,” Topper wrote that  “there has been, and still is, a 30-year majority of influential academics and economists (supposedly people ‘in the know’) who have been flat out wrong in their calculations and analysis of the benefits of the modern-day system of world trade, and they are rarely held to account for their poor judgement.”

Agreed. Trickle-down economics essentially support of OEMs, with the thought that if the government helps the big corporations, a portion of the financial benefit will flow down to U.S. suppliers and their workers, increasing jobs and pay. That theory hasn't worked—at least in manufacturing—and I suspect pretty much across the board. I believe government must start divvying up its support of manufacturing so that small- and medium-sized manufacturers are directly given the support they need.

I encourage readers to create an IndustryWeek online account (easy to do) and give feedback—positive or negative—in the comments section of my articles. Having a dialogue with others who understand supply chain and have an opinion keeps the discussion lively and the ideas flowing for everyone involved

Tesla Sourcing Gaffe

 “Tesla Denied Relief From US Tariffs on Chinese Gear in Model 3” points out that in its request for exception to U.S. trade regulations, Tesla called the part in question—the large center screen—the “brains” of its Model 3 and said increased tariffs on the component would cause the company economic harm through higher costs and “impact to profitability."

All I can say about Tesla’s sourcing strategy here is, that at face value, it seems to have been pretty reckless. And I’m not talking about tariffs. Rather, with the plethora of documented instances of Chinese stealing intellectual property, why in the world would a company source the brain of an important product there?

Slowbalization

What’s Really Behind Slowbalization, an article in MH&L, makes the point that slowbalization—the shrinking or slowing of international trade, investments, loans and supply chains—is more appropriately described as post-globalization. The writer lays out many of the reasons he believes that trade practices are becoming more regional and I agree with most, although I would have loved a ranking of the causes based on their impact on this transition.

His point that the market is also being affected by increased customer demand for customized products, expectations for faster product delivery and a surge in raw material costs” is on the mark. Companies should source and manufacture in their primary markets.

I’m optimistic that the relationship between OEMs will transition from its current, almost exclusive focus on piece-price—which, by the way, sprang out of the only kind of relationship OEMs could establish with most distant sources—to one of collaboration, since OEMs will be dealing with supplies that are more local.

Paul Ericksen's columns are part of IndustryWeek's Supply Chain Initiative, providing thought leadership on OEM supply management practices and highlighting how small- and medium-sized manufacturers can positively impact OEM customers.

 

 

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