Four Trends Driving the Resurgence in American-based Manufacturing

April 23, 2013
The economic analysis performed a decade ago by manufacturing executives must now be re-examined.

For a time, it was fashionable to outsource manufacturing operations. Later, outsourcing to specialized firms wasn’t enough. The outsourcing of manufacturing had to be directed to specialized firms in low-cost countries in order to be compliant with the latest fashion in operations strategy.

As strategic directions are crafted in 2013, four trends in global operations are emerging. These trends make it essential to lead the way in reshoring of American manufacturing for competitive advantage -- not only for sake of patriotism, but for financial sustainability and proper management of operational outcomes. The economic analysis performed a decade ago by manufacturing executives must now be re-examined.

1. Oil versus Natural Gas Costs

Globally, oil has reached exceptionally high prices. All the while, domestic sources of low-cost natural gas have been found within the United States. This allows manufacturers to replace the high cost of transportation with lower domestic manufacturing costs to produce.

2. Labor Costs in Developing Countries

In the last few years, labor costs in China have increased year-over-year by nearly 20%. In Mexico over the same period, labor costs have increased year-over-year by 5%. Meanwhile, in the United States, labor costs have risen year-over-year by only 3%.

3. New Automation Technology

Over the last decade, new automation technology has been developed and matured that can dramatically increase productivity and require fewer but more skilled workers. Inexpensive sensors, fast computing, robotics and other new technologies have led to new user-friendly factory automation that shifts the focus from ensuring low labor costs to finding skilled workers.

4. Changing Risk Profile of Global Supply Chains

The theories of economic advantage by outsourcing and offshoring have been met with the practicality of geographic, intellectual property and currency risks. These risks have shown to outweigh many of the assumptions made a decade ago. The geographically diverse supply chains of major manufacturers have created a multitude of increased risk for each link in the supply chain rather than reduce risk through diversification. Risk of nationalization, intellectual property theft, and geographic threats have caused manufacturers to re-examine their supply chain to increase flexibility and reduce risk. In many cases, much risk can be eliminated by reshoring to the United States.

All too often, operations and business strategies are documented in binders and PowerPoint slides, only to be archived on the shelves of busy executives. Underlying the strategies within these binders are key assumptions of expenses and risks. The risk and expense profile may well have proven to be accurate for much of the last decade. Now is the time to re-examine these assumptions and reconsider where (and by whom) your products should be manufactured. Most importantly, operations executives should realize that outsourcing and offshoring are cycles -- not trends.

Jason Piatt is president of Praestar Technology Corp., a provider of consulting and training services to manufacturers in the Mid-Atlantic region specializing in lean, Six Sigma & strategy formation.

About the Author

Jason Piatt | President

Jason Piatt is cofounder and president of Praestar Technology Corp.  Prior to founding Praestar Technology, Jason held various tactical and executive positions in engineering, sales and marketing, and program management with a leading power transmission component manufacturer.  He has served as a member of the faculty at Penn State University and has taught at Pennsylvania College of Technology in electrical and mechanical engineering technology, mathematics, and physics.

Jason earned a Bachelor of Science in electrical engineering with minors in mathematics and physics from Bucknell University. He also earned a Master of Science in electrical engineering from Bucknell and an MBA with honors from Mount Saint Mary's University.  Jason earned an executive certificate in technology, operations, and value chain management from the Sloan School at The Massachusetts Institute of Technology (MIT).  Jason completed his Six Sigma Black Belt training at the University of Michigan as well as additional graduate education at the Wharton School - University of Pennsylvania.

Jason and the Praestar Consulting team have assisted numerous manufacturers in the areas of lean manufacturing, Six Sigma, sales and marketing management, and strategy formation.

Jason has received numerous awards and recognition including senior membership in the Institute for Electrical and Electronics Engineers (IEEE) and membership in Sigma Xi Research Society.  He is a monthly columnist for and has been referenced as an authority on manufacturing competitiveness by the Wall Street Journal Radio Network and other leading publications.

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