The North American Manufacturing Advantage is a Mathematical Certainty

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Companies spend millions of dollars every year trying to predict the future.  How many sales will we make?  How much material will we use?  How will the global economic climate impact our business?  If you are in the supply chain industry you have asked yourself these questions and they have kept you up at night.  Are the suppliers I am using the right suppliers?  Have I minimized the risk to my supply chain as much as I possibly could?  We drag in all the data we can and try and model a crystal ball out of the numbers.

The reality, of course, is no one can truly predict the future. We can only look at trends and make generalized "educated" guesses. So, here is my guess.

The Asian manufacturing advantage is on the wane and manufacturing in North America is going to make a lot of fiscal sense over the next decade.

How do I know? Let's start with the automotive industry. It is a phenomenal barometer for what is going to happen in the manufacturing world because they tend to be trend setters. They source their components 3 model years in advance so it is critical for them to have a finger on the manufacturing pulse of the world. Right now the automotive OEMs are making decisions for the 2014 & 2015 model years. So when I read that automakers have invested almost $20 billion in new U.S. & Canadian plants since the beginning of 2010 I sit up and take notice. Have the automotive economic forecasters decided that it will make sense to manufacture here in the near future? Follow the money. It sure seems like it.

Then you have the management logic trend that production closer to consumption makes sense.  Can you reach economies of scale manufacturing all your product in one place?  You sure can, but the problem with that is it puts your entire supply chain at risk.  The tragedy in Japan taught the manufacturing world some hard lessons.  The necessity for risk reduction, supplier collaboration to drive innovation and the ever increasing sustainability concerns demand supply chains shrink as much as possible.  Can you achieve real visibility into your entire supply chain if suppliers are strewn haphazardly across the globe because the company made a bunch of price based decisions 10 years ago?  Notice I say price because if you haven't learned the difference between price and cost when it comes to your component supply chain you have already lost.

Next you have to acknowledge that really smart people are telling us this is going to happen.  Boston Consulting Group released an item on May 5, 2011 that said by 2015, due to Chinese wage increases (17-22% per year) among other factors the Chinese manufacturing advantage will disappear.  While I have a definite aversion to companies that charge by the hour to do things that should take a few minutes, BCG is a smart bunch of folks.  When they talk about trends, it is worth listening.

Other smart people, like Harry Moser, founder of the Reshoring Initiative, are also ringing the bell on North American manufacturing.  Harry has developed a total cost of ownership calculator so you can plug in the important numbers and see what makes sense. Register for Harry's site for free access to the calculator, which has selectable freight and duty rates from 17 countries. It is comprehensive and extremely well thought out.

Lastly, our own MFGWatch Survey tells us that the cutting edge companies have either actually re-shored work or are seriously considering it.  The trendsetters and outliers are changing the way they buy.  They are changing the nature of their supply chains. Do you want to be on the back end of this adoption bell curve?

North America stands at the cusp of the greatest manufacturing opportunity since the industrial revolution. If we squander the opportunity that the global economy is presenting the United States and our neighbors, it might be the greatest economic failure in history.


David Landsman

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