Bringing manufacturing back from overseas sounds great, but it’s not easy
At one point, Ford’s assembly line in Detroit was cranking out a Model T every 24 seconds. That was a long time ago. Just as that assembly line was a symbol of American manufacturing prowess, the city of Detroit’s 2013 bankruptcy filing was a symbol of how much things had changed. Especially in the wake of the 2008-10 Great Recession, domestic manufacturing has given way to outsourcing in other countries. China, of course, is where most of those jobs have gone, though it’s not the only place. Supply chain disruptions in China and distrust in the country’s handling of the COVID-19 pandemic have spurred renewed calls to make the “Made in America” label much more commonplace. Achieving that, however, is a complex undertaking.
There were reasons those domestic manufacturing jobs went overseas in the first place. The biggest is cost. Labor is cheap pretty much anywhere else, especially in Asia. Production costs, too. Companies want to maximize profits, and if they can make their product for less, they can sell it at a price that will move units, and they make money. American workers are going to demand more pay and benefits, which increases production costs. Increased production costs means higher prices for the consumer. A whole lot of people have to buy in to paying more. At a time of recession, that’s a tough sell, just as it was in 2008.
For manufacturers who see significant supply chain problems, that extra cost might be worth the stability and having a much clearer picture of when inventory will be ready. But for others, there are other places where labor is cheap. Vietnam, for example, is right next door, and companies are already moving production there from China. The population of Vietnam is a fraction of China’s, so it’s not a solution for every manufacturer. But there’s also Thailand. And India. The list goes on.
Even bringing domestic manufacturing back doesn’t necessarily translate to the same amount of jobs coming back. A lot of what used to be done by people on that assembly line of yore can be automated these days.
The process of putting out a finished product is also much different from the days of the Model T. No matter where the manufacturing takes place, technological products such as phones and computers require global sourcing of raw materials. The specialization Henry Ford put into practice on his assembly line has been magnified greatly over the decades. Special skills and equipment to make components such as semiconductors are spread out all over the world.
Pretty much any device you buy these days is a smart device, part of the Internet of Things. Refrigerators have cameras that let you see inside remotely so can make sure not to overbuy or don’t forget something while you’re at the store. Cars come equipped with onboard computers for navigation and TVs to keep the kids occupied on road trips.
A domestic manufacturing setup needs: a supply chain, an assembly design, testing and quality control, materials handling, and staffing. Scaling all that up is no mean feat, and it requires a great deal of investment.
Getting it Done
All the above isn’t to say reviving domestic manufacturing can’t be done, and that there aren’t benefits to it. There is a segment of the population that would gladly pay for more to see “Made in America” on a product. There’s more transparency throughout the supply chain, and protecting intellectual property is much easier. The growing market for manufacturing as a service means companies can rent out their equipment during downtime, helping to recoup some of the capital invested.
It certainly seems manufacturers intend to give it a shot. A Thomas survey of 878 North American manufacturers and industrial sector businesses in April found that 64% “are likely to bring manufacturing production and sourcing back to North America,” with 28% saying it’s “extremely likely.”
“By embracing real-time resource management, redundancy, reshoring, and the convergence between the digital and physical supply chains, manufacturers will come out of this crisis even stronger than they were before,” Thomas CEO Tony Uphoff said in a statement.
Companies such as Columbia Tech are experienced in helping manufacturers reshore. The Reshoring Initiative has an easy-to-use total cost of ownership estimator and case studies on companies that have successfully restored domestic manufacturing. There are investors to be found.
“We just closed on a fresh $1 billion facility and are actively making new investments in automation,” Lux Capital’s Shahin Farshchi told Tech Crunch. “COVID-19 revealed that our just-in-time manufacturing and logistics infrastructure cannot react to unexpected change. We expect the best practices of tech companies: rapidly adopting new tools and quickly iterating on their products and processes to become common in the realm of manufacturing and logistics.”
The challenges of bringing back domestic manufacturing will always be there, but the motivation to restore “Made in America” as a point of pride might be at its highest in decades.