How to take advantage of The Insourcing Boom
I recently read an article on GE’s appliance manufacturing Insourcing Boom.
The narrative of the story follows the path of GE moving assembly of some of its appliances back into the USA. That is, high-tech, complicated appliances with design lives of about two years before a rapid redesign schedule (high-labour & high-skill). This does not apply to simple components within the assembly (high-labour low-skill), moulded components (low-labour), or purchased components (i.e. motors, compressors, etc.).
Generally I believe that the real appeal of manufacturing overseas was the low cost of labour (Mexico, China, Vietnam, Africa). Material costs are similar around the world (I never did see the benefit of overseas manufacturing low-labour products – unless it greatly reduced transportation costs).
By utilizing everyone involved in the production (assembly, design, sales) and having the unions relook at their approach to factory labour, they managed to increase productivity, improve quality, reduce material cost, decrease production time, improved design, and DECREASE OVERALL MANUFACTURED COST. High costs of transport (oil) and low costs of domestic power (natural gas) and competitive wages (assembly labour at $13.50/hour) were big factors in this.
I am involved in Diesel engine manufacture and the old, dirty, union factory in the US Midwest not only had higher labour costs, but LOWER quality than the factory in Mexico. There they were highly-trained and paid much more than any other gig in town. The ownership and pride in their job was the major factor in this quality (losing this job meant making no more than 25%-50% of the wage at other factories in town)
A key point in this was story involving GE’s hourly factory employees and convincing them to help improve efficiency and productivity – a decidedly non-union thing to do. The key to this was taking any employees made redundant by the efficiency improvements and using them to onshore ANOTHER product.
“That’s how the outsourcing cycle starts to turn. Once you begin making a product itself, you get the itch to make the parts too”.
How do I see this playing out:
- The maker community will continue to thrive. This is an exciting movement bringing back highly-customized, high-quality, low-volume, artisan products. This is rejuvenating formerly industrial inner-city areas.
- Domestic manufacturers will spring back up and be more receptive to lower-quantity, high-quality manufacturing runs than their Chinese counterparts. That is for high-tech, high-skill manufactured items.
- Low-skill, high-labour products will continue moving to lower cost markets (textiles, menial electronic assembly, etc.)
- Low-labour production can effectively be undertaken domestically: (high cost of transport, low cost of power/heat, material costs similar, labour costs non-important). This could include injection moulding, casting, stamping, or other automated task. Natural gas is cheap as hell here in NA, so power or heat intensive processes are less of a problem now.
- Having a manufacturing presence in China will remain important, even for these high-quality-required products. Mostly due to servicing the growing demand for quality goods within China and the high tariffs applied to imported items. (a diesel engine manufactured in China costs the same as in Mexico, USA, Brazil, etc Material and machine costs are the big driver – not the wage the custodian makes)
- Domestic tradesmen and high-skill assemblers will have rejuvenated prospects in the future. Skills have eroded since manufacturing first started leaving.
- Watch those former factory towns for renewed signs of life. Running shoes, cheap fans, and printers are gone for good – if they ever were here. But anything that would benefit from increasing quality or adding high-tech functions could be on-shored again. Plus anything with a luxury or artisan bend to it.
- This could slow the expansion of manufacturing in CN and SEA – slowing the rapid cost-of-living inflation for all of the digital nomads and lifestyle baseliners out there.
- Formerly powerful unions could give way to internal collective-bargaining teams within the factory ranks.
This is my initial analysis of this renewed interest in American manufacturing. Maybe it’s just a craze, but it is hard to ignore when GE predicts manufacturing 75% of their appliances in the USA by 2014.
I’m very interested in others’ view of global manufacturing trends and would love to see your comments below.