The Growing Trend For Manufacturing InSourcing Here In America

There is much debate over the growing manufacturing sector here in the US and where it is coming from. Some promote the administration line of a resurgence due to growing wages and higher shipping and logistics. Others look at where the customers are within growing market segments and use the adage of making the products as close to the customer as possible as a way to increase efficiencies.

It is very true that in China over the last 3 years there have been as many as a half dozen cost of living policy increases as part of the country’s master five year plan to build up the middle class and create more of a domestic consumer driven market. What few realize is that China’s growing wealth is concentrated into a select group of economic zones where Chinese youth travel great lengths to live, work and prosper.

Another little known fact is that in China, youth are legally responsible for their elders. This means that while they travel to major industrial zones and cities such as Shanghai, Shenzhen, Beijing and Qingdao, they are obligated to send some of their earnings back home to support the rest of the family.

With the increased government mandated earnings comes increased costs for housing, food, clothing and transportation in the private sector. This creates a quandary for the satellite worker as there is less money to send home and often the local expenses are outpacing the wages reducing the motivation to move so far away. The result is that fewer are traveling.

At the same time the middle class in China is gaining traction and seeking new opportunities in work and lifestyle. Like most, they are now evaluating jobs based on more than just the wage, roof and food. They want increased training and opportunities for growth. They are also asking for greater safety and better working environments. For Chinese manufacturers these new demands are forcing them to re-evaluate production labor forces, factory environments, and competitive compensation packages in order to keep a trained workforce.

Automation has become a priority to reduce the dependency on a manual labor force. At the same time higher quality control standards are needed in order to meet competitive international markets. While automation allows for a reduced labor demand, it also eliminates the incentive of location as machines can operate anywhere. What’s more, China is now attempting to build its own automation production machinery industry as an alternative to purchasing foreign equipment from other Asian and European suppliers. This requires leapfrogging over hundreds of years of technology and manufacturing history and has proven problematic where accuracy and durability are factors.

These new demands are forcing pricing up and until automation can guarantee greater quality and consistency, lead times are extended which adds to the overall production and delivery timeline. Customers are monitoring their needs much more closely and are seeking shorter lead times to keep JIT assembly and inventories under greater control.

The concept of InSourcing picks up on these issues and when blended with increased tariffs, the ability to bring some jobs home starts to look more palatable. Marketing is excited that it can promote “Built In America” which allows for some reduction in the barrier to entry and highlights homeland pride. In the cases of seeking new sales opportunities within local, state and federal channels, having the ability to demonstrate domestic control and ITAR certification can provide a tremendous value.

Finally, there is the growing need for components that will be fit into domestic manufactured products and installed in domestic customer facilities that do not need to be shipped to Asia for final assembly only to return as a finished product. This is where the US can actually build a new manufacturing base and eventually export the finished products into cooperative foreign markets.

#insourcing #manufacturing