Q&A: The Decline Of U.S. Manufacturing & The Reshoring Initiative
As more and more manufacturers hope to reduce costs by offshoring, U.S. manufacturing is on the decline. Food Manufacturing spoke with Harry Moser, founder of the Reshoring Initiative, about his take on the fall of American manufacturing and the fight to rebuild it.
Q: Could you provide some background information as to how you have been involved in the effort to keep manufacturing jobs in America?
A: For 20 years while I was President of Agie Charmilles, I also promoted skilled manufacturing careers. I then developed a SWOT strategy for companies to compete more effectively with LLCCs (Low Labor Cost Countries). Finally, I decided that I had to make sure there would be jobs for the youth I had convinced to become skilled manufacturers, so I founded the Reshoring Initiative. The Reshoring Initiative is a non-protectionist, efficient way to reduce our imports, increase our “net exports” and regain manufacturing jobs.
Q: How much has the American manufacturing workforce declined in recent years?
A: Manufacturing employment rose from 16 million in 1961 to 21 million in 1979 and then declined to 16 million in 2003 and 11.648 million in November 2010. Of greatest concern, manufacturing’s percentage of total employment is down to about 10 percent.
Q: What, in your opinion, are the main causes for this declining workforce?
A: The main causes, in approximate ranking order are loss of work to imports from LLCCs, loss of export markets to LLCCs, lack of interest by our government in supporting and U.S. society in working in manufacturing (we have a horrible problem recruiting the needed quantity and quality of trainees even though the compensation is superior to alternatives); and productivity improvements (this impact is smaller than claimed by many since government measures of productivity improvement are overstated due to the impact of offshoring on increasing the perceived value -added per employee.)
Q: How does keeping jobs in the U.S. affect our overall economy?
A: The simplest measure of loss is the trade deficit of about $500 billion a year. Balancing the trade deficit would bring about 3 million manufacturing jobs and 4 million support jobs back. The result would cut U.S. unemployment in half, dramatically reduce the budget deficit and keep foreign ownership of U.S. assets from growing further.
Q: What are the benefits of keeping a company’s work in the U.S.?
A: On a significant range of products, companies will be more profitable. On all products, they will pick up benefits of being more innovative since innovation is most effective if manufacturing and design/engineering/marketing are close together, a smaller balance sheet with less exposure to dynamic demand shocks as in the recent recession, reduced IP and quality risks resulting in protecting the brand, enhanced ability to differentiate the product and avoid commoditization, etc.
Q: Often, companies look outside the country to save on costs. Is it really cheaper to leave the country?
A: If the labor cost/content is low enough relative to material, transport, quality, etc., yes. Christmas ornaments and some apparel seem like good examples. The problem is that too many companies have been lured by the low labor cost and have offshored more than is even in their own short term self-interest.
Q: What costs should a company consider when exploring moving operations to a new location?
A: Archstone Consulting’s 2009 survey showed that 60 percent of manufacturers use “rudimentary total cost models” and ignore 20 percent of the cost of offshoring. The Reshoring Initiative provides its TCO (Total Cost of Ownership) Estimator software free to help OEMs compare the true TCO of local vs. offshore sources and to help suppliers sell the benefits of local sourcing to their customers. To help the companies make better sourcing decisions, the Reshoring Initiative provides free software that helps the large companies calculate the real offshoring impact on their P&L, linked NTMA/PMA Purchasing Fairs to help them find competitive U.S. sources, publicity to drive the reshoring trend and an online library of 98 articles about successful reshorings so companies can see how their competitors have profited by reshoring. The costs that companies often miss but should consider include extra travel cost to check on the supplier, carrying cost during shipment and on the extra inventory resulting from fewer, larger incoming shipments, quality and regulatory costs and risks and opportunity costs from lost orders when the long pipeline cannot respond.
Q: What is the future of the U.S. economy if manufacturing jobs continue to leave the country?
A: We have lost the capability to produce a wide range of consumer goods. We are losing that capability in many industrial goods. We lose both the facilities and the skilled workforce. Eventually, the world economy is self correcting and the dollar could fall enough so that we become competitive again as the low cost country to which China and others outsource labor intensive manufacturing. The implications for our children’s living standards are frightening. My conclusion is to prevent this future by asking companies to make smarter decisions now; demanding currency revisions; supporting U.S. manufacturing via appropriate tax, education and training policies; and insisting that companies implement Lean and other efficiencies to become more competitive. As an example, I would restrict government college loans to students in fields that make U.S. manufacturing more competitive. I would pay public education science and math teachers whatever is required to attract math and science graduates and pay the rest less, as per the market price for their skills. As a result, more prospective teachers would decide to study math and science.
Harry founded the Reshoring Initiative, working with NTMA, AME, AMT, SME and PMA to bring manufacturing jobs back to the U.S. He writes and speaks nationally on the skilled manufacturing workforce, strategies for competing with LLC countries, strategies for revitalizing U.S. manufacturing and on President Obama’s and Congress’ actions and policies and their impacts on manufacturing. In 2010 Harry was inducted into the Industry Week Manufacturing Hall of Fame. Readers can find out more information using the tools available for free at the Reshoring Initiative’s website and emailing Harry at firstname.lastname@example.org.
Interview by Lindsey Coblentz, Associate Editor