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Manufacturing reshoring grows as outsourcing costs rise

In the wake of increased fuel costs and higher wages for overseas workers, manufacturing reshoring is slowly becoming a reality in the U.S.

Politicians, analysts and everyday citizens have lamented for decades the loss of U.S. manufacturing jobs to overseas workers. In recent years, however, that pattern has begun to reverse itself. Driven by rising fuel costs, quality control concerns and increases in labor wages in China, manufacturing reshoring has slowly emerged, sending tides of production back to North America.

Reshoring -- also known as inshoring or nearshoring -- has been gaining momentum for a few years now, according to Cindy Jutras, principal of Windham, N.H.-based Mint Jutras. "Even as far back as five years ago, I was seeing a move from offshoring to nearshoring," she said. Much of this relocation of manufacturing has translated to moves from Asian to Mexican facilities -- which are less expensive labor-wise and transportation-wise -- though this has resulted in the return of some U.S. manufacturing plant jobs, she said. "A lot of people are reconsidering outsourcing everything. Some of it is patriotic, but some is just good sound economics."

There's been much coverage by the media of the "made in America concept," Jutras added. "There is now more public awareness and demand" for American-made products. "Companies need to deal with that to preserve their brand."

Manufacturing reshoring combats rising costs of outsourcing

One of the biggest drivers for the growth of reshoring is the increase of fuel costs related to transporting finished goods overseas, experts say. "Energy has always been one of the largest costs in manufacturing," said Bob Parker, group vice president at Framingham, Mass.-based IDC Manufacturing Insights. The emergence of new forms of energy in the U.S. has made manufacturing stateside cheaper while also making compliance easier, he said. "For example, U.S. shale gas reserves are being used, which can power factories without violating environmental regulations -- as often happens in China."

Wages for workers in overseas facilities have also increased slightly in recent years -- not enough to match U.S. wages, but enough to make manufacturing outsourcing not as sweet a deal as it once was, said Jutras. Then there's the added hassle of dealing with a global supply chain. "There's lead time and complexity added by outsourcing," she said. "If you are getting components from Asia and run into difficulties, you have to deal with overseas suppliers that may not move as fast as you'd like, as well the price of getting those physical goods into containers and shipped overseas."

The move away from manufacturing outsourcing can also be tied to recent health scares related to products made in China, such as lead-tainted children's toys and toxic dog treats. Such product recalls have lowered U.S. consumer confidence in Chinese-made goods, said Jutras.

U.S. manufacturers concerned about intellectual property theft are also considering reshoring as an option, according to Dylan Persaud, managing director at Eval-Source. "We started noticing [more manufacturing reshoring] in 2011," he said. "Customers in manufacturing and distribution were investigating the loss of trade secrets associated with sharing designs with overseas suppliers and the lack of security overseas, which leads to counterfeiting." Persaud added that the loss of goods to piracy in international waters has also been a concern on the distribution side.

Technological know-how new norm for manufacturing plant jobs

Despite all signs pointing toward resurgence in manufacturing reshoring, experts caution that it won't necessarily mean a boom in new manufacturing jobs. "This is not a jobs renaissance," said Parker. "What is happening is a lot of the automation is coming back [to North America.]"

Advanced robots that can emulate human movement are cheaper and more commonplace on the shop floor than ever, he explained, along with emerging technologies like 3D printing. The return of manufacturing, therefore, will not mean the return of traditional blue-collar assembly line jobs; it will translate to a demand for more "blue-collar-white-collar hybrid" jobs, Parker said. "The old factory was labor-intensive, while the new factory is people-intensive -- meaning people need higher knowledge to train and use robots," he said. "You need people who can make decisions and work on the fly with advanced robotics. And when you can automate acquisition of data with radio frequency identification (RFID) and bar codes, if it doesn't require someone to point and shoot a scanner."

The growth of wireless networks and connectivity options available on the shop floor are making data-intensive manufacturing plant jobs the new norm, he noted. "Look at the volume of wireless traffic now versus five years ago -- there's a lot more data flying around the factory floor between people and machines. It's only going to get greater," said Parker.

Jutras saw this shift in action during a tour of a Harley-Davidson plant a couple years ago. "I remember thinking, where were the people? There weren't any, just big robots," she said.

"Those blue-collar jobs aren't there anymore. Workers are not on assembly lines as much, but are the support teams for the engineers," Jutras said. "Parents push kids to get four-year degrees, but there are many jobs in manufacturing that would be better served with two-year or vocational programs."

One bit of good news, according to Jutras, is that moving from overseas to North American production most likely won't result in manufacturers having to retool their business applications. "I think that any needed change in ERP systems happened when things moved offshore, because that's a more complicated thing to do deal with," she said. "It's actually a little simpler to deal with inshore. It probably won't get that much simpler, however, until everything is inshore -- if that ever happens. But when it comes to ERP systems, it doesn't really matter whether you're outsourcing 90% or 10% of production."

The takeaway, according to Persaud, is that the future of U.S. manufacturing success is irreversibly tied to technical knowledge. "Manufacturing is no longer only assembly line work -- it's also about production and technology. It's a combo of physical labor and knowledge of how to input labor into a system," he said. "The American people have that know how; the challenge is convincing people that this kind of work is coming back, but has changed from sweeping the floor, sweatshop-type jobs to automation."

Follow on Twitter @ManufacturingTT.

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