The latest issue of Manufacturing News is filled with the usual supposed doom and gloom of U.S.-based manufacturing, with one notable exception. We’ve complained publicly and privately about the balance, and it looks like editor Richard McCormick has listened… at least a bit. Even with that problem it is still a great newsletter and I’d recommend subscribing.
Daniel Luria, Research Director at the Michigan Manufacturing Technology Center, has an article titled Is Manufacturing Toast? Lucky for you non-subscribers it is one of the two free articles on the website. Mr. Luria goes through all the usual horrors of trying to compete with offshore low-cost labor countries, but then he really hits the nail on the head. He describes the hidden costs of outsourcing including long supply chains, in-transit inventories, and the like. Then he sums it up with some encouraging data:
At MMTC, we have concluded that the true landed cost advantage of a typical low-wage offshore producer is really more like 17 percent. But those are just averages. The lowwage country landed cost advantage could be 17 percent, but it can also be 7 percent, 27 percent or 37 percent depending on the type of business.
Just as important: How much of the cost gap could be eliminated by increasing productivity? By reducing inventory? By redesigning products? By a further drop in the value of the U.S. dollar?
Even though the average U.S. manufacturer’s costs are about 17 percent higher than the average low-wagecountry manufacturer’s landed cost, 20 percent of U.S.- based manufacturers already have lower costs than their low-wage-country competitors. In some industries, 35 percent of U.S. plants are lower-cost. Just as important, another 30 percent of U.S. manufacturers are within striking distance of LWC producers’ average landed cost.
That bears repeating:
20 percent of U.S.- based manufacturers already have lower costs than their low-wage-country competitors. Just as important, another 30 percent of U.S. manufacturers are within striking distance of LWC producers’ average landed cost.
So what the protectionist crowd is really saying is "let’s bail out the 50 percent that doesn’t get it." Or at least create a tariff smokescreen behind which they can continue to whine and complain… while the other 50 percent is busy competing.
As Pogo would say, "we have met the enemy and he is us." Not only are many companies crying for protection instead of working to improve their operations, but several U.S. multinationals are outright encouraging it. As Mr. Luria put it,
As we will see, only half the problem is that other nation’s manufacturers are “beating” ours; the other half is that, in industry after industry, U.S.-based large-firm customers — think GM, GE, Wal-Mart — are telling their American suppliers to increase their “offshore footprint.” Reluctantly or not, many suppliers are listening and sourcing more work offshore.
Sad, especially when truly innovative company after company has shown that they can compete globally from U.S.-based factories. And as Mr. Luria and the MMTC notes, 20 percent of U.S. manufacturers are and 30 percent are within striking distance.
I hope you’re working to become part of that crowd, and not part of the group that sits around complaining.