Who would have thunk it. For years we've been deriding the simple-minded companies that chase low labor costs around the globe under the mistaken traditional accounting-driven assumption that labor was a significant cost. For years we've been pounding on companies for thinking that labor was just a cost, and not an asset comprised of the experience, creativity, and knowledge of the employees. And lately we've even been talking about how those labor and facility costs are increasing rapidly in offshore havens like China, not to mention the cost of quality issues.
Leave it to something traditional, rising fuel costs, to be the two-by-four that knocks the outsourcing blinders off the heads of myopic company executives. Front page, today, in the Wall Street Journal.
The rising cost of shipping everything from industrial-pump parts to lawn-mower batteries to living-room sofas is forcing some manufacturers to bring production back to North America and freeze plans to send even more work overseas.
Hurrah! Finally. Just sad that it took this long, and a traditional accounting metric, to open some eyes.
"My cost of getting a shipping container here from China just keeps going up -- and I don't see any end in sight," says Claude Hayes, president of the retail heating division at DESA LLC. He says that cost has jumped about 15%, to about $5,300, since January and is set to increase again next month to $5,600.
The company recently moved most of its production back to Bowling Green, Ky., from China. Mr. Hayes says the company was lucky to have held onto its manufacturing machinery.
Yes it was lucky... perhaps. Who will run the machinery? New trainees? What happened to the people, probably with decades of experience, who used to run it? What will be the cost to retrain and over the next many years regain the knowledge and creativity assets?
They should have thought about that long ago when they decided to move production to China. What would have happened if instead of trying to immediately capture a few bucks of savings on labor (offset by how much cash spent on inventory riding the high seas?) they had leveraged the knowledge of their employees to streamline operations using lean manufacturing methods? It might have saved some nightmares today.
Don't get me wrong. This is a good story. It's always a good thing when companies wake up and realize it's better to be closer to their markets, even if it took the wrong reason to stimulate the decision. However these companies still have a tough road ahead of them. They've been counting on the crutch of cheap labor, and now it is gone. Now they will have to compete with the companies that did not blindly chase low cost labor but instead focused on reducing the waste in their processes.
It won't be easy bringing all the production back.
Already congested domestic transportation systems may have difficulty handling a sudden upswing in demand from manufacturers buying and moving more raw materials and other supplies over U.S. rails and highways.
Welcome home. Good luck competing with the more enlightened companies that stuck it out and improved internally. You'll need it.