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.
Len Overman says
Wahoo! Great post, and my sentiments exactly.
sbalombini says
What pair of rose colored glasses are you using? These companies are still in the chase for lower costs with little effort. They haven’t seen the light, just the latest way to make the traditional cost accounting scorecard look good. The US just happens to be the latest “low cost country” to manufacture in…but that will change!
Rod Patershuk says
Good Post Kevin (et al)
I read your comments over at Linkedin and had to check this out… let’s take it a bit further. You’re pinging on the formerly skilled worker that is no longer. What is of increasing importance is the flexible worker. Think of it as a very highly skilled worker that is adaptable to a number of situations. Kind of like the opposite of specifically skilled but more generally skilled.
In order to develop these people the firm needs to cultivate them. they need to be more well rounded and adept at different skill sets. (Lookup one of my favotite quotes by Robert Heinlen “…specialization is for insects”) We are not there yet as labor as an input is giving way to labor as a resource. Here is where a good productive partnership needs to exist between government and business. We need to graduate the right people out of our schools. The costs are high to retrain our people putting the right incentives in place to do so can help
Secondly, develop flexible processes that can be changed or moved quickly. It’s a lot cheaper to move productiuon data and files around the world than it is to move the product. Capacity needs to be fluid accross enterprises.