By Kevin Meyer
Interesting article from an unusual source on bicycle manufacturing returning to the United States from "low cost" overseas countries. It gets some of the overall trends right, but some of the drivers wrong. Most of the other articles in this rag focus on the same tired mantra of creating "justice" by taking from the rich and the
"profiteers" and giving to the poor to eventually make everyone poor,
instead of teaching the poor how to become self-sufficient and rich. A rather bizarre illusion of "justice", but I digress.
stateside. Several large dealers and about 100 mid-size brands are
doing some domestic manufacturing (although one of the leading bike
builders in this field – Cannondale – is just moving its operations to
Taiwan). In addition, there’s a growing sector that skilfully
hand-files a few hundred high-end bikes each year. However, the demand
is overwhelmingly for mass-produced, affordable bikes made in Asia. The
US imported 200 times more bicycles than it exported last year; 95 per
cent of the 13 million imports were shipped from China.
But the factors that favour manufacturing in Asia are changing and the
trade imbalance is about to shift again, says Jay Townley, a prominent
industry analyst and 52-year veteran of the bicycle industry based near
Madison, Wisconsin. Rising oil costs over the long term are making
overseas shipping less economical. And US retailers now want faster
turnaround. For these reasons, Townley predicts large-scale bike
manufacturing will return to the US ‘in a bigger way’ sometime within
the next three years.
Yes oil prices and faster turnaround are two primary drivers creating the movement of manufacturing back to the U.S., among many others.
The rising cost of running cars, an increasing focus on climate
change and the emergence of a recent ‘buy American’ sentiment stemming
from the global financial crisis could create a much larger US market
for bikes. In addition, a shift by US manufacturers to mass-produced,
low-to mid-range bicycles designed for everyday use should help them
compete with the ‘China Price’ – the low price-tags for which Chinese
goods are famous.
More competitive local manufacturing costs will also help. Bike
factories have become fully automated. They employ significantly fewer
people who require only a basic level of training. As a result, labour
has become a small slice of the total production costs.
Yep, there we go again. Even more incredible that a journal with this political slant wouldn't even comment on the fallacy of automation vs. human "cost" and potential. They missed a big point, probably because they were too focused on the evils of profit.
As we've said many times over the past few years, labor is rarely a significant cost if you look at true operational costs… and those don't just include labor, material, and overhead. The most significant cost is unnecessary complexity and waste. Automation will often just automate waste… making you very efficient at doing nothing of value. You may recall when I visited one of the most efficient manufacturing operations in the world, Toyota's Kyushu operations that manufactures several Lexus models, automation is only used for processes that are potentially unsafe or too physically strenuous. And that's in a very high labor cost country.
to add custom options to the mass-produced bikes they buy. With the
long lag-time and costs associated with putting bikes ‘on the water’
these extras are difficult for overseas factories to meet.
Bingo… sort of. Sort of in that the larger point on customization is correct but in misusing "mass-produced" the author demonstrates considerable lack of understanding of modern manufacturing.
So let's dissect the story into the real relevant parts, which will could give North American manufacturing some hope (unless you're Cannondale and just now moving overseas… d'oh!).
- Rising oil cost is increasing the cost of shipping from so-called "low cost" countries
- The reality, and extra cost, of complex overseas supply chains is coming face-to-face with the desire for faster turnaround
- "Mass production" is coming face-to-face with the desire for and value in mass-customization
- Be extremely careful of automation. First lean your processes, then you'll probably realize that far less automation is needed. If any.
Hopefully some companies will take advantage of this opportunity, create jobs, and yes (horrors!) profit and wealth, before they also get snookered into accepting a bailout.
I’ve been reading your articles for a couple months and love the line the thinking. I hear a lot about how cost actually goes up when moving manufacturing to Asia, but what are your thoughts of moving IT jobs to Asia. Most IT people have seen their jobs threatened by this.
Richard Tibbetts says
My experience with Asian IT outsourcing (India) is that costs go up for many reasons: foreign workers have little incentive to improve processes, they often have little understanding of the core business, and they are slow to react to changes in the business environment. My startup eventually terminated our offshoring operation, because we didn’t see a return on investment.
Companies that have “successful” IT outsourcing projects which I have spoken to are generally offshoring highly inefficient processes, where semi-skilled labor is a dominate cost. For example, I talked to one company that required thousands of programmer hours every year to update accounting systems for the new year. These were very mechanical changes, but because the software had never been fixed, the most cost effective way to do this busywork was offshore workers. As a result, the software never gets fixed, and the company continues to feel the impact of inflexible and outdated systems.
I don’t have quantitative data to cite, but I think it is fair to say that moving IT work to Asia has many of the same problems suffered when moving manufacturing to Asia.