There has been a lot of rhetoric and promises about bringing manufacturing jobs “back” to the United States. This is brief one-page white paper that should provide information on the factors to consider when making decisions to manufacture in the United States on not.
Benefits/Advantages Offered by the United States
The U.S. has some terrific benefits/advantages over other nations. These include a skilled workforce, low energy prices, excellent infrastructure, integrated suppliers, and raw materials. Further, our laws protect patented products from being copied.
Labor Costs
Our average wage rates in manufacturing are about $12/hour without benefits. This is highly competitive in comparison with others, and coupled a skilled workforce, provides high potential for productivity. Our union wages and rules do hurt us when we compete with firms in other nations. When productivity is applied, the number of direct production hours is much higher than many firms in Asia and Europe. Our health care costs and other benefits stand to be about 40% of direct wages, which is high compared to Asian firms but comparable to European firms.
Supply Chain Costs/Processes
For products made in Asia, firms have to rely on a long transportation cycle up to 4-6 weeks, to have products shipped to the United States for sale. Depending on the unit price, the additional cost could also be another 10-15% of the price paid to a foreign firm. It is also more difficult to ensure an accurate inventory position due to the “inventory” being on board an ocean vessel.
Intangibles
There are intangibles that come into play when managing the supply base for firms in the United States. These include time delays and managing differing time zones, language difficulties, cultural barriers, communication lags, and ability to have status meetings.
Modeling the decision to be made
Decisions to move manufacturing back to the United States should include at least five key factors:
1) Site location: transportation access, tax codes, real estate
2) Work force: Education, skills, wages
3) Raw or intermediate material costs
4) Production knowledge and management prowess; potential productivity
5) Status of manufacturing flow and process: Is this known or does the current supplier own/know it?
These elements can be quantitatively modeled and can be used to evaluate decision on a product, product line, or business level.
A scientific basis for decision making can be used to help make the decision to outsource or re-source in the United States.