There has been a lot of rhetoric and promises about bringing manufacturing jobs “back” to the United States. This brief one-page white paper should provide information on the factors to consider when deciding whether to manufacture in the United States.
Benefits/Advantages Offered by the United States
The U.S. has significant 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 manufacturing wage rate is about $12/hour, excluding benefits. This is highly competitive compared to others and, coupled with a skilled workforce, offers high productivity potential. 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 in many Asian and European firms. Our health care costs and other benefits account for about 40% of direct wages, which is high compared with Asian firms but comparable to European firms.
Supply Chain Costs/Processes
For products made in Asia, firms have to rely on a 4-6 week shipping cycle 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 challenging to ensure an accurate inventory position due to the “inventory” being on board an ocean vessel.
Intangibles
Some intangibles come into play when managing the supply base for firms in the United States. These include time delays, managing differing time zones, language difficulties, cultural barriers, communication lags, and the ability to hold 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, and 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 used to evaluate decisions at the product, product line, or business level.
A scientific basis for decision-making can help determine whether to outsource or re-source in the United States.