Search
AMM.com Copying and distributing are prohibited without permission of the publisher
Email a friend
  • To include more than one recipient, please separate each email address with a semi-colon ';', to a maximum of 5

  • By submitting this article to a friend we reserve the right to contact them regarding AMM subscriptions. Please ensure you have their consent before giving us their details.


With the aid of a pro-manufacturing policy in Washington, what began as a shortage of shipping containers could mature into a reshoring movement

Keywords:


After years of moving big parts of America's manufacturing base overseas, does it make sense to expect that much of it can return? While it won't be immediate, the answer in the long haul appears to be "yes."

"Bringing things back to North America is realistic," Eli Lustgarten, a veteran Wall Streeter and observer of U.S. industry who currently is senior research securities analyst for industrial machinery and equipment at Cleveland-based Longbow Research LLC.

Lustgarten noted that interest in reshoring got its start in 2008, when the global economic boom resulted in shortages of containers, upward spiraling freight rates and "massive bottlenecks in the ports." While the subsequent downturn removed many of those bottlenecks, the global economic crisis nonetheless underscored the difficulties in maintaining an "extended supply chain," forcing some companies to re-evaluate their procurement structure. "We think there's a lot of work going on looking at supply chain sources," he said.

Additionally, some plants located in fast-growing developing economies that supply both their own markets and North America are being pressed to devote a larger share of their capacity to local customers, which could encourage boosting output in the U. S.

Lustgarten acknowledged that with plant operating rates hovering around 70 percent, today's slack capacity utilization rate "doesn't cry out for any immediate action" for big domestic industrial corporations to reshore. But he believes it will become "a more important topic over the years."

Another believer is William E. Gaskin, president of the Cleveland-based Precision Metalforming Association, who thinks the signs are pointing in the right direction for PMA members. "I am moderately optimistic there will be more opportunities for manufacturers in the United States, both through exporting and from companies realizing that they need to produce at least in the region where they are selling," he said.

While PMA isn't seeing "a flood of reshoring" currently, Gaskin noted that there is an increasing number of anecdotal reports from PMA members, who produce metal stampings and the tooling to make them. The crucial point in many cases is often where the final product is put together, since more often than not it doesn't make sense to make a part and then ship it to China. "It boils down to where it's assembled," he said about the final product. "If the decision is to make it here, you need to make the parts here." While small, "shippable" consumer items might be suited for Chinese production, complex products with a high tooling factor are good candidates for the United States, Gaskin said.

Michael P. Collins, a former industrial executive and management consultant in Portland, Ore., authored the book Saving American Manufacturing, which makes the argument that manufacturing is "the foundation of the whole skyscraper that we call the U.S. economy."

If manufacturing is allowed to decline much further it could fall below the point where it "no longer supports the rest of the economy," he said, noting that manufacturing currently accounts for just 11.5 percent of the U.S. economy compared with 29 percent in 1950. While substantial progress has already been achieved in making U.S. industry more competitive, Collins said it isn't enough. Companies spent the past 25 years improving their "internal efficiencies" by adopting such popular buzzword practices as total quality management, just-in-time inventory policy, lean manufacturing and the ISO 9000 system of international standards, he said. But while these changes have allowed U.S. manufacturers to "stay in the game," they'll nevertheless be treading water until they shift to an "external focus" of building sales by developing new products and markets both at home and overseas.

"In the end, if you don't have enough sales you're still losing," Collins said. "If you're doing everything right, when the top line increases, profitability should too."

No industry wants to see the resurgence of U.S. manufacturing more than domestic machine tool builders, who in a good year represent a $6-billion to $7-billion-per-year industry but have fallen to about $4 billion due to the recession.

Douglas K. Woods, president of the Association for Manufacturing Technology (AMT), said the earlier departure of manufacturing from U.S. shores was encouraged by a misguided economic view held by successive administrations in Washington for nearly half a century.

Woods, who was elected to lead the McLean, Va.-based industry trade group last year and before that was president of Parlec Inc., a Fairport, N.Y.-based supplier of tooling, workholding and presetting products, said the "neoclassical" outlook that embraces a notion of "comparative advantage"—with each nation playing to its economic strength, it "all comes out in the wash" and everyone's a winner—mistakenly assumes there's an equilibrium between U.S. exports of advanced technology and imports of manufactured goods.

But the problem, Woods said, is that emerging economies view manufacturing as a stepping stone to even greater advances in high technology, and the developing world isn't about to cede the rights to high technology to anyone else. "As it turns out, the manufacturing piece is also the foundation for building the other pieces," he said.

Woods maintained that neoclassical-inspired government policies based on the notion of comparative advantage have allowed China to gobble up global manufacturing market share while the United States concentrates on high technology. But this approach isn't working, he said, noting that in 2002 the United States unexpectedly started running a deficit in high technology.

To correct the lag that AMT sees between Washington's industrial policies and those in the rest of the world, it has urged the government to launch a coordinated effort by the Labor Department, the Defense Department and other cabinet departments to support manufacturing and innovation. FRANK HAFLICH


Have your say
  • All comments are subject to editorial review.
    All fields are compulsory.


Comments
  • SCOTT ROBERTSON
    Nov 10, 2010

    No relevant comments


Latest Pricing Trends

Poll

Are you stocking more inventory today than 18 months ago?

Yes
No


View previous results