The return of manufacturing to the USA: trend or plan all along?

[rick-day.livejournal.com]

I've been reading quite a bit about how the multi-nationals are figuring out that there is a cost (in time and quality) associated with factory outsourcing.

This fascinating article in The Atlantic Magazine references this new trend as 'in-sourcing'. It cites how GE took existing US factories, backwards engineered the appliances and figured out a way, lo and behold, that produced a product that was significantly cheaper than Chinese imports.

Quotes contributed to GE CEO Jeffery Immelt:

In the midst of this revival, Immelt made a startling assertion. Writing in Harvard Business Review in March, he declared that outsourcing is “quickly becoming mostly outdated as a business model for GE Appliances.” Just four years after he tried to sell Appliance Park, believing it to be a relic of an era GE had transcended, he’s spending some $800 million to bring the place back to life. “I don’t do that because I run a charity,” he said at a public event in September. “I do that because I think we can do it here and make more money.”

Immelt hasn’t just changed course; he’s pirouetted.

What has happened? Just five years ago, not to mention 10 or 20 years ago, the unchallenged logic of the global economy was that you couldn’t manufacture much besides a fast-food hamburger in the United States. Now the CEO of America’s leading industrial manufacturing company says it’s not Appliance Park that’s obsolete—it’s offshoring that is.

Today I read news that some Macs will be assembled in the US. Not quite the same as what GE is doing, but I do see a trend.

In my opinions the current levels of American in-sourcing are not at the Silver Bullet level necessary for "economy saving" trends.

But to see something 'made in USA' in a manner cheaper than Foxconn can (once transportation, Quality control and delay costs are factored in) would have an interesting effect on the Tea Party "USA! USA!" crowd. Blue collars are going to remember fairly quickly that unions were organized for, and by the blue collars.

Insourcing has a place. although not yet clear if it portents market longevity. As history points out concepts like outsourcing evolve, explode as the 'new norm', yet ultimately burning out in a relatively short time. Whether firms in manufacturing, transportation and IT industries can sustain labor over a prolonged period of time is a trend worth monitoring.

OH, and In before Union Wank

Comments

[sophia-sadek.livejournal.com]

What! This runs counter to the plan for a capital strike to punish America for voting for Obama. I suppose money talks and politics walks.

Why do you use the founder of African American Freemasonry as the icon for this?

BTW, you might want to clean up the "bot yet clear" sentence.

[rick-day.livejournal.com]

I use Prince Hall is an example of True American Spirit within my icon library.

I fixed the typo with the same b instead of an n. Or maybe I corrected it in a cross post.

Either way: done.

[nevermind6794.livejournal.com]

I wouldn't say GE "backwards engineered" the appliances - they designed it to begin with! What happened is that when they brought it back here, they had design engineers and factory workers in the same room, so the designers could incorporate insights from the factory floor. From a pure business and engineering standpoint, I think companies are starting to realize what they lost when they sent manufacturing to China.

As the article states, there are also a ton of macro reasons for bring manufacturing back here: lower energy costs, higher transportation costs, labor constantly decreasing as a percentage of overall cost, etc. I think two things are worth mentioning, though: first, a lot of companies sent business to China because they wanted to access China's markets to sell them stuff; second, a lot of manufacturing jobs were really lost to automation, and those are never exactly coming back.

[mutive.livejournal.com]

a lot of companies sent business to China because they wanted to access China's markets to sell them stuff; second, a lot of manufacturing jobs were really lost to automation

This. A lot of people forget that the US still manufactures a lot of stuff. We just do it with very few bodies. It's an interesting debate; will manufacturing eventually end up like agriculture, where we just don't need all that many bodies to produce as much as we really want to consume? (Answer: I have no idea, nor I suspect does anyone.) But we're definitely trending towards needing fewer people.

And while some stuff was outsourced to China because, yay, cheap labor, a lot of companies also went, "Huh, >1 billion people...man, that could make us some serious money."

[rick-day.livejournal.com]

I admit I struggled for a nanosecond over the term 'back engineered' but it seemed that was what they did. They figured out a simpler way with CAD technology to disassemble and re assemble the heaters with less materials and time.

Although they initially designed the concept, the truth is more like they sent some concepts and mock ups for the Chinese experts to figure out how to efficiently engineer the manufacturing process, then moved on to other projects.

The Chinese, however, were more interested in profit than GE efficiency. And look where that attitude got the China factory!

[notmrgarrison.livejournal.com]

unions were organized for, and by the blue collars

You left out the word "run".

Now where's my twinkee?

[malakh-abaddon.livejournal.com]

Sorry due to some technical issues Twinkee's are currently out of stock... Please try back when this existence repeats itself.

[sandwichwarrior.livejournal.com]

Incorrect unions were organized for, and by the unions.

[telemann.livejournal.com]

[gunslnger.livejournal.com]

You missed them.
http://www.upi.com/Odd_News/2012/12/06/Restaurant-gives-out-free-Twinkies/UPI-71821354816007/

[ddstory.livejournal.com]

In before Union Wank

LOL, like that would prevent it. :))

[sandwichwarrior.livejournal.com]

Too late. ;)

As the man said, where's my twinkie?

[badlydrawnjeff.livejournal.com]

But to see something 'made in USA' in a manner cheaper than Foxconn can (once transportation, Quality control and delay costs are factored in) would have an interesting effect on the Tea Party "USA! USA!" crowd. Blue collars are going to remember fairly quickly that unions were organized for, and by the blue collars.

I don't see what the unions are going to have to do with it. If anything, part of the benefit of bringing these backs will be new manufacturing plants that won't be unionized. If (perhaps when, given private sector union membership and approval) these non-unionized firms remain established, it will further erode organized labor's stranglehold on domestic manufacturing - the same stranglehold that hurt it so much to begin with.

My assumption is twofold here - 1) that fuel costs have largely negated the benefit of cheaper labor and lower taxes, and 2) the new economy is one of immediate gratification, and the idea of building something in China and then waiting for it to arrive by boat just to ship it across the country doesn't mesh well with the idea that you should be able to request something and get it right away. The latter is a new normal until technology develops better shipping, the former might very well be adjusted by policy, but it's all due to cost at the end of the day.

If the unions are smart, they're recognize this and act accordingly. Because they aren't, however...

[rick-day.livejournal.com]

don't you think the unions have been emasculated over the past 25 years to the point they have no real power in the workplace anymore, especially when it comes to 'non-competitive' wage negotiation?

$13.50 ain't $27.35 an hour, but to the long unemployed former union worker, it is a manufacturing job.

[papasha-mueller.livejournal.com]

"trend or plan" - Talks. Just talks.

[policraticus.livejournal.com]

Just five years ago, not to mention 10 or 20 years ago, the unchallenged logic of the global economy was that you couldn’t manufacture much besides a fast-food hamburger in the United States

Despite the fact that the USA has never been less than #1 in manufacturing since WWII.

[notmrgarrison.livejournal.com]

I got one of those!

[underlankers.livejournal.com]

I don't think it's a plan so much as recognizing that investing in the long-term viability of the PRC as an alternative may not have been the wisest basket to put all their eggs in.

[peristaltor.livejournal.com]

Back in the '80s, Sony did a study. They found out it cost 25¢ to ship a small telly from the factory in Singapore to an outlet in New York. Two bits. It literally more to have employees in NY open the container, unload it, and move the product to the shelves.

The reason: primarily, containerization and the falling relative cost of fuel.

Containers will be with us forever, but falling fuel costs are in the rear-view (for those that can still afford to drive). Unions have almost nothing to do with this trend now, but they will (http://talk-politics.livejournal.com/1545748.html).

[korean-guy-01.livejournal.com]

Go robotics.

[papasha-mueller.livejournal.com]

Yep.
http://www.youtube.com/watch?v=VXa9tXcMhXQ

[anfalicious.livejournal.com]

My old man set up a few factories for a major beverage company in China. He was constantly frustrated by the massive amounts of corruption, the poor quality and the work ethic of the Chinese. As a hangover of Communism, it generally took five or six locals to do the job of one Australian. In the end he concluded that it would be cheaper to make product in Australia and ship it China. Management disagreed and he got the boot. They ended up losing tens of millions of dollars in China and the company has now been sold to a competitor (they were once one of the biggest beverage companies in the world, China wasn't their only poor decision).

[yes-justice.livejournal.com]

That this is notable is itself a sad commentary.

[mikeyxw.livejournal.com]

"OH, and In before Union Wank "

You realize you started the union wank two paragraphs before you made this statement, right? Even if you didn’t, simply stating “in before union wank” almost counts as union wank.

Also, the reason we're seeing an increase in manufacturing in the US is because such a low percent of the cost for most products comes from the labor to manufacture it that the US is competitive once again. US workers making $500 per 40 hour work week can compete with Chinese who make $500 per 300 hour work month. Don't get me wrong, this is good news, even if you’re Chinese. It doesn't signal the return of high paying jobs for folks without much education, which seems to be why politicians seem to fetishize manufacturing, but, along with the energy independence that Saudi Dakota promises to deliver, it is a good sign that we are moving towards being able to balance our accounts while we can still borrow.

[rick-day.livejournal.com]

Well technically I started 'union wank' when I was thinking about posting something in a general anti-union environment. You can't talk about labor in this community without UnionMoster being drug out of the ocean's deep, like a sleeping Godzilla.

I typed "in before Union Wank" as an acknowledgement that, while this post has little to do with unions, eventually some moron would yell TwinkieGate and off we go talking about how unions are destroying America and other such drivel.

On your second paragraph, we agree.

[telemann.livejournal.com]

[sandwichwarrior.livejournal.com]

Do you think the correlation is causative? Or are you just taking cheap shots?

[gunslnger.livejournal.com]

That's how the market is supposed to work. Outsourcing was never a long term problem, just people want a "quick fix" to the short term woes.

[mahnmut.livejournal.com]

Maybe because most people don't live for 100 years.

[meus-ovatio.livejournal.com]

I work in manufacturing. The lesson is: you get what you pay for. The baker's union didn't sign off on the deal because the wage offered was not competitive. Every one of those bankers can get an equal or better job under the terms offered, somewhere else. So Hostess failed to offer a competitive market-based wage. And no, unions aren't supposed to look out for the company. And yes, the baker's union sunk the company. Good for them. Like I give a shit if Twinkies are around or not.

Where I work, the wages offered are so low the only people they can get and keep are ex-convicts. So the place runs like shit. The owner makes hardly any money. Invests nothing. They're running the place right into the ground. And when the company fails? There won't be a union to blame. The short-sightedness of the ownership class is astounding. They don't know business. They know balance sheets. And they'll spiral themselves right out of existence every time. Unions can and do make sure management re-invests in companies and capital projects. Because workers know how shitty a shitty business can get when you have shitty equipment and a tight-fisted cheap-wad running the show.

It's amazing, really, how often the rich owners run themselves out of business out of sheer idiocy.

[rick-day.livejournal.com]

No more saner or sobering a statement could ever be crafted than yours.

Are you feeling OK?