Made in the U.S.A. – Why Insourcing for Manufacturing is the New Trend
Posted October 19th, 2012
In the early 2000s, contract manufacturers in Asia offered U.S. companies what seemed like a great solution to the rising cost of producing their goods at home. But for those who kept their manufacturing local, and for those who are now part of the burgeoning “re-sourcing” trend to move their operations back to U.S. soil, the tables have turned. Here’s why “made in the U.S.A.” has never been a better idea:
- Lower Labor Costs – As American technology has improved, the amount of labor required to produce a product has dropped. At the same time, the cost of labor is on the rise in Asia and other offshore manufacturing markets.
- Increased Shipping Costs – With fuel costs on the rise, any labor savings that a company still nets by outsourcing their manufacturing is increasingly being offset by the expense of sending materials abroad and returning the finished product back to the States.
- Corporate Values – Many companies have chosen to keep or return their manufacturing stateside because of environmental and social concerns. Pollution and treatment of labor in Asia are hot topics, while the safety of some products manufactured overseas has been called into question as well. Kerry Cunningham, CFO of shoemaker Okabashi, says that “We wanted to make sure it was a safe product. Also, that it’s safe for the environment. We felt that if we outsourced, we may have risked one or more of those values.”
- Underestimating the Bottom Line – Many companies who jumped on the outsourcing bandwagon were swayed by enticingly low labor costs. But when the total cost, including expenses such as executive relocation, travel, and shipping, is calculated, the savings just aren’t there – or are not sufficient to justify going offshore. As Sean Bandawat, president of kitchenware company Bromwell discovered when they considered outsourcing, “China isn’t any cheaper anymore.”
- Brand Value – Even with the improvements at home, the final cost of manufacturing stateside might not always be less. But business owners such as Bromwell’s Sean Bandawat have found that customers are willing to pay more for that “made in the USA” label – up to a 30% premium, in fact.
The changing market conditions and the realization that cheaper isn’t always better means that increasingly, manufacturing companies are staying home – or coming home. Dick Resch, the CEO of Krueger International, a Fortune 500 furniture manufacturer, sums up the shift in thinking nicely. “Insourcing is a trend I think we’ll continue,” he says. “Done right here, I think we can be competitive in the world market.”
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