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Mfg jobs coming back to USA?
Old 08-05-2010, 09:43 PM   #1
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Mfg jobs coming back to USA?

I found this interesting.

Some manufacturing heads back to USA - USATODAY.com

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"I think we're going to start to see a slowing of lost jobs, and we'll see some jobs coming back," says Simon Ellis, an analyst for IDC Manufacturing Insights. ...

There are myriad reasons for the shifts, often called "onshoring" or "reshoring." Chinese wages and shipping costs have risen sharply in the past few years while U.S. salaries have stayed flat, or in some cases, fallen in the recession. ...

Several cite the drawbacks of tying up valuable capital in huge overseas shipments, and want to bring assembly closer to engineers, suppliers and customers, concerns that mounted as makers slashed costs in the downturn. Others are simply weary of midnight phone calls and multiple annual trips `to Asia.

"A lot of companies who have gone there to take advantage of cheap labor are starting to tell us that if you (calculate) total ... cost and don't just look at wages, it's actually not worth it," says Jeremy Leonard, consultant for Manufacturers Alliance/MAPI, an industry-funded research group.
When we were sending a lot of production overseas, it was so easy for someone to calculate the effect of lower wages to the penny. There was no way to calculate these other factors, though we all knew they were real. So the guys with the definitive powerpoints won (and probably should have in most cases). But if CEOs are recognizing these issues, it will mitigate the wage deltas to a degree.

-ERD50
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Old 08-05-2010, 09:54 PM   #2
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I guess I was lucky in that I didn't realize we lost any jobs during the recession. My company has never stopped hiring and is busier now than ever before. My department is far behind schedule and we're starting a new computer system that has a reputation of decreasing production. We may lose customers because we can't keep up with due dates.
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Old 08-06-2010, 05:00 AM   #3
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I find it interesting (but not at all surprising) that many of the reasons that companies are bringing back manufacturing are for precisely the reasons that Andy Grove suggested

Still I wonder if this is really a trend or just some selective cherry picking by some pretty PR savvy firms.
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Old 08-06-2010, 05:20 AM   #4
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I read an article several months ago saying the same thing. The example was a high end cookware manufacturer. The items could be made more cheaply in China, but when there were supply issues it took a long time to resupply the stores. If pot A was ordered, but pot B was sent people couldn't get pot A for several months resulting in people buying a different brand. For these reasons the company moved it's suppliers to onshore ones and saw an increase in business and profits even though higher per unit costs were incurred
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Old 08-06-2010, 06:19 AM   #5
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Originally Posted by aaronc879 View Post
I guess I was lucky in that I didn't realize we lost any jobs during the recession. My company has never stopped hiring and is busier now than ever before. My department is far behind schedule and we're starting a new computer system that has a reputation of decreasing production. We may lose customers because we can't keep up with due dates.
Is it SAP?
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Old 08-06-2010, 06:26 AM   #6
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I doubt it. There are too many cheap labor countries still out there for over paid CEO's to exploit. It always amazed me why all of the VP's were never outsourced. There are plenty of countries where VP's are cheap and it never really mattered whether they showed up for work or not. Most people knew what to do day to day whether the VP was on the payroll or not.
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Old 08-06-2010, 07:46 AM   #7
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Is it SAP?


Yeah, been there, done that...
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Old 08-06-2010, 08:15 AM   #8
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Originally Posted by ERD50 View Post
When we were sending a lot of production overseas, it was so easy for someone to calculate the effect of lower wages to the penny. There was no way to calculate these other factors, though we all knew they were real. So the guys with the definitive powerpoints won (and probably should have in most cases). But if CEOs are recognizing these issues, it will mitigate the wage deltas to a degree.-ERD50
[/QUOTE]
"A lot of companies who have gone there to take advantage of cheap labor are starting to tell us that if you (calculate) total ... cost and don't just look at wages, it's actually not worth it," [/QUOTE]

I find it difficult that any company with a finance and accounting dept. would not do a total cost analysis (US vs Offshore - from US shut down costs to Offshore set up costs and annual projected saving by going offshore) which would also would include the associated opportunities and risks. Would any of us; if we were heads of a company, make a decision if we were only presented with an analysis that showed the labor cost variance?
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Old 08-06-2010, 08:52 AM   #9
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When fuel costs soared in 2008, it became apparent that the model of cheap labor making up for transportation costs might have a limit.

And, as I've argued before, if you include externalities, like high structural unemployment, declining middle-class, dead cities and towns, and the associated monetary and social costs of "offshoring", plus the loss of engineering and manufacturing expertise, it's only "cheap" to the individual company. Society is paying for the rest.
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Old 08-06-2010, 09:09 AM   #10
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Still I wonder if this is really a trend or just some selective cherry picking by some pretty PR savvy firms.
I suspect it is both. There are probably relatively few (but not zero) products where this outweighs the labor cost delta. And not to move this into political territory, but uncertainty over future US labor costs, taxes and regulations don't make the decision to move jobs back any easier.

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I find it difficult that any company with a finance and accounting dept. would not do a total cost analysis (US vs Offshore - from US shut down costs to Offshore set up costs and annual projected saving by going offshore) which would also would include the associated opportunities and risks. Would any of us; if we were heads of a company, make a decision if we were only presented with an analysis that showed the labor cost variance?
It is understandable - the CEO is involved in many decisions. He gets a presentation on this, and the labor savings are very clear-cut numbers. The negatives and risks are vague and largely incalculable. Your competitors are doing it. If I stand up and say " but, but, but - it will take longer to get problems solved, you'll have more delays because of communication problems, we may have more quality problems..." , you pretty much sound like a Negative Nelly. There are a few numbers that can be estimated, you could say, " we had X number of such-and-such occurrence, and the time delta and shipping will increase costs of those occurrences by $X/year, etc", but I doubt you could quantify anything close to the labor costs delta. And someone will point out - " we have a corrective action plan for those issues, and they will be reduced by 68% this year!" (right.....).

Plus, the manager who gets the product outsourced got a big bonus for the savings, and if it takes 5 years for the chickens to come home to roost, he/she got the money and is off in another position, or another company (probably making the same pitch)....

And I'll still say, even with the negatives, probably only a small number of the outsourcings were a real overall financial mistake.

-ERD50
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Old 08-06-2010, 09:19 AM   #11
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This is very good news short term. If the problem is Chinese labor costs rising, however, I assume that it's only a matter of time before another country raises a suitable labor force at cheap wages. Chasing the lowest international wages doesn't seem like a sustainable solution. OTOH, when companies are governed by quarterly earnings, that's as far as many of them want to look.
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Old 08-06-2010, 10:03 AM   #12
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Is it SAP?
Yes, have you heard or experienced the same bad things?
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Old 08-06-2010, 11:14 AM   #13
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Chasing the lowest international wages doesn't seem like a sustainable solution. OTOH, when companies are governed by quarterly earnings, that's as far as many of them want to look.
The interesting thing to me is, this 'chasing the lowest wages', is the 'kindest, gentlest' thing we could do as a society. For those who support re-distribution of wealth, what could be better than providing jobs to the poorest among us?

The irony is, the 'greedy capitalists' do this w/o government intervention or regulation. They do it to maximize profits. Or maybe I should say 'in spite of', as some protectionist government regulations seek to keep those poor people poor, and the relatively richer ones rich.

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Old 08-06-2010, 11:16 AM   #14
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The interesting thing to me is, this 'chasing the lowest wages', is the 'kindest, gentlest' thing we could do as a society. For those who support re-distribution of wealth, what could be better than providing jobs to the poorest among us?
I think this belief normally stops at international borders, and I'll leave it at that to prevent it from being political.

In terms of "keeping jobs here," as much as it might hurt in other ways nothing will help more than sky-high oil prices. The more it costs to transport our "stuff" from China and elsewhere, the less advantage cheap overseas labor will have.

The IT jobs which left for India are probably gone for good, as the cost to "transport" data over the Internet will remain near zero regardless of energy prices.
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Old 08-06-2010, 11:35 AM   #15
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I think this belief normally stops at international borders, and I'll leave it at that to prevent it from being political.
Agreed - I just meant 'society' as all our brothers and sisters on the planet, regardless of the lines on the map (subtle Pink Floyd reference).

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