Monday, August 8, 2011

“Reshore” U.S. Manufacturing to Stabilize Credit Rating, Reduce Debt, and Create Jobs

The U.S. economy is at a standstill, and Americans are looking for answers to the crisis. With the Standard & Poor’s downgrade of the U.S. credit rating from AAA to AA+ and warning it could be downgraded even further, Americans are fed up and looking for solutions.

Many do not believe the solution that will pull the U.S. from the brink will come from spending addicted politicians that created a kick-the-can-down-the-road piece of legislation to enable the debt ceiling hike just a week ago.

To look at the problem, the politicians created yet another panel naming them the “Super Committee”. Do they get capes? Was the S & P’s down grade President Obama’s 3:00 AM call? Is it Congress’ wake-up call?

Americans are also angry with big corporations offshoring jobs to foreign companies to cut costs. Americans see a once prosperous middle class losing ground in the U.S.

No one can deny the huge negative impact offshoring U.S. manufacturing has had on the economic growth and stability of Americans personally and on the nation’s GDP, tax revenues and government expenditures. Unfair trade deals are unacceptable, and trade imbalance promotes American economic depression.

There could not be a better time for cooler heads to prevail all the way around. There could not be a better time to view our problems realistically and to look at the root causes to develop real solutions which will benefit all. Manufacturing has a job and tax revenue multiplier effect in an economy.

Americans need jobs to survive, politicians need GDP growth to reduce debt, and corporations need a stable and cost effective environment to prosper. We do not need free trade that is not fair trade.

Even with all the chaos in the markets, and some world governments, the U.S. remains where many will and should put their money for the lowest risk.

It needs to make sense realistically for companies to do so. Harry Moser, the Founder of the Reshoring Initiative knows what many U.S. companies need to know. It does make more sense than they might realize, including more economic sense for businesses.

The mission of the Reshoring Initiative, an educational non-profit company, is to return manufacturing work and jobs to the U.S. by helping manufacturing companies recognize they will be more successful if they reshore more and offshore less. They promote government understanding how to support reshoring effectively.

The Reshoring Initiative offers companies a look at the “Total Cost of Ownership” (TCO) with its TCO Estimator software as well as other research and organizational tools that support the manufacturing industry’s business owners, government officials, and union groups.

Harry Moser holds a Bachelor of Science in Mechanical Engineering and a Masters in Engineering from Massachusetts Institute of Technology. He received an MBA from the University of Chicago in 1981.

He was the President of GF AgieCharilles and retired as Chairman Emeritus in 2010. He is on the board of NIMS, credentials for skilled manufacturing, and is President of the Swiss Machine Tool Society.

Moser, an Inductee to the Industry Week’s Manufacturing Hall of Fame 2010, has had his work highlighted in Fortune, Wall Street Journal, and Industry Week. He shares his reshoring expertise:

BKH: Do you believe the S & P credit rating downgrade of the U.S. will have any impact on reshoring manufacturing to the U.S.?

HM: The most likely direct impacts are a lower dollar and higher interest rates. A lower dollar unambiguously makes U.S. manufacturing more competitive. Higher interest rates may hinder manufacturing investment in general but will increase the carrying cost of inventory, making local sourcing with delayed payments relatively more attractive in comparison to offshoring.

BKH: We have seen unemployment over 9% for a record setting period of months. How can reshoring manufacturing immediately help?

HM: Eventually, we have to balance the trade deficit or the dollar will collapse. When we balance the $550 billion per year trade deficit by reshoring manufacturing, we will create 3 million manufacturing jobs and 5 million or more multiplier effect jobs. This could reduce the unemployment rate to about 4%.

BKH: We have seen politicians taking the annual budget deficit and the overall debt seriously these past few weeks. Can reshoring help deficit reduction by balancing trade deficits?

HM: Balancing the trade deficit by reshoring will increase tax revenue from workers and companies. It will decrease expenditures for unemployment, trade adjustment assistance, stimulus programs, etc. The total impact could be $2 trillion federally over 10 years and $500 billion at the state and local level over 10 years.

BKH: Are you meeting with local, state, and federal government about the needs and goals of reshoring?

HM: I met on July 22, 2011 with SelectUSA, a new Commerce Dept office to motivate foreign direct investment and investment by U.S. companies. They are quite interested in using and distributing the Reshoring Initiative’s tools to economic development groups around the country.

BKH: Are they listening to you?

HM: Generally yes. However, they tend to be too focused on exports and not enough on reshoring. It is far easier for most U.S. factories to compete here where they have the home-field advantage, rather than overseas.

BKH: Does Steve Wynn have it right about capital investment in the U.S. right now being scared to death over possible higher taxes, carbon emission regulation, redistribution of wealth, and socialism fears?

HM: Steve has a powerful argument. I think the impact is greater on small to midsize privately owned companies whose owners in effect personally pay the expenses for those government programs. Overall, the lack of demand due to offshoring is a greater issue for most companies.

BKH: Do you believe government is capable of understanding what environment is needed in the private sector to create jobs?

HM: Certainly some individuals in government must understand. President Reagan understood. Most elected officials are too torn between competing constituencies and their own need to be reelected to take the necessary actions.

BKH: Are tax breaks for reshoring manufacturing prudent and necessary?

HM: It’s far better to help all domestic manufacture be competitive via a lower dollar and an end of Chinese currency manipulation. The Yuan is still about 75% lower than it was in 1980 despite the huge improvement in the Chinese economy, balance of payments and productivity. We need consistently good basic education with much more emphasis on “professional” training of the technicians needed to be competitive producing tradeable goods and much less emphasis on liberal arts university degrees.

BKH: Are tax breaks for repatriating manufacturing capital back to U.S. prudent and necessary?

HM: I am not sure doing so will stimulate manufacturing. The big companies here have all of the cash that they need. They can borrow more at very low rates. An ideal solution is to have a low 5% tax on repatriated earnings, and spend 1% of the taxes raised educating companies about Total Cost of Ownership (TCO); so they make and source more here, increasing domestic demand.

BKH: What is your opinion of the NLRB and Boeing dispute?

HM: Boeing may have violated the letter of the law by telling the union what it would do if they struck. If so, the law is the problem. It is certainly in the interest of the union, the workers, the company, and the country for companies to be able to communicate honestly and openly.

BKH: What do you see as the future for unions in manufacturing?

HM: Traditionally I saw them as reducing the efficiency and competitiveness of the economic system. Recently however, I did a webinar for the AFL-CIO and presented to the IUE-CWA, training both to engage management in reshoring. I was impressed. The IUE-CWA even has lean specialists that help their companies become more competitive. The unions are much more committed to reshoring than big business, because all of the unions’ members are in the U.S., whereas the companies have plants and customers worldwide.

BKH: Is it possible for American companies to compete globally with higher union wage and benefit demands?

HM: Demands are not the problem. Unit labor costs above those determined by the market are. If the union can create productivity and quality that are in excess of non-union companies, then it can earn some premium compensation. Otherwise, no.

BKH: What is most misunderstood about the China vs. U.S. manufacturing cost?

HM: Sixty percent (60%) of companies only consider the price or perhaps the Cost of Goods Sold, missing other “hidden” costs that can add 20% or 30% to the recognized costs.

BKH: There have been some news articles recently about the U.S. becoming competitive with China. Can you provide some details from your work on this?

HM: Boston Consulting Group’s May 5, 2011 report stated that the net unit labor cost in China would be so close to the cost in the U.S. southeast that the “hidden” costs will make the Total Cost of Ownership lower for U.S. production by 2015 for a broad range of manufacturing.

BKH: Do you believe China, or other developing and emerging manufacturing countries, will continue to dominate global manufacturing in 5, 10, 15 years?

HM: Today they dominate the growth in global manufacturing. As wage rates converge, especially in China, the relative growth rates will converge. The U.S. and other developed countries can regain some of the momentum if they act like Germany and Switzerland and develop strong technical training systems. In those countries 70% of youth enter sophisticated apprentice systems. The countries get, on average, a far higher quality and quantity of skilled technical professionals.

BKH: What impact did the tragic Japanese earthquake have on reshoring?

HM: The Japanese earthquake forced companies to recognize how fragile their supply chains are. The result is either dual sourcing in different countries or shortening supply chains so there is less chance of disruption. Use of TCO helps the companies understand that they do not have to sacrifice profitability to reduce risk via the latter solution.

BKH: Detail what is needed for companies to complete a true cost analysis of keeping manufacturing in the U.S. or reshoring versus offshoring.

HM: Data or estimates about the costs that are associated with the offshoring: price, duty, freight, carrying cost of inventory in transit and on the shelf, travel cost to visit the supplier, opportunity cost when orders are lost due to long supply chain, etc.

BKH: What is the TCO Estimator?

HM: It is software that calculates the TCO for a part, product or tool from the relevant data inserted by the user. The output data and charts let the user make an apples-to-apples comparison of sources so the company can make the best decisions in its own interest.

BKH: What are the possible impacts of offshoring on a company, their product cost and quality, and their strategic positioning that many companies do not realize or understand until after they have taken their manufacturing out of the U.S.?

HM: Cost is 20% to 30% higher than they estimated based on price or labor costs. Most did not go much further than price, perhaps adding duty and freight. Strategic impacts include degraded innovation from separating manufacturing and engineering as well as intellectual property (IP) risk.

BKH: What percentage of the manufacturing industry understands this true cost analysis and impact overall?

HM: Surveys by Archstone Consulting, 2009, and Accenture, 2011, both show that about 40% of the companies use the total cost of ownership concept. Many companies bonus their supply chain managers on savings at the price level instead of the total cost of ownership level.

BKH: Is the manufacturing industry listening?

HM: Generally the contract manufacturers and lower tier product and material manufacturers that will benefit the most by reshoring are very enthusiastic in addition to privately owned companies in the $200M annual revenue range. These companies are dependent on U.S. sales and want to use the TCO Estimator for selling.

BKH: How are they responding?

HM: The small and medium enterprise (SME) and unions are responding very well. Bigger companies are more difficult to convince to consider changing their behavior. I am starting to get emails perhaps weekly from companies that are using the TCO Estimator and have questions.

BKH: How can reshoring help a company better align their manufacturing with key priorities?

HM: By eliminating the need to make those priorities subservient to the pursuit of lowest cost labor. By understanding TCO, they see that they can have innovation, customer response, lower inventory, better quality, etc. without impacting price or profitability.

BKH: How can a manufacturer get a copy of the TCO tool?

HM: Online at Reshorenow.org.

BKH: What companies have you worked with recently which have begun reshoring manufacturing back to the U.S.?

HM: I am working with Morey Corp and Hydraforce in the Chicago area.

BKH: What were their main reasons for reshoring?

HM: Morey was initially motivated by quality. They then found that reshoring cut inventory by a factor of 18.

BKH: What can people in the manufacturing industry do to help?

HM: Use TCO for buying and selling. Get your company or your customer companies to listen to 1 of 4 free webinars in August 2011. Send me cases of successful reshorings. Spread the word to other companies. Encourage your national politicians to support reshoring.

BKH: What do you have on your schedule for 2011?

HM: I am writing articles and doing webinars. I will do about 100 presentations in 2011 to managers in supply chain, risk, trade associations, accounting, unions, machine tool makers and distributors as well as original equipment manufactures (OEMs). We are currently also updating our website with new information.

Reshoring Initiative has 15 funding sponsors and will reach 20 by the end of the year. I need volunteers in Research and Administration.

We are in discussions with affiliates in New York and New Jersey and working with the IUE-CWA. We are training two $150M annual revenue Chicago area manufactures to use TCO for sourcing and for selling to their large customers.

We want OEMs to use TCO to reevaluate sourcing, and suppliers to use TCO to sell local sourcing. We are encouraging economic development groups, private and public, to promote U.S. based facilities. We are talking to government groups reframing the trade discussions to put as much effort in reshoring as exporting. We invite participation and calls.

BKH: Thank you.

It is time those negotiating trade agreements on behalf of Americans corrected deals and policies that lead to unfair trade imbalances for the U.S. It is time for reshoring manufacturing to be a multiplier catalyst in driving a real economic recovery that includes job growth. We want the American middle class working again. We want employment levels that add to our tax base to reduce debt and stabilize the dollar, credit ratings, and markets.

We want business to emphasize American jobs being brought back in the best interest of all including their own. We know it can be done and must be done. With everyone working together, reshoring manufacturing is one of the ways it will be done.

It’s time to put America and the stability of Americans first in our strategies. We build it, and we will come. We make it, and those of all nations will buy it.

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1 comment:

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