Bring It Home
Apple did it. So did Ford and Whirlpool. General Electric even jumped on the bandwagon. The return of production to the U.S.—known as reshoring—is more than a passing phase; it’s a major trend in the global manufacturing sector, economists say.
Various factors have led to a spike in reshoring, according to Greater Houston Manufacturing Association co-founder Jeff Applegate, including heightened transportation costs, shortened product life cycles and rising wages in developing countries.
“Walmart is also a big influence,” Applegate says, with the retailer driving suppliers to move back to the U.S. via its commitment to put an additional $50 billion in U.S. products on its shelves by 2023.
George Calvert, vice president of Supply Chain and R&D at Ada, Michigan-based Amway, says quality also played a key role in his company’s decision to reshore. He reveals that Amway opened a $42 million facility in Buena Park, California, in late May to manufacture and design its Nutrilite dietary products—a move, Calvert says, that illustrates the strength of the American manufacturing sector. Brazil and Mexico currently top Amway’s list of farming destinations, but manufacturing Nutrilite in the U.S. offers one clear advantage: consumer trust.
Health products bearing a “Made in the USA” label instantly conveys quality, Calvert says. “Consumers know that U.S. standards ensure safety throughout the supply chain—from the planting, harvesting, processing and conversion of crops, to the formulation, production and quality control of the finished goods,” he says. And many people are willing to pay for that quality, even if it comes at a premium.
Fortunately, he continues, the U.S. is gaining a leg up over the competition—particularly China—in regards to productivity. Lean methodologies, as well as the investment in advanced manufacturing centers and a greater emphasis on workforce training, have made the U.S. more efficient. Manufacturers, Amway among them, have taken notice. It’s why the company selected America as the backdrop for four of its seven planned expansion sites, despite the nation’s increased labor costs, according to Calvert. In addition to California, Amway has also had success manufacturing in its home state of Michigan.
“The workforce’s commitment to quality and the focus on continuous improvement in Michigan is impressive,” Calvert says.
“You can place facilities anywhere, but nothing replaces dedicated and engaged employees. We have that right here.”
Matthew Elliott, Michigan state president at Bank of America Merrill Lynch, echoes Calvert’s statements, commenting that Michigan offers manufacturers a host of advantages. Companies must invest in skilled labor, Elliott says, and Michigan prepares residents for careers in the manufacturing field via its Michigan Apprenticeships, Internships and Mentoring initiative. The program, launched in September 2014, seeks to address the talent gap by grooming Michiganians for specific jobs—a model that Elliott endorses wholeheartedly.
“When making site selection decisions, manufacturers should identify where there are clusters of talent available, especially where businesses and local governments have already launched programs to address skilled labor training within the manufacturing sector,” says Elliott, who also heads up BofA Merrill Lynch’s commercial banking in Ohio and Indiana. Companies looking to bring production back to the U.S. should also examine the operational infrastructure that must be developed, Elliott maintains, such as the cost of constructing new facilities and the price of machinery.
Besides Michigan, below are four other locations that companies should consider when bringing production back to the U.S.
Renowned for its low cost of doing business, Iowa also boasts a booming manufacturing sector. Sixteen percent of Iowa’s jobs are currently related to manufacturing—a figure Elliott expects to grow even more due to the state’s new “Get Skills to Work” initiative. The program, backed by the Iowa-Advanced Manufacturing consortium, trains veterans for highly skilled jobs in manufacturing, such as welding, machining and fabrication. State officials anticipate this resource buoying Iowa’s already illustrious furniture, machinery, plastics and rubber industries.
From a logistics standpoint, Kentucky is a manufacturer’s dream. In addition to housing both Louisville International Airport—the seventh-busiest cargo airport in the world—and United Parcel Service’s Worldport hub, the state is served by 19 interstates and highways.
Manufacturers in Kentucky also benefit from a slew of business incentives, such as tax breaks for building new facilities. Kentucky’s manufacturing sector arguably got the biggest boost in 2012, however, when GE Appliances announced its landmark decision to move production of its water heaters from China to Louisville using lean techniques. In return, the Kentucky government provided GE with up to $17 million in incentives—a relationship model other companies hope to follow.
The Midwest is undoubtedly one of the hottest locales for manufacturing—more than 70 companies have reshored to the region—with Ohio at the center of the boom. “The regional economy has seen steady growth due to a number of [thriving] sectors,” Elliott says, “including automotive, which has increased production in the region.” Case in point: Ford Motor Co. Last year, the automotive giant announced plans to build its F-650 and F-750 trucks at a Cleveland-area plant, rather than one in Mexico, following a collective bargaining agreement with United Auto Workers.
Economists say such a move speaks volumes about Ohio’s workforce, a population benefitting from top-rated manufacturing engineering programs at the University of Dayton and The Ohio State University.
Numerous companies have been attracted to the state’s low cost of living, loose regulatory environment and business-friendly policies—with Houston, in particular, emerging as a major hotspot for reshoring. In addition to boasting the fourth-largest port in the nation, Houston is centrally located, which allows it to serve as an effective distribution point for manufacturers. The city’s booming oil and gas sector is another key advantage, Jeff Applegate notes.
“Houston is home to the world’s largest oilfield service companies,” he says, “and the recent surge in onshore drilling activity has created opportunities for innovation and demand for services worldwide.” Plastics manufacturing is particularly hot in Texas, Applegate points out, thanks to the availability of low-cost gas feedstock, such as ethylene.