April 6, 2011 at 2:49 pm | Blog
The U.S. manufacturing industry has long been a poster child for recession, “offshoring,” job losses, and a changing way of life for the middle class. Manufacturing is one of the industries that has been hardest hit by the recent economic downturn as jobs move to countries like China that have lower labor costs.
And yet, recent news indicates that the U.S. manufacturing sector might be making a comeback. According to this article from Wired.com (“Made in America: small businesses buck the offshoring trend”) many smaller U.S. manufacturing companies are making the decision to give up on China and relocate their production centers to within the United States.
MFG.com survey of manufacturing executives, 19 percent of U.S. companies have brought all or part of their operations back to the U.S.
There are several lessons to be learned from these U.S. manufacturers who are able to thrive in the face of lower-cost competition.
- Quality counts: One of the challenges that many U.S. manufacturers have had in dealing with Chinese companies is that it is often difficult to meet the U.S. companies’ quality requirements. The Wired article mentions a U.S. manufacturer that grew frustrated with their contract factory in China after numerous production glitches and nearly-missed deadlines. Lower-cost labor doesn’t really save money if the quality of the work is not up to standards. Higher quality can be a competitive advantage for American manufacturers.
- It helps to be close to home. With the vast geographical distance between the U.S. and China, it can be hard for U.S companies to get their products shipped in a timely fashion from their Chinese factories. Supply chain disruptions and delays can be even more costly than labor. With oil at $90 a barrel, trans-Pacific shipping costs have become a growing concern. Just by being in closer proximity to their U.S. customers, many American manufacturers can achieve a competitive advantage over their Chinese counterparts.
- Be flexible, adaptable and specialized: Many smaller manufacturers in the U.S. have been able to quickly design, develop and bring products to market faster than they could when using Chinese contract factories. Peerless Industries manufactures a specialized wall mount for the Samsung 9000 TV at its location in Aurora, Illinois. It took the company only 4 weeks to bring the product to market – less than half the time it would have taken to get the product built and shipped from China. This speed translates into dollars and cash flow for the manufacturer.
- Innovation is worth more than cost-cutting: One of the encouraging lessons from U.S. manufacturers is that by trying to compete with lower labor costs, they have been motivated to find new ways of manufacturing, with new processes that require fewer steps and less labor. QSI Corporation, a Salt Lake City-based data terminal manufacturer, has reduced the labor content of its products by 40 percent. U.S. companies are redesigning their products with labor costs in mind – making the best use of automated process and robotic technology to minimize the amount of time that humans have to spend building their products. When faced with lower-cost competitors, instead of playing by the rules of the lower-cost options, sometimes it’s better to reinvent the game.
The U.S. manufacturing industry may never return to the heights of the pre-offshoring era. Big companies that have massive scale and volume will likely continue to see big benefits from making their products in China and other low-cost countries. But there are several hopeful signs that with innovation, higher quality standards, and relentless specialization and focusing on what they do best, American manufacturers can compete with anyone in the world.
Whoever your “China” may be – whatever low-cost competitor is keeping you awake at night and undermining your profit margins, keep in mind that cost is not the thing that your customers care about. People care about quality, reliability, speed, adaptability and innovation – and they’re willing to pay more to those companies that can deliver it.
Very few companies do a good job of defining those things as competitive advantages hence buyers go for the “cheapest” route because at Smart Advantage we scream, “if you don’t value what you bring to market, your customers won’t either” . Unearth those competitive advantages and close more deals.