Published: Wednesday, 23 May 2012
Chesapeake Bay, with a factory in Glen Burnie, Md., is hardly alone in rethinking its manufacturing plans these days. More and more American firms are bringing those operations home — and while it might be a little premature to call this “re-shoring” effort a movement, it’s certainly starting to become a trend.
President Barack Obama, in his State of the Union speech, noted that American manufacturers created new jobs in 2011 for the first time since the late 1990s. In a recent survey by MFG.com, an online marketplace that helps businesses find manufacturers for their products, 40 percent of the manufacturing firms it polled said they had benefited from work that had previously been sourced to a supplier in another country.
“[Consumer’s] desire to customize products is become more and more ravenous,” says Mitch Free, founder of MFG.com. “In order to stay relevant, [companies] have to be able to adapt very quickly. The way you do that is being somewhat close to your market. Instead of producing a big lot overseas and shipping it [here], companies can now rapidly assemble supply chains wherever they’re selling the product. They save on logistics costs. They take advantage of the local currency. And they generate good will in the market.”
MFG isn’t the only study that has pointed to an increase in re-shoring. A survey by the Boston Consulting Group in February found more than one-third of U.S.-based manufacturing executives at companies with sales greater than $1 billion are either planning or considering bringing production back to the United States from China.”Companies are realizing that the economics of manufacturing are swinging in favor of the U.S., for goods to be sold both at home and to major export markets,” said Harold L. Sirkin, senior partner at the company. “This trend is likely to accelerate starting around 2015.”
For Chesapeake Bay, it was less a matter of customization as it was cost control.
The candle company originally based its manufacturing in China, but as anti-dumping laws (designed to prevent predatory pricing) began to impact duty rates, Chesapeake Bay took its operations to Mexico.
Unhappy with the manufacturing ecosystem there, it tried a few other countries, eventually landing in Vietnam in 2000 — a popular manufacturing hub for companies.
“The Vietnamese population is very young and it’s pretty abundant,” says Mei Xu, Chesapeake Bay’s co-founder and CEO. “The work ethics are very similar to those of the Chinese. They all want to work hard to provide a better life for their children.”
Labor costs, however, are on the rise in countries like China and Vietnam. BCG says wages in China are currently climbing at 15 to 20 percent per year, due to the demand for skilled labor. The group expects net labor costs for China and the U.S. to converge in the next three years.
Xu notes that Vietnam closely follows China’s lead on issues like salary and benefits. Today, the average salary for a manufacturing employee in the country is between $300 and $400 per month.
That’s still well below the $12.50 to $13 per hour employees in the United States can earn, but salaries only make up 20 to 30 percent of a product’s total cost according to BCG.
Other factors, meanwhile, such as shipping are seeing prices increase as well, due to rising oil prices. Xu says Chesapeake Bay noticed some shipping companies cutting back their overseas routes as well, which threatened the company’s turnaround time.
That speed to market is more critical today than ever as companies keep lower inventories on hand as a precautionary measure.