The USA is poised to be a manufacturing leader again. US companies are now selling more US-made goods than ever before. Does this sound far-fetched? Hardly. There are a lot of good reasons for the rebound of US manufacturing-the many techniques that have revolutionized material handling and logistics-both key to the success of any manufacturing operation-are paying off for US companies.
The idea of “working smarter, not harder” is working for US companies, writes Ed Romaine in a report on ISSDD.cm, the blog owned by Integrated System Design Corp. ISDD specializes on the integration of all components of a manufacturing operation, and through its own work, has helped US manufacturers regain a competitive edge in the global marketplace.
Romaine doesn’t discount the American work ethic as a success factor; but since the American work ethic was still around during US manufacturing’s long, depressing decline the many thought could never be reversed, there had to be other ingredients added to the new recipe of success, he said.
Labor costs, of course, were a key factor that attracted many firms in the Western world to move plants overseas. Two different dynamics have all but quashed the overseas advantage of the past:
- In new capitalist economies, labor costs tend to rise rapidly as an economy develops.
- In mature capitalist economies, labor costs tend to be nearly flat.
In 2002, China’s labor costs were 22 times lower than those of the US. Now, that spread has dropped to a ratio of just five to one. Now add another factor to the situation-automation and integration-and the playing field is virtually level. In order for manufacturers to reap cost benefits of making things in China, they have to shift production to rural regions-wages in urban regions are rising ever higher.
The problem with moving to rural areas is that there is little infrastructure to support a manufacturing operation-shipping costs will be higher and the whole supply chain slower and more costly to operate. Once infrastructure gets upgraded, urbanization comes with it, and that means upward pressure on wages just like in the cities. Because of this reality, it is expected that Chinese manufacturing costs will keep rising to the point that the US will no longer be at a disadvantage.
According to analysts at the Boston Consulting Group, a firm that closely monitors these economic factors, the playing field for America and China could be completely level by 2015. Yes, 2015-just one year away.
BCG also points to another important reality; if US manufacturing costs can be on level with China’s, then it means the US will have an edge over most Western European countries as well. US costs could be anywhere from eight to 18 percent lower than those of nations such as Germany, the UK and France. ISDD says the potential for more efficiency increases still exists for many US firms, which makes a US manufacturing renaissance inevitable.
Sources:
ISDD.com Blog (Integrated System Design)
https://www.isddd.com/content/material-handling-automation-helps-bring-manufacturing-back-usa
Boston Consulting Group (BCG)