Manufacturers Chasing Cheap Labor Wherever It Appears

From ManagingAutomation.com

But wait; they’re chasing it in America.

Heavy equipment manufacturer Caterpillar recently announced that it would look for a site in the United States to build a new factory for its construction excavators. That would replace production work currently performed in Japan and Illinois, and it follows a much ballyhooed decision by GE to “onshore” production of some of its water heaters beginning in 2011.

In a Wall Street Journal article, Caterpillar spokesman Jim Dugan said the onshoring announcement was part and parcel of “a long-term look at where we think this market and this product is going globally and how can we best get ourselves positioned.”

If Caterpillar follows through on the plan to build out U.S. production, the WSJstates, it could take advantage of a depressed dollar, job incentives coming out of Washington, and shortened supply and distribution chains for its products. The company expects U.S. demand for its construction machinery to pick up after a period of relative drought, and I suspect that many of its fellow manufacturers might see similar demand patterns emerge in the next couple of years. That is, manufacturers that in recent years plied emerging markets to help keep sales respectable might now see a resurgent customer here in America.

If that dynamic plays out, the total landed cost for many goods producers will change yet again. Throw in reduced spending power overseas, the persuasive power of job tax credits at home, and an eager U.S. labor force willing to work for less, and supply chains may get much homier in the near term.

That shift would please the National Association of Manufacturers, which for years has decried the soaring cost differential between the United States and countries that are popular manufacturing depots for U.S.-based companies. That awareness campaign has underpinned NAM’s efforts to drive down government regulations and taxes on manufacturers.

Now, at the dawn of a still tepid onshoring movement, a new kind of campaign emerges to replace the doom and gloom of NAM’s studies with a more optimistic message. The National Tooling and Machining Association (NTMA), the Precision Metalforming Association (PMA), and the Association for Manufacturing Technology (AMT) have teamed up to produce the Contract Manufacturing Purchasing Fair 2010, to be held May 12 in Irvine, CA. The fair is intended to link OEMs with domestic job shops. Its theme: Re-Shoring: Bringing Work Back to the U.S.A.

In the words of the organizers, “The fair is intended to change the sourcing paradigm from ‘Off-shored is cheaper,’ to ‘Local reduces total cost of ownership.’ ”

The NAM can continue to bang its drum for change in Washington, but the collective efforts of the NTMA, the PMA, and the AMT might inspire more immediate rethinking of total landed cost and the benefits of a U.S.-based supply chain.

John Engler, chairman of the NAM, may cover this subject when he keynotesManaging Automation’s 2010 Progressive Manufacturing Summit in Palm Beach, FL, during the first week of May. For more info, check out the Progressive Manufacturing conference site.