Tuesday, April 24, 2018
Business

U.S. manufacturers bringing operations back home

NEW YORK — When Martin Rawls-Meehan started making adjustable beds in 2004, it was a foregone conclusion that key parts would be made overseas. It was cheaper to manufacture in Taiwan than in the U.S. And from Taiwan, it was easier to ship to customers in Asia.

But this year, his company, Reverie, began making some of its beds entirely in a factory in New York. Shipping costs from Taiwan have soared 50 to 60 percent since the company was founded.

"Shipping costs are tremendous," he says. "I could put that money into the manufacturing side in the U.S."

Reverie is one of a growing number of small businesses that are chipping away at the decades-old trend of manufacturing overseas. They're doing what's known as reshoring, moving production back to U.S. factories as labor costs grow in countries like China and India and shipping also becomes more expensive because of the rise in the price of oil.

There are other issues encouraging the shift. Owners are tired of having to wait weeks for shipments on slow-moving container ships, and they want to get products to customers faster. Some newer businesses aren't even considering overseas manufacturing. It's not just small businesses. Some of the largest companies in the U.S. are also joining the trend. Apple and Caterpillar are among the manufacturers planning to bring production back to the U.S.

A good deal of U.S. manufacturing shifted to foreign shores in the 1990s and early 2000s. Workers in China, India and other countries earned far less than workers in U.S. factories. That lowered costs substantially for U.S. companies. Between 1997 and 2008, the U.S. lost nearly 4.5 million manufacturing jobs, according to the Census Bureau. And the amount of overseas manufacturing by U.S. companies grew 141 percent between 1997 and 2010, according to the government's Bureau of Economic Analysis.

But the growing middle class in countries such as China and India have been demanding and getting higher wages. In Asia, labor costs are rising 20 percent a year, compared to 3 percent in the U.S., says David Simchi-Levi, a professor at the Massachusetts Institute of Technology whose specialties include supply chain management.

Reshoring began picking up momentum in 2010 after the recession and as the dollar began to lose value, says Lisa Ellram, a professor at Miami University of Ohio who specializes in supply chain management. Businesses that were unsure how strong their sales would be in a weak economy didn't want to make as many commitments to far-flung factories.

"They really just didn't have as much certainty about their volume and their needs, so it was maybe a little bit easier to deal with somebody closer," she says.

Innovations in manufacturing in the U.S. are encouraging the shift. Many U.S. companies use robots and highly specialized processes that allow them to make custom components for the automotive and aerospace industries.

The trend could gain momentum because demand for U.S. goods is growing. Ninety-five percent of manufacturers surveyed last year said they are increasing their purchases from domestic companies, or keeping them at the same level as 2011, according to ThomasNet, a company that operates an online marketplace where businesses can connect with manufacturers, distributors and service companies.

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