Manufacturing may be returning to the U.S.

A new study finds increasing costs and other challenges are dampening enthusiasm for off shore manufacturing

After years of moving off-shore towards cheaper costs in countries like China and India, manufacturers are considering returning operations to the United States due to rising production and supply chain costs. According to a recent study from Archstone Consulting, nearly 90 percent of the companies surveyed are considering changing their manufacturing and supply strategies.

Based in Stamford Conn., Archstone Consulting is a strategy and change, operations and CFO advisory management consulting firm that specializes in consumer products, retail, life sciences and general manufacturing industries. They surveyed senior executives from U.S. and European-based manufacturers, primarily from consumer goods and electronic industries, to assess the evolving footprint of global manufacturing and supply networks.

"For years, the concept of off-shoring, or moving production and/or sourcing operations to a foreign country, has been the mantra of any supply chain manager looking to cut costs," said John Ferreira, Principal and Global Manufacturing Industry Practice Leader at Archstone Consulting. "Now, amid volatile oil prices and an uncertain global economic future, this analysis no longer is a certainty. Furthermore, companies that will commit to domestic manufacturing can spur much-needed improvements in customer service, innovation and job creation - especially when servicing the large domestic market."

Archstone's research shows that transportation costs for ocean freight alone increased 135 percent over the last three years and the Chinese economy grew stronger. The Yuan gained 18 percent on the US Dollar, and Chinese manufacturing wages rose 44 percent.

"The perceived 25-40 percent cost savings associated with off-shoring has previously been made possible by low labor costs, cheap commodities, and favorable exchange rates - factors that no longer exist in today's marketplace," Ferreira said.

Many of Minnesota's manufacturers are seeing the same trends locally, says Enterprise Minnesota president and CEO Bob Kill.

In the recent State of Manufacturing 2009 survey, published by Enterprise Minnesota, off-shore manufacturing ranked low on companies' concerns. Of the 400 manufacturing executives interviewed, the concern, "increased competition from foreign sources" ranked just 11 out of 14, below apprehension about healthcare, taxes, and attracting quality workers.

Manufacturers are becoming increasingly aware of total costs that include factors such as delivery costs, quality, and environmental impact says Kill. "Looking back through costs in the supply chain, you pinpoint rising costs of fuel, materials, and labor. Then you look at the additional costs of doing business overseas and the lack of communication or integration. It becomes apparent that rising costs outweigh diminishing benefits."

Communications Systems Inc., a Minnetonka-based telecommunications electronics manufacturer, is one local company considering moving a segment of their supply chain to the US from China says Vice President of Procurement Todd Drahos.

"(Chinese) production prices are still good, but then shipping is eating up most of what you're saving," Drahos said. "It's something that we're looking at and saying, 'maybe we could make this here and save some money.'"

Survey results show that manufacturers recognize several additional rising "soft" costs associated with off-shore manufacturing, including slower cycle time, reduced supply chain flexibility, and bottlenecks in logistics networks.

Drahos agrees that a slower cycle time could impact a decision to move production to the US. "Lead times are a problem," Drahos said. "It shows up in higher inventory because you're planning for time in production and shipping."

More manufacturers are considering factors such as delivery time and inventory as part of a total cost model according to Archstone's Ferreira. "Manufacturers who approach sourcing decisions with a holistic perspective - evaluating market and customer demands and competitive strategy against a comprehensive knowledge of total cost - will likely increase revenue and lower costs, giving U.S. companies a powerful competitive advantage."

A 360 Degree Look at Leadership

When: February 25, 2009, 8:00 - 11:30 a.m.
Where: Unisys (2470 Highcrest Road, Roseville, MN)
Cost: $129 or Group Rate 4 for $475



Who Should Attend?
CEOs, General Managers, CFOs, CIOs, VPs, Mid Level Managers, & Supervisors

What to Expect?
Today's economy presents challenges for every company. Leadership during these times is crucial to success. Be prepared to meet the challenges ahead by learning from business leaders and experts from across the state as they discuss:

• Becoming a strong and valued leader in your organization
• Identifying the right strategies to develop other leaders from within your organization
• Fostering a motivated work culture
• Increasing productivity by leveraging your organizations strengths, drive, and ingenuity

Presenters:

Chip Laingen, Executive Director, Defense Alliance of Minnesota
Defense Alliance was named best Minnesota Veteran Small Business Champion of the Year in 2007 by the U.S. Small Business Administration

Bruce Roselle, Founder, Roselle Leadership Strategies
Roselle was a winner of Best Business Book (bronze) and Best Self-Help Book (silver) for Fearless Leadership (Leader Press, 2006)

Cheri Podzimek, CEO, Clearfield Inc.
Clearfield Inc. was named Business Turn Around Story of 2008 with the presentation of a Stevie Award for Women in Business to Podzimek for her role

Panelists:

• Jeanne Crain, Executive VP, M & I Bank
• Rob Tracy, Principal, LarsonAllen, LLP
• Joel Wittenbraker, President, MacTech

Moderator:

Bob Kill, President & CEO, Enterprise Minnesota

Register online at www.enterpriseminnesota.org or call our events line at 612.455.4239.

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