11.01.11 | Today we reblog an article published in the July 2011 issue of the “Neoeconomist“ by Network member Ned Hill and John R. Brandt, CEO and founder of The MPI Group, a Cleveland-based research firm. The Neoeconomist Magazine is a forum for the Northeast Ohio region’s business and thought leaders.
The authors look at the trend of manufacturing returning to the United States from offshore and which fields in Northeast, Ohio, are best positioned to capitalize on this encouraging trend.
By Ned Hill & John R. Brandt
Northeast Ohio’s manufacturers — already leading a national economic recovery (when was the last time you saw that in print) — now have a once-in-a-lifetime opportunity to boost their revenues and market share even higher.
How? By taking advantage of renewed interest in (pick your favorite buzzword: re-shoring, in-shoring, in-sourcing). Whatever you call it, it means that big Original Equipment Manufacturers or OEMs (think mega-car companies, etc.) are wondering if outsourcing most or all of their manufacturing to far-flung parts of the world is really such a great idea. And that maybe bringing production back to the U.S., whether managed by the company itself or by its suppliers, might be a good idea again. Why? Three reasons:
- Evaporating cost savings: In the old days (i.e., five years ago), companies would talk abort “the China Price,” a magical cost savings of 30% that could be achieved by outsourcing production to China, or Vietnam, or wherever. Trouble is, that 30% savings often got eaten up by quality problems, shipping costs, inventory requirements, etc. Factor in the increasing currency risk that outsourcing to China entails (most economists believe that China’s currency will continue to increase in a steady march to its real market value, and that inflation in China will remain above that of its global competitors, e.g., the U.S.), and suddenly sending production work thousands of miles away doesn’t seem quite so brainy.
- Supply Chain risk: The devastating earthquake, tsunami and nuclear disaster in northern Japan is a human tragedy, with nearly 20,000 lives lost. It was also a global business calamity: in the auto industry alone, shutdowns at quake-affected suppliers interrupted production and sales not only among Japanese carmakers, but at plants around the world run by Volvo, GM and others. CEOs everywhere are re-evaluating the wisdom of sole-source supply-chain management — and are looking to identify additional backup suppliers, preferable close to home.
- Proximity still counts: Everybody loves innovation. Yet creating great new products, services and value is less about Eureka! moments and more about careful listening to customers, suppliers and partners — the kind of listening that’s more likely to happen when those partners can work closely together. That’s a lot easier to do when your suppliers are on the same continent.
So which companies in Northeast Ohio are poised to capture new customers through reshoring? Those that sell to:
- The automotive supply chain;
- Consumer products firms that used China for low-cost assembly and didn’t sell to Chinese consumers;
- Manufacturers with heavy products that are expensive to ship; and
- Companies with products in the early stages of their life cycle (characterized by frequent model changes that depend on rapid communication between the production line and product designers).
Examples of reshoring to Northeast Ohio include:
- North Canton’s Suarez Corp. generated buzz with its mid-May hiring fare at the old Hoover plant, after announcing that the firm’s small appliance production was returning from China. Reshoring of Suarez’s EdenPure line of heaters into a plant shut down years ago by offshoring is a man-bites-dog story worth following.
- Call centers are opening here, stealing business from those in India.
- The ultimate case study of reshoring is already well underway in Northeast Ohio—but it’s reshoring through innovation. GM’s reopening of its Lordstown plant with the successful launch of the Chevy Cruz illustrates what happens when domestic products are superior in innovation and price to those produced offshore: customers buy them!
It’s a big world out there, and for first time in decades, it’s beating a path to Northeast Ohio’s door. Let ‘em in!