Re-shoring makes sense, new report shows

Sept. 13, 2012
Key factors such as transportation and energy costs favor re-shoring of manufacturing to the United States; issue resonates in Europe, as well

A resurgence of U.S. manufacturing may be the next big bet for American business, according to a new report from research and consulting firm PricewaterhouseCoopers—and rising labor costs in markets such as China are just part of the story.

The new report, A Homecoming for U.S. Manufacturing? identifies seven factors that could drive a sustained manufacturing renaissance in the United States, including transportation and energy costs and U.S. market demand. The report shines a light on the complexity surrounding the slow economic rebound in the United States and how manufacturing plays a key role in the country’s long-term recovery.

Going beyond the consensus view that rising labor costs in places such as China are driving a potential re-shoring trend, the report identifies the following seven factors: transportation and energy costs, currency fluctuations, U.S. market demand, labor costs, U.S. talent, availability of capital, and the tax and regulatory climate. It also points to the mitigation of supply chain disruptions as a key reason companies may want to bring research and development as well as production activity closer to home.

“The reviving industrial manufacturing sector is instrumental to U.S. economic recovery,” said Bob McCutcheon, PwC’s U.S. Industrial Products leader.  “Beyond the cyclical rebound, however, a host of structural changes is emerging that may lead to the U.S. becoming an important location for basing production and R&D facilities for several industries.  In addition to trends in labor costs, other factors include the need to reduce transportation and energy costs, the emergence of the U.S. as a more attractive exporter, and the relative attractiveness of the U.S. markets.”

PwC points to the chemicals and metals markets as key places where transportation and energy costs make re-shoring attractive. As one example, the report says that manufacturing steel products in the United States instead of China could result in a net cost advantage of 2% for U.S. firms. Heavy equipment manufacturing could stand to benefit for the same reasons, as could wood, plastic and rubber products industries, although to a lesser extent, the report said.

“… Depending on the industry, there may be considerable benefits to establishing regionalized supply chains and R&D facilities in the U.S., such as reducing costs, shortening lead times, protecting intellectual property and mitigating many of the risk factors inherent in developing markets,” added McCutcheon.

Not just a U.S. trend

Re-shoring is an issue that goes beyond U.S. borders, as a recent announcement in the electronics supply chain illustrates. Earlier this month, United Kingdom-based electronic components distributor Premier Farnell announced a deal with Sony UK Technology Centre to manufacture the new and highly sought Raspberry Pi computer in the UK for the first time. The British-designed Raspberry Pi is a credit-card sized computer aimed to spur young people’s interest in computer programming. Since the product’s launch in February, professional computer programmers, engineers and hobbyists alike have flocked to its two key distributors--Premier Farnell and its Newark/element14 brands and RS Components/Allied Electronics—to get their hands on one.

The Premier Farnell/element14 deal will utilize Sony UK’s state-of-the-art lean manufacturing techniques to produce more than 300,000 units for customers around the world, adding up to 30 new jobs at the plant, located in Wales. To date, the Raspberry Pi has only been manufactured in China.

“We’re realizing the dream of bringing [the Raspberry Pi] back to where it was designed,” said Mike Buffham, global head of design engineers for Premier Farnell. “Certainly, the whole Raspberry Pi program is very exciting, and now there is a sense of pride that we’ve been able to … take this manufacturing off-shore agreement and re-shore it back into its home market.”

The ease of doing business with a partner closer to home is a key benefit to the Premier Farnell/Sony deal, Buffham said. Beyond that, job creation is one of the most visible benefits to the community at large. The PwC report noted that a shift back to the United States would lead to improved employment demand among U.S. manufacturers—particularly in R&D and production capacities.  Preserving local jobs is a key issue in the UK as well.

“It’s a very similar situation here in Europe—and particularly in the UK,” added Buffham. “The Sony [deal] will create up to 30 new jobs at their plant.

“People here feel good that through this phenomenal project we have been able to prove that volume manufacturing in the UK is still a viable (business). And we hope it resonates in places like North America, as well.”

About the Author

Victoria Fraza Kickham | Distribution Editor

Victoria Kickham is the distribution editor for Electronic Design magazine, SourceESB and GlobalPurchasing.com, where she covers issues related to the electronics supply chain. Victoria started out as a general assignment reporter for several Boston-area newspapers before joining Industrial Distribution magazine, where she spent 14 years covering industrial markets. She served as ID’s managing editor from 2000 to 2010. Victoria has a bachelor’s degree in English from the University of New Hampshire and a master’s degree in English from Northeastern University.

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