Trickling Back

By Kevin Meyer

A couple months ago I told you how GE’s Jeff Immelt was singing a new tune on the glories of outsourcing. A rather radical new tune, which raised the hairs of skepticism since GE has long been the king of destroying a core manufacturing competency while chasing low labor cost nirvana. The jury’s still out, but I have a modicum of hope.

Meanwhile the trickle of jobs coming back to America continues.

This week, Farouk Systems, Inc., a $1 billion maker of hair irons, announced it was moving all of its production back to a giant factory near Houston, dramatically expanding what had been a small manufacturing facility there. The key issues driving the move: inventory management, being closer to the majority of its customers, quality management, and fighting counterfeit products that have been coming to market in Asia.

It’s not just about low cost labor anymore. Total supply chain cost includes logistics, quality… even fighting counterfeiting.

For example, the company currently spends about half-a-million dollars a month fighting counterfeit products made in China. Moving design and production thousands of miles away may thwart much of that counterfeiting, [company founder Farouk] Shami believes.

Farouk Systems isn’t alone.

NCR, GE, Emerson Electric, and other high-profile companies have recently announced strategies that would bring at least some production back to the US. NCR, for example, recently announced plans for a major new electronics facility near Atlanta. However the misconceptions of labor “cost” continue.

Of course, labor costs in the US and Western companies are simply much higher than in China and other developing economies. That means, in general, more automation must be used in the US to reduce labor content.

Yes the cash outlay for labor may be higher in the US than in developing countries, but to look at labor from that narrow a perspective reflects the bassackwards traditional accounting mindset.

The pair of hands costs $20 an hour instead of $2. What about the brain? That freebie add-on to the pair hands, which somehow comes up with improvement ideas based on creativity and experience? There’s a tad bit of value there, ripe for the pickin’. Tack that on to the total supply chain “cost” equation and you’ll be ashamed of considering outsourcing in the first place.

Comments

[William Pietri]

I'm really intrigued by the notion that keeping manufacturing here will help reduce counterfeiting. Does that imply that the problems come mainly from one's employees or partners, rather than people who duplicate things they find in shops?

[Mark Graban]

You heard it here first, but undoubtedly the new "manufacturing czar" Ron Bloom will take credit for this trend.

[Paul Todd]

Mr. Immelt said it well: "There is nothing predestined or inevitable about the industrial decline of the US, if we as a people are prepared to reverse it." If Mr. Bloom can get people to understand that, I am prepared to give him credit. So many people - intellectuals and average citizens alike - are under the firm belief that the declne of manufacturing is a natural evolution. It starts with influential people like Mr. Bloom and his boss saying it just ain't so.

[Eric Wade]

Kevin,
The "low labor cost nirvana" should be renamed to "low labor cost trap" IMHO.

Eric