A Student Checks in On Outsourceing, Reshoring, Backsourcing

A student sent me questions, and I offered answers:

On Apr 13, 2011, at 10:40 AM, Fran wrote:

Mr. Spiers,

 I am writing a paper about "reverse outsourcing" -- moving production of goods from somewhere offshore back to the United States. I saw your blog responding to Wired magazine's "Made in America: Small Businesses Buck the Off-shoring Trend" (March 2011). You seem to come at the issue at a different angle than many of my printed sources. Would you be willing to answer some questions about factors companies consider as they decide where to locate their manufacturing?
Questions:

1.     Could I get your preferred name and position and/or credentials?

John Spiers, 74-84 employed small business int'l trade, self employed 84 - present; adjunct lecturer SFSU and other colleges; textbook 36 five star ratings out of 40 on amazon.com, in print ten years.

2.     Do consumers really care whether products they buy are manufactured in the United States?

No, no amount of "buy america" campaign will change that.  They lie when asked in surveys.

3.     What percent of the buying public cares about the carbon footprint of products they buy? Is that group growing or shrinking?

Not enough to make a difference.

4.     How much does the size of a business matter when looking at where to manufacture?

The smaller the business the more likely overseas matters in serving the customer.  The bigger the business, the more it matters for tax and regulations avoidance, and money laundering.

5.     What kinds of products lend themselves to manufacturing in America compared with offshore?

It changes as the regs in CFR 19 change, but mechanized intensive has an advantage and war materiel is almost always required to be made in USA.

6.     Do you know of any government action in the works that would provide incentives to manufacture in the United States?

There are countless and massive incentives in place right now, more on the way, none of which will work.  The only possible "program" would be to cut the size of government and a concomitant reduction in taxes.  For example, eliminate the SBA, and cut taxes by a billion.  Eliminate the FDA, and cut $3.2 billion.. and so on.  With lower taxes, and pointless regulations eliminated, and those workers released into the marketplace to provide an economic value, the economy would improve.

7.     Have you seen Harry Moser’s Total Cost of Ownership Estimator (http://www.reshoringmfg.com/report_thankyou.html) ? Comments?

I looked briefly.  The Wired article featured people who clearly did not do their homework as to the best place in the world to have their product made.  Every serious importer checks USA first and then around the world to find the best place to manufacture. Most USA importers manufacturer in USA too.  If Mr. Moser would like to lead the lazy, incurious and indolent back to USA, good luck to him.  The fact of the matter is, anyone doing their job is acutely aware of the costs, updates costs regularly (in fact costs every shipment and is continuously looking at cutting costs and alternatives) and moves as necessary, where necessary.

8.     Below are several factors I’ve identified that might be considerations. Could you rate their importance? (1 is low, 5 is high):

Arrrrggggghhh!  Where is the customer?!  Once you know the customer, then all this falls into place...  none of this matters unless you know the customer, and "know" in the form of signed purchase orders...  I won't rate those, I'll explain them...

• Labor costs... never a significant factor in int'l trade
• Reliability (manufacturing delays and snafus)  ... a standard item, not a competitive item
• Threats to intellectual property ...  what does not exist cannot be threatened, a waste of time to consider
• Stability of foreign governments ... not an issue, negligible trade with unstable govts
• Language barriers ... they speak english
• Exchange rates  ...another non-issue,  it is the health of your trading partner, not exchange rates...
• Cost of regulation  ...  govt regulation, an indirect cost that shows up in the invoice price
• Government subsidies ... always a disaster for all concerned, especially those who accept them
• Location of the product’s customer base  ... yay! the word customer!  NY to LA 12 days...  Hong Kong to LA 13 days...
• Late night phone calls/long travel to Asia ...  #1 reason people want to be in int'l trade is travel; #1 complaint of those in int'l trade is travel.
• Ability to respond quickly and redesign a product or a process on the fly (having engineers close to production) ... if you want your products to sell in usa, they must be designed in usa, but usa designers.  The best factories are adept at actualizing usa designs.
• Loss of institutional knowledge within headquarters  ... We have bigger problems than that, technology transfer and loss of skill at the shop floor level...  USA management is little concerned about tomorrow...
• Relationship with the factory, its managers  ... again, that is standard, not a competitive item.
• Minimum or maximum size of orders  ...  overseas minimums more workable for small biz often.
• Time it takes to ship (assets tied in inventory; any other drawbacks)  ... a simple matter of costing....
• Excess packaging needed for long-distance shipping  ... I doubt this is a biggie, but again it is in the costing, so it should be no surprise.
• Costs related to local storage of inventory and/or parts?  ...this can be known in advance...
• Location of raw materials ... often overseas buyers get raw materials cheaper than USA managers do; it is an objective fact, but it may be the result of fraud, laundering, etc.  Overseas buyers make their money selling, not fraud, so they tend to get better prices.

9.     Are there any other drawbacks to manufacturing in the United States compared with manufacturing offshore?

***  the answer to the question is in the purchase order.  Is your product worth more to your customer than their money?  if so, you did your job.***

10.   Are there any other benefits to manufacturing in the United States compared with manufacturing offshore?

***Heck yes, if we were a free market we'd have almost no importing and a lot less exporting going on. ***

11.   Anything I've missed?

***The most important thing in business is the customer.  The hardest thing in business is getting the product or service right. If you are customer-focussed and your work is concentrated on getting the product right, then all these minor issues are worked out as a matter of course.  In the measure this topic has traction is the measure people are missing the point, wasting time that should be spent on customers first, design in service of the customers, and proper costing.

Hope this helps.

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