At the 2014 Georgia Economic Developers Association (GEDA) Annual Conference, our very own John Scott moderated one of the opening sessions titled “Bringing Jobs Back to Georgia – The Reshoring Opportunities Ahead.” To get things started, John Scott presented a Top 10 list on why manufacturing is making a come back in the U.S. and then introduced the panelists. The panel included Gary Bruce, President of North America for PartnerTech Inc., Ashley Googe, Accounts Supervisor for McPherson Manufacturing and Alan Barfoot, Central Georgia Region Manager with the Georgia Tech Enterprise Innovation Institute.

What is Reshoring?

Over the past 30 years, the total amount of jobs in the U.S. that are associated with manufacturing have been on a sharp decline but over the past few years, several things have begun to happen that are triggering a renaissance in American manufacturing, commonly known as “reshoring.”

Although manufacturing is making a comeback, the fact of the matter is manufacturing will never employ the same numbers as in the past. Technology has made the average factory worker far more efficient so a lot of jobs in manufacturing no longer exist.

Check out Scott’s Top 10 list of the main reasons why companies are reshoring and why the trend is sustainable.

10 – Branding

For many companies, the Made in America tag is really important and for some, such as McPherson Manufacturing, one of the guest panelist, it’s a requirement. Consumers in the US have a lot of national pride and being able to say that a product was made in the US makes selling a product a lot easier.

This is low on the list because the trend to reshore is not just about a company’s image it’s about the bottom line. Businesses are simple, they exist to make money and if making reshoring will help the company be more profitable, then it’s a good idea.

9 – Protection

In the digital age, perhaps the biggest risks for companies is the theft of intellectual property and having the entire production process overseas greatly increases the likelihood that a company’s intellectual property will end up in the wrong hands.

Brand reputation is also at risk. There are several stories in the news about reputable U.S. based companies who are somehow connected to a violation of worker’s rights or having done considerable damage to the environment.

The often unaccounted cost of offshoring is associated with the risks and questionable business practices that take place in developing nations and for many companies the risk are just too high.

8 – Quality

Overseas production is notorious for quality control issues and when an issue does arise, the costs are greatly exaggerated by having production take place on the other side of the world. Even when there’s not a problem, top level management is still required to make overseas site visits to continually monitor the flow of production and quality.

Consumers are becoming more discerning than they were in the past, in large because they have a lot of options. American produced goods are recognized the world over as being the best. U.S. based companies that have managed to stay state side have by necessity, become extremely innovative to maintain some type of competitive advantage and that is often reflected in their products.

7 – Incentives

The importance of creating jobs is the one thing all politicians can agree on. As a result, incentives on the Federal, State, and Local levels are all making a huge difference in leveling the playing field for the U.S. and when a company is making the final decision on where to locate, incentives play a major role.

6 – Collaboration

Employees who work on the floor and handle production know the product better than anyone and are perhaps the best source of innovation.

A little unforeseen problem with moving production overseas is the absence of that communication that used to exists on the shop floor. Companies that are reshoring are able to bring floor employees together with the engineering and marketing department, and many are finding that there is dramatic room for improvement in the way things are done. Companies who have reshored are reporting major improvements to production times, employee productivity, and materials cost.

Ideas are happening on the shop floor. When everyone speaks the same language and is in the same time zone, the creative juices really start to flow and the short amount of time in between one product generation and the next makes collaboration all the more important.

5 – Inventory Management

Most companies who offshore have to keep a large enough inventory to accommodate the two month wait between shipments. Companies have to be flexible to be competitive and maintaining such a large inventory is expensive, that’s a lot of money that could be invested elsewhere.

With regards to quality control, when a major quality issue is discovered by the end user, the producer is left with two months worth of inventory to screen for defects or write off.

4 – Time to Market

Companies everywhere are instituting more Lean practices and Just in Time inventory is a major part of that which leaves little to no room for disruptions in the supply chain.

With a lead time of nearly eight weeks, a disruption or quality issue is very expensive, especially when airfreight from China is required to correct the problem which is not an uncommon for companies who offshore.

In addition, Oil prices are three times what they were in 2000, making cargo-ship and trucking fuel much more expensive now than it was in the past. Moving production near the source of consumption is very beneficial for producers.

3 – Energy

The US has a significant competitive advantage in energy. The cost of power in the U.S. (Georgia especially) is some of the lowest rates you will find in the world.

Recent technological advances in how natural gas is extracted has brought the cost of natural gas way down. Because labor cost are decreasing due to automation, companies are looking more and more at the cost of energy as a way to save money.

2 – Labor

The disparity between the total labor cost in China and the total labor cost in the U.S. is starting to close.

Wages in China are five times what they were in 2000—and they are expected to keep rising 18 percent a year. Manufacturing in the U.S. is largely high-tech and requires the factory workers to have technical training. Manufacturing in China is also becoming more automated but is still largely labor intensive.

The addition of high-tech components to everyday items makes production more complicated, and that means U.S. production is more attractive, not just because manufacturers now have more proprietary technology to protect, but because American workers are more skilled, on average, than their Chinese counterparts. Factory workers in China are also prone to a high labor turnover, especially after holidays.

1 – Total Cost of Ownership

Reshoring represents a change in the way companies are thinking, their purchasing agents especially. They’re no longer going for the quick cost savings by looking at the price per piece and cheap labor but rather the long term implications of buying overseas; and once a company looks at the big picture and understands all the cost involved, buying American is not just a nice thing to do but it makes financial sense. According to the Boston Consulting Group, the “total cost of production in China and the U.S. will converge in 2015.”