Tag: Boston Consulting Group

OM in the News: Reshoring to the U.S. Gains Momentum

reshoring“In a sharp reversal, more large manufacturers that are planning to add production capacity for goods consumed in the U.S. say that they will add that capacity in the U.S. than in any other country,” reports the Reshoring Initiative (Feb., 2016). Thirty-one percent of respondents to The Boston Consulting Group’s annual survey of manufacturing executives said that their companies are most likely to add production capacity in the U.S. within 5 years, while 20% said they are most likely to add capacity in China. Asked the same question in 2013, 30% of respondents said that China was the mostly likely destination for new capacity, while only 26% said capacity would be added in the U.S.

Moreover, the share of executives saying that their companies are actively reshoring production increased by about 250% since 2012. This suggests that companies that were considering reshoring in previous years are now taking action. By a 2-to-1 margin, executives said they believe that reshoring will help create U.S. jobs at their companies rather than lead to a net loss of jobs. “These findings underscore how significantly U.S. attitudes toward manufacturing in America seem to have swung in just a few years,” said the BCG report. “We are seeing more evidence of an American manufacturing renaissance. There is good reason to believe that the cost-competitiveness of the U.S. compared with China and many other economies will continue to improve in the near term.”

This year’s survey also confirmed that factors such as logistics, inventory costs, ease of doing business, and the risks of operating extended supply chains are weighing heavily in executives’ decisions. (76% of respondents reported that a primary reason for reshoring production of goods sold in the U.S. was to “shorten our supply chain,” while 70% cited reduced shipping costs and 64% said “to be closer to customers.”) The decreasing costs and improved capabilities of advanced manufacturing technologies such as robotics also make manufacturing in the U.S. more attractive than in economies whose chief advantage is cheap labor.

Classroom discussion questions:

  1. Does reshoring mean a resurgence in manufacturing jobs?
  2. Why are more companies considering returning?

OM in the News: The Rise of American Manufacturing

us cost advantageA US that’s a world beater on manufacturing costs?

It could be, according to the just published Boston Consulting Group (BCG) report (discussed in The Wall Street Journal, Aug. 30, 2013), about how the U.S. is fast becoming one of the developed world’s lowest-cost manufacturers. The report details how declining energy costs—the result of the shale boom—are giving the U.S. a greater competitive edge globally.  As seen in the graph, this translates to a double-digit percentage advantage in key costs by 2015. “The trends are accelerating,” says BCG.

U.S. manufacturing is becoming so cost competitive that by the end of the decade it will grab away $70 billion to $115 billion in annual exports from other countries—products that will be made in the U.S. and shipped abroad. The losers: chiefly Europe and Japan. Add to this some manufacturing that will be “reshored” from China, and the U.S. could gain up to 5 million new jobs, including service jobs, BCG forecasts.

Productivity gains in the U.S. are another tailwind. BCG looked at 8 low-cost states, primarily in the Southeast, to which manufacturing is already gravitating. Adjusted for productivity, average labor costs by 2015 will beat Japan by 18%, Germany 34%, and France 35%.

The study helps explain why Dow Chemical this week confirmed it will expand its manufacturing operations in Texas and Louisiana, and why scores of other companies—from Siemens to Toyota to Michelin—are expanding U.S. production, too. More than a year ago, Siemen’s CEO stated that cheap energy in the U.S. was already a game changer—the biggest competitive advantage the U.S. has gained in decades. The wholesale price of natural gas in the U.S. has dropped by half since 2005, cutting the cost of feedstock and fuel. By comparison, natural gas costs 2.6 to 3.8 times more in Europe and Japan.

Discussion questions:

1. What factors are helping turn around US manufacturing?

2. Propose an alternative, more pessimistic, view–and defend that position.