Wednesday, February 22, 2012
President Obama and Vice President Biden recently hosted an “Insourcing American Jobs” forum at the White House that focused on the increasing trend of companies choosing to “insource” jobs and invest in growing in the United States.
Featuring a cross-section of American industry leaders and experts and cabinet level officials, the event included a roundtable discussion with President Obama and two panel discussions on bringing jobs back to the United States.
Harry Moser, founder and president of the Reshoring Initiative, participated as an expert on American manufacturing and how to revitalize it. He was joined by other leaders from various industries and disciplines, including Hal Sirkin, consultant and senior partner at the Chicago office of the Boston Consulting Group. Each participant had the opportunity to share their own experiences in bringing manufacturing and service jobs back to the United States, as well as advise on the changes needed to further accelerate this process.
“Throughout the day, a common theme emerged: many American companies make sourcing decisions based on price and ignore the total cost of sourcing offshore. Increasing awareness of the total cost of ownership has been one of the Reshoring Initiative's key objectives," said Moser.
Moser cited factors such as intellectual-property risk, the cost and time of travel to visit distant suppliers, and the negative impact of separating manufacturing from engineering staff back at headquarters. These and other frequently overlooked costs usually account for as much as 20 percent to 30 percent of a company's total cost of offshoring, according to Moser.
Using data compiled from 10 manufacturers that compared the costs of products and components made in the U.S. versus China, Moser told President Obama that when measured on price, the U.S. was on average 108 percent higher. When Moser analyzed the total cost of ownership, which includes 28 additional factors, the U.S. averaged 12 percent higher. In six cases, the total cost for the U.S. was lower than China by an average of 22 percent.
“The U.S. is a lot more competitive than people realize,” Moser says. “Over the last several years, firms got caught up in the outsourcing trend without thinking through the costs.”
Manufacturers, including Caterpillar, Ford and General Electric are starting to move some production back to the U.S. The two factors that drove companies overseas, inexpensive fuel and labor, are changing. The average price of a barrel of oil has gone from $22.81 in 2002 to $87.48 last year, so the price of shipping finished goods has increased. China’s wages have risen 15 percent a year during that same period. In addition, America’s availability of inexpensive natural gas is appealing to the metals and chemicals industries specifically. Natural gas prices in China are more than twice as expensive as in the U.S.
The Reshoring Initiative offers a Total Cost of Ownership Estimator is an online tool that can help uncover costs. “Large companies can use the tool to aggregate their costs and risk factors to truly compare apples-to-apples in their sourcing decisions. Additionally, smaller companies also can utilize the software as a sales tool, harnessing it to more accurately reflect their competitiveness with overseas manufacturers," said Moser.
Download a fact sheet that outlines steps the President has already taken to support insourcing.
Additional information on this topic:
"For Some U.S. Manufacturers, Time to Head Home"