Companies Take Look at Coming Back

What was supposed to have been a cheap alternative to making goods in the United States has turned out to be costly for some companies. Add on top of that a no-growth global economy and U.S. companies that do manufacturing overseas are taking a hard look at bringing their operations back to the states. Scott Alyn, owner of Electronic Source Co., a printed circuit board assembly company in Van Nuys, has seen more business come his way from telecommunications customers who might have otherwise sent that work offshore. Companies are no longer rushing to take advantage of cheap labor in Asia or other parts of the world. True, companies still do it but if the product they make needs an efficient manufacturing process no country can do it better than the U.S. “The key that makes this economically viable is if the design allows for automated manufacturing,” Alyn said. “When there are hand operations or direct labor then it is destined for China.” This reverse migration is not a result of the poor economy but certainly has made company executives reconsider where they make their products. A more important factor is the cost of having a lengthy supply chain. Making a product hundreds if not thousands of miles away gets re-examined when shipping of product, storing of inventory and quality control begin to add up. China, for instance, is still in the learning stage of setting up an infrastructure to make sure no dangerous substances or ingredients get into products made there. These hidden costs of off-shoring play into the decision of companies waiting longer to manufacture overseas, Alyn said. When shipping, inventory, etc. are calculated suddenly the money saved on wages becomes a minute part of the formula, said Mark Tomlinson, executive director and general manager of the Society of Manufacturing Engineers. “Once you understand the cost of the supply chain it makes sense to keep your supply closer to where your customer is,” Tomlinson said. For Brad Ward, president and CEO of the Small Manufacturers Association of California, there may have been talk months back about a reverse migration but now the business world is living in new times. Depending on what markets a company sells to they could consider sending all their manufacturing overseas. That would be especially true of companies serving commercial aviation doing final assembly, testing and control on large components that contain sub-assemblies made outside the U.S. In the next six to eight months, Ward anticipates that companies importing parts will outsource more work because demand for their product has gone down. “They’ve always had the pressure to have more and more of the product done there rather than just at the sub-assembly level,” Ward said. “The scale of demand now is such that they will start listening.”