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Archives for May 2011

Positive News for Manufacturing in the U.S.A.

By Herb Shields | 05/16/2011 | 5:41 PM

 

My last post commented on the upbeat atmosphere at a Chicago based event for manufacturers.  A number of speakers talked optimistically about the outlook for manufacturing in the Chicago area.

More good news is contained in a paper that The Boston Consulting Group released this month that examines the prospects for U.S. manufacturers over the next 5 years.  BCG is predicting a “manufacturing renaissance” in the U.S. based on rising wage rates in China and a willingness by U.S. workers and labor unions to accept concessions in order to bring jobs back to the U.S.

At the same time, there have been significant increases in the prices of raw materials and components in both China and, to a lesser extent, in the U.S.  How this will all play out over the next few months and years is an important question for all manufacturers wherever they are located.

The major producers of consumer products in some categories – personal care products and food products – for the most part never found it cost effective to produce those products off shore.  Instead their products are manufactured regionally for markets around the world.

 General trends are important and I agree with the points made by BCG in this paper.  However, I believe that each company has to carefully analyze their own supply chain process starting with their suppliers (or their suppliers’ suppliers) all the way through to their customers.  The large multi-national companies have a deep understanding of every element of the total cost in their supply chain process.  The challenge for the mid-sized and small manufacturers in the U.S. is to develop their total cost equation so that the decisions are made with the best possible information.

 Total cost should include the following:

  •  Purchase price including materials, labor, and overhead
  • Transportation costs including duties, tariffs, etc.
  • Quality cost including inspections, rework, etc.
  • Inventory cost including cost of extra inventory due to longer lead times when sourcing globally.

 Even then, the recent volatility in commodity prices is just one example of why a company has to re-evaluate those costs frequently.  The best strategy may include local, regional, and global suppliers based on the characteristics of the items that you are purchasing and/or manufacturing.  Sourcing strategies are typically based on a 3 – 5 year projection of requirements and new product plans.  However, with the volatility we have experienced in recent years – natural disasters, spikes in various raw material prices, etc., it is important for a supply chain organization to have a risk management plan in place.  An annual review of the changes that have occurred may lead to adjustments in sourcing, whether the cause is cost or risk.

 You can find the paper at www.bcg.com.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Herb Shields

Herb Shields

Herb Shields has run Chicago-based HCS Consulting since 2000, helping clients across multiple industries and in higher education improve their supply chain strategy and execution. Shields has more than 30 years as an operations executive for capital equipment, automotive, electrical machinery and consumer products companies. As vice president of materials management at consumer goods company Helene Curtis, Shields led the supply chain organization that helped Helene Curtis win "Vendor of the Year" awards from Wal-Mart Stores and Target Corp. Shields has a B.S. degree in Electrical Engineering from Clarkson University and did graduate work in business at Bowling Green State University.



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