Laboring Under a Misconception About Outsourcing
Conventional wisdom says that the United States has permanently lost much of its manufacturing base to outsourcing, but Charles Fishman shatters that notion and examines the return of industry in his most recent article in The Atlantic. The rebirth of General Electric’s Appliance Park in Louisville, KY, will blow your mind, as it did mine.
We all witnessed the overseas migration of manufacturing as price competition drove companies to seek cheap foreign labor over American labor. In an article earlier this year in the Harvard Business Review, Jeffrey Immelt, CEO of GE and head of President Obama’s Council on Jobs and Competitiveness, argued that human innovation and technical innovation can offset labor savings, offering hope for a seemingly hopeless industrial outlook in America. Put another way, total cost can trump price.
Best practices are simply tools; tools that allow companies—and, indeed, whole industries—to “borrow” thinking and approaches from other companies and industries. At times, they fuel growth by spreading practices that are, well, “the best.”
At other times, however, they’re a game of “follow the leader” that falls victim to group-think. This is especially evident when the economic drivers have shifted. In his article, Fishman claims that the same arguments against outsourcing in 1979 exist today, but the weights of those arguments have evolved:
- The cost of oil has tripled since 2000, raising transportation costs from remote outsource locations.
- Chinese wages are now five times what they were in 2000, and will be increasing 18 percent per year.
- The natural gas boom in the United States has dramatically reduced domestic energy costs.
- Domestic union power has diminished; a new pragmatism has arisen.
- Pirating of products and ideas is an outsourcing risk.
- U.S. labor productivity continues to increase.
- Transport delays, inventory on the seas, and lack of control are risks of outsourcing.
None of these issues, however, represent the largest risk of outsourcing. Fishman claims that the erosion of the core competency of manufacturing itself is the greatest risk. Engineering and manufacturing are hands-on and iterative processes. When the two are separated, the other competency fades quickly and engineers can forget how to design for efficient, high-quality and productive manufacturing. Innovation declines, and good ideas are left on the table—or never make it to the table in the first place.
Fishman writes, “For years, too many American companies have treated the actual manufacturing of their products as incidental—a generic, interchangeable, relatively low-value part of their business. If you spec’d the item closely enough—if you created a good design and your drawings had precision; if you hired a cheap factory and inspected for quality—who cared what language the factory workers spoke?
“This sounded good in theory. In practice, it was like writing a cookbook without ever cooking,” he concludes.
It’s a lot like some of the print outsourcing outfits that exist today. Don’t get me wrong; some of them really know how to design for manufacturing. Some of the more secure outfits intelligently partner with those who do.
But others offer the end-user no more than the prospect of saving a few dollars and eliminating a group of people from the payroll. The losers there are not just the employees, but could be the companies themselves.
To this group, I offer the GE case of the GeoSpring water heater. When GE decided to bring production back to Appliance Park, no one in Louisville knew how to build a water heater any longer. The company realized that its engineers were so removed from the manufacturing process, that the heater was poorly designed and inefficient to produce. So, management got everyone—marketing, sales, engineering and line workers—all together in a room to tackle the problem.
The company opted for a complete redesign. In doing so, it eliminated one-fifth of the parts, reduced materials by 25 percent, and cut the labor hours required from 10 in China to two in the United States. GE improved the product’s quality and even its energy efficiency, all through the collaboration of the designers/engineers and manufacturing. By the end of 2014, GE expects 75 percent of its appliance revenue to come from U.S.-manufactured products.
As Fishman’s Atlantic article points out, “GE is rediscovering that how you run the factory is a technology in and of itself. Your factory is really a laboratory—and the R&D that can happen there, if you pay attention, is worth a lot more to the bottom line than the cost savings of cheap labor in someone else’s factory.”
And thus, we are reminded that manufacturers ARE valuable…not just as purveyors, but as creators. So, for this resurgent onshore industrial sector, the American print industry is here at the ready, to print their packaging, produce their marcom materials, and promote this renaissance in American ingenuity and innovation.
The cook is back in the kitchen, and we’re here to help.
A third-generation printer, Dustin LeFebvre delivers his vision for Specialty Print Communications as EVP, Marketing through strategy, planning and new product development. With a rich background ranging from sales and marketing to operations, quality control and procurement, Dustin takes a wide-angle approach to SPC