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Published: Sunday, 7/3/2011

Firms shift work back to U.S. as costs surge overseas

REUTERS
The Boeing 787 Dreamliner aircraft is running three years behind schedule, in part because of its decision to outsource large portions of manufacturing over to outside suppliers, the plane maker is bringing more of its production back in-house. The Boeing 787 Dreamliner aircraft is running three years behind schedule, in part because of its decision to outsource large portions of manufacturing over to outside suppliers, the plane maker is bringing more of its production back in-house.
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MILWAUKEE -- On a recent morning at Master Lock Co. LLC's 90-year-old factory in Milwaukee, a cluster of machinery was spitting out, at the rate of one every 2 seconds, the combination locks used by U.S. high schoolers as the company readied for the back-to-school rush.

The seven-day-a-week, three-shift-a-day whirlwind was a change from two years ago, when the machine normally ran just a few hours a day because the unit of Fortune Brands Inc. was ordering more padlocks from suppliers in China instead of making them.

"I can manufacture combination locks in Milwaukee for less of a cost than I can in China," said Bob Rice, a senior vice president at the largest U.S. padlock manufacturer. The machine in Milwaukee is about 30 times faster then the Chinese factories the company had been buying from, more than making up for the difference in wages.

The factory has added about 78 employees over the past two years, boosting its work force to 440.

General Electric Co. and Boeing Co. are also part of the small group of U.S. companies that are boosting production at their U.S. factories.

Numerous factors are driving the shift, including rising wages in parts of Asia, surging fuel prices, and the complexity of transporting goods across the Pacific.

Automation also helps tilt the balance toward the United States. Bruce Crass, the Master Lock plant's general manager, estimated that his plant -- where the average employee oversees the operation of six high-speed machines -- produces 24,000 locks a day with about one-sixth the number of workers needed by the company's Chinese suppliers and rivals.

U.S. makers of goods ranging from running shoes to refrigerators shifted much of their production overseas over the past few decades, chasing the low unit prices that foreign factories could offer as a result of their lower wages.

But over time, executives said, much of those savings have been erased by other costs that crept up -- goods damaged in transit, the need for traveling quality-control staffs, and the need to maintain about twice as much inventory as a hedge against delays in shipping.

GE is ramping up its U.S. production of appliances, reversing course on a business the largest U.S. conglomerate tried to sell in 2008. Over the past year it has added more than 200 employees at its Kentucky factories that make washing machines and dishwashers.

Some heavy manufacturers are rethinking the advantages of turning manufacturing over to independent contractors.

Boeing is a case in point. With its 787 Dreamliner aircraft running three years behind schedule, in part because of its decision to outsource large portions of manufacturing over to outside suppliers, the plane maker is bringing more of its production back in-house, though not necessarily to the United States, said Stan Deal, a vice president.

Although more U.S. companies may reconsider manufacturing in their home country, there are clear limits on how far this trend can run, analysts and executives said.

The companies that are bringing back some production have no plans to return to a 100 percent U.S. supply base.

Executives cautioned that firms that have entirely outsourced their manufacturing operations are unlikely to be willing or able to make the investments needed to restart it from scratch.

Factories rely on suppliers of raw materials or components of the goods they manufacture, which may no longer be locally produced.



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