Throughout 2014, Supply Chain Matters has been tracking and highlighting the significantly increased momentum of U.S. and North America based manufacturing. Increased U.S. manufacturing momentum was included in our predictions for 2014 along with some specific caveats. Throughout the year we have pointed out the obvious needs across certain industry supply chains for rebuilding world class supply and services ecosystems. We continue to believe that the signs are obvious.
Because of the growth potential within emerging up and coming markets across the globe, many manufacturers prioritized manufacturing and supply chain capital investments specifically within these growth regions. In September we highlighted business media reports citing a Morgan Stanley report indicating that the average age of industrial equipment in the U.S. has risen above 10 years. Growth of all types of capital spending by U.S. firms increased 3 percent in 2013, and is forecasted to be 3.8 percent this year, levels far below the historic average of 8 percent. Other commentaries have highlighted reports of manufacturers encountering obstacles in their U.S. sourcing efforts.
This week, this author was befuddled by two separate Wall Street Journal articles directed at the state of U.S. manufacturing. Some would argue that business media sometimes enters the realm of headline sensationalism to attract eyeballs. In the case of these two reports, we urge readers to ignore the headlines and focus on the prime takeaway messages.
On Monday, the WSJ headline was Offshoring Outpaces ‘Reshoring”. (paid subscription required) The report highlighted a recent A.T. Kearney study that pointed out the gaps between hopes raised by those advocating ‘reshoring’ and the reality of deteriorating U.S. performance. A highlighted quote from this report states: (Reshoring) “is not what it’s cracked-up to be” An additional quote from a Kearney partner: “There’s basically still more stuff being pushed out than is brought back.” However the Kearney executive acknowledges that the U.S. is on an upward trend and is gradually becoming more competitive.
On Tuesday, the headline was: Manufacturing Output Passes Pre-Recession Level. ”. (paid subscription required) That report notes that the U.S. Federal Reserve reported that factory output in November climbed 1.1 percent, its largest increase since February. The previous October number was further revised upward. The October number placed manufacturing activity above its previous peak in December 2007. An extracted quote: “And overall industries- a category including manufacturers, utilities and mining- are now working nearer to full capacity than any other point in six years.”
Thus are examples of two headline contrasts yet if you dig deeper, the themes are consistent.
The takeaway from this commentary is to ignore the tendencies for headlines and tailor your manufacturing sourcing strategies to where significant customer demand and economic growth originates now and in the future. China and other emerging economies and markets cannot be ignored but the realities of current regulatory and other obstacles favoring local manufacturers cannot be ignored as well. A global sourcing strategy needs to be balanced for risk, market access, landed costs and other meaningful criteria such as logistics and transportaion.
A strategy that emphasizes added U.S. manufacturing investment should consider the realities that in some cases, supply ecosystems will have to be re-built to global competitiveness, or that certain components will have to remain sourced within other lower cost regions. From everything we have analyzed, the U.S. economy and North America based manufacturing resurgence looks to continue well into 2015.