While checking-in on Twitter before the holidays, MfgCrunch alerted to a Washington Post article, Dollar’s decline a boon for U.S. manufacturers. (free sign-up account required) The article reinforces what most procurement sourcing professionals already know, that the weak U.S. dollar is helping U.S. manufacturers to win back business previously lost to other global competitors. This is certainly positive and uplifting news as these manufacturers approach the New Year, but I would add a bit of a cautionary note to the conclusions of this article.
Do not misperceive my intent. Putting people back to work in U.S. manufacturing is absolutely a positive development and a critical need. My point is to not get swept-up in point-in-time euphoria.
While the economics of product cost, quality, and logistics tradeoffs are shifting more toward U.S. manufacturing sourcing, the political dynamics of today’s world economy must also be factored. Here are some points for discussion and consideration:
- The U.S. dollar remains pegged lockstep to the price of oil, and as the price of oil rises and falls, so will the dollar. Thus far, most economists predict fairly stable oil prices in 2010, but all of that can change rather dramatically with another international terror incident leading to supply disruption.
- In today’s global economy, most manufacturers are better off in the long-term being recognized for product and service innovation as opposed to being the lowest-cost producer. Customers will establish a long-term supplier relationship with an innovative supplier, as opposed to an opportunistic relationship with this year’s lowest cost provider.
- Other countries such as China fully understand the economics of the dollar, and will compete aggressively to maintain business, even if it means slim margins. China’s monetary policies help to protect the cost advantages for manufacturing in China.
- Finally, the IMF predicts that the bulk of industrial growth in 2010 will stem from the developing Asia regions such as China, India and South Korea. Any significant shift in sourcing outside of these regions is sure to trigger more internal market protectionist policies such as the recent China policies on government sourcing for high tech and electronics purchases.
My advice to U.S. manufacturers large and small is to enjoy the current advantage of the dollar, but do not waiver from the primary goal of competing in today’s global economy, which is having the most innovative products, services, and supply chain fulfillment capabilities.
As noted in a previous posting, U.S. manufacturers need policies and incentives that insure the most innovative supply networks reside in the U.S.
Agree or disagree?