Archive for the ‘Manufacturing’ Category

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“Death by China” Film Shows where all the Jobs Have Gone

Tuesday, August 27th, 2013

Are you wondering where all the good jobs have gone? Why do we have less tax revenues creating an out-of-control Federal budget deficit? Why are you working harder for less money than you did in the 1990s?

Death by China, based on the book by Peter Navarro and Greg Autry, shows how the world’s most populous nation and soon-to-be largest economy is rapidly turning into the planet’s most efficient assassin through its shoddy and even poisonous products and environmental pollution. China’s perverse form of capitalism combines illegal mercantilist and protectionist weapons to pick off American industries, job by job. Meanwhile, America’s executives, politicians, and even academia remain silent about the looming threat. To read my full review of the book, click here.

Director Peter Navarro is an internationally acclaimed expert on U.S.-China relations, a regular contributor on CNN, CNBC, MSNBC and the Huffington Post, and a professor of economics at the University of California, Irvine. Greg Autry is an entrepreneur, writer, and educator. He has published extensively on business, economics, trade policy, China and space. Greg serves as Senior Economist for the American Jobs Alliance and economist for the Coalition for a Prosperous America. Both Navarro and Autry have testified to the U.S. Congress on China issues.

To Navarro and Autry, the success of the film will be measured by the ability of the public to spur politicians to finally recognize that “the best jobs program for America is trade reform with China – not more empty fiscal and monetary stimulus.”

The film review on “rottentomatoes” states, “Death by China pointedly confronts the most urgent problem facing America today – its increasingly destructive economic trade relationship with a rapidly rising China. Since China began flooding U.S. markets with illegally subsidized products in 2001, over 50,000 American factories have disappeared, more than 25 million Americans can’t find a decent job, and America now owes more than 3 trillion dollars to the world’s largest totalitarian nation. Through compelling interviews with voices across the political spectrum, Death by China exposes that the U.S.-China relationship is broken and must be fixed if the world is going to be a place of peace and prosperity.

The New York Times review states, “The film, based on a book by Peter Navarro and Greg Autry and directed by Mr. Navarro, is blunt as can be in working the premise that the admission of China to the World Trade Organization in 2001 has been catastrophic for the American economy. The influx of Chinese goods has left American manufacturers unable to compete, the film says, and Chinese leaders have been brashly ignoring rules about things like currency manipulation to make sure that their country’s products remain artificially cheap.”

In this review article, Daniel M. Slane of the United States-China Economic and Security Review Commission said, “American companies cannot compete because they’re not competing with Chinese companies, they’re competing with the Chinese government.”

The New York Post review states, “Narrated by Martin Sheen, the film looks at what it calls America’s increasingly destructive trade relationship with China — we owe them $3 trillion — which goes back to the Asian nation’s entry into the World Trade Organization in 2001. We hear claims that instead of helping both lands, as President Clinton promised at the time, the deal has resulted in the loss of millions of American jobs and the influx here of shoddy, even deadly Chinese products. Death by China gives that nation a black eye for currency manipulation, intellectual-property theft, political persecution and serious environmental pollution.”

Paste Magazine’s review states, “With his Harvard pedigree and his acclaimed credentials, Navarro is an authority on the subject of the U.S.-China trade relationship. Death by China features him along with several geopolitical experts and activists spelling out exactly how and why this nation’s corporate-political nexus sold out the American worker and consumer to the tune of thousands of factories, millions of jobs and trillions in debt owed to the Chinese.

And who’re the losers in this scenario? Interviews with out-of-work factory workers, college graduates and with both Democratic and Republican legislators paint a picture of widespread blight as unemployment destroys communities and consumers find themselves without any choice but to buy Chinese-made goods.”

Navarro commented: “My goal in creating the film is to draw attention to the urgent need for trade reform with China, and to ensure that it becomes a top priority for legislators. We hope to give the highest possible visibility to an issue that is all too often ignored by politicians, journalists and consumers alike – the incredibly corrosive loss of America’s once formidable manufacturing base to a cheating China. The fact that our government has turned a blind eye to China’s deceitful policies has had an enormously negative impact on the American economy and the standard of living of millions of Americans.”

Francesca McCaffery of Blackbook Magazine said, “A truly life-changing, mouth-dropping documentary film…Peter Navarro’s ‘Death by China’ grabs you by the throat and never lets go…But watch this movie, and you will, in turn, start glowing with a newfound, hit-on-your-head awareness.”

The Hollywood Report review points out that “Narrator Martin Sheen warns upfront that it’s important to “distinguish clearly between the good and hard-working people of China, and their repressive Communist government victimizing American and Chinese citizens alike.”

Death by China made its theatrical debut in Los Angeles and New York in June of 2012 and played theatrically in over 50 cities across the U.S. including key manufacturing cities such as Akron, Chicago, Dayton, Detroit, Cincinnati, Columbus, Detroit, Milwaukee, Pittsburgh, Toledo, Youngstown and many more.

This was opposite of the typical course of documentary films being shown at festivals first and then in theaters. Navarro and Autry wanted to open the film in theaters throughout the swing states during the 2012 presidential election to draw attention to the issue China’s exploitation of our economy.

After the election, Death by China made a series of festival appearances through the end of June 2013. All total, the film was shown at more than 25 festivals – from Beaufort, South Carolina; Macon, Georgia; and New York City to Green Bay, Wisconsin; Sedona, Arizona; and San Luis Obispo, California.

As part of its festival activity, the film garnered three best documentary awards from festivals in Beverly Hills, Durango, and Studio City. “It was a Best Doc nominee at the Cape Fear Independent Film Festival, was first runner up at the Myrtle Beach festival, and received a Golden Ace award from the Las Vegas Film Festival.”

Don’t miss the following opportunity to see this film. If you are not located in the region, please check the Death by China website for other screenings. If you or your organization would like to sponsor a screening, please contact Peter Navarro.  Of course, you can also order the DVD to watch on your own TV.

The Coalition for a Prosperous America presents:  A Screening of Death by China, A Documentary Film by Peter Navarro and Greg Autry

When: Wednesday, September 18th, 2013, Doors open 6:00 PM, event starts at

6:30 PM.

Where: AMN Healthcare, 12400 High Bluff Drive, San Diego, CA 92130 (exit Carmel Valley Road off Int. 5)

Cost: $10.00 (refreshments served)

Agenda

Introduction: Michele Nash-Hoff, Chair, California chapter of the Coalition for a Prosperous America

Film: “Death by China”, directed by Peter Navarro and produced by Greg Autry, CPA Economist

Discussion/Q and A: Greg Autry, Producer, Death by China, Economist, Coalition for a Prosperous America

Following the film there will be a discussion and Q and A to talk about how the Coalition for a Prosperous America is working to build a smart trade policy that will counter China’s, and other nation’s, trade cheating and move manufacturing back to America.

Register today at the CPA site: prosperousamerica.org

For more information, please contact Sara Haimowitz (sara@prosperousamerica.org,)

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Posted in Economy, Jobs, Manufacturing, Outsourcing, Trade Policy | 1 Comment »

Reshoring is Answer to Corporations Cutting U. S. Jobs and Adding Jobs Offshore

Tuesday, August 20th, 2013

As originally reported in a Wall Street Journal article in April 2011, U. S. Department of Commerce data shows that major U. S. corporations cut their work forces in the U. S. by 2.9 million jobs during the 2000s while increasing their employment overseas by 2.4 million.

This trend continues according to data revealed by Trade Assistance Adjustment (TAA) filings made to the U. D. Department of Labor in a recent article in Manufacturing & Technology News. TAA provides benefits and training to workers displaced by trade and sifting manufacturing offshore. The article lists 50 companies that laid off workers in the first three weeks of July, about 80% of which were manufacturing jobs. Other types of jobs displaced were customer service, technical support, information technology, data processing, and even engineering design. TPA assistance is like putting a bandage on after your arm was cut off.

While over 25 companies were shifting manufacturing offshore to China or India, it was surprising to see that Mexico was the next highest location to which manufacturing was being shifted. The reason for this is that new data produced by the Bank of America shows that labor rates in Mexico could be lower than China by as much as 20%, quite a change from 10 years ago when Mexican labor rates were 188 percent higher than China.

Other reasons for this switch to Mexico are lower transportation costs, faster delivery, higher productivity from automation, more reliable quality, and better payment terms than from China. As a resident of the border region of California and Mexico, I have seen this first hand. “Nearsourcing” to Mexico is occurring when reshoring to the U. S. is not economically justifiable at the present time.

Our major regional organization, CONNECT, has a Nearsourcing Initiative focused on matching San Diego companies in need of outsourcing with the region’s local manufacturers. “The program includes workshops that educate the region’s innovation entrepreneurs on the benefits of contracting with local manufacturers, including reduced time to market, increased innovation and reduced risk and costs; and a matchmaking program that helps San Diego innovation companies in need of outsourcing to Innovate Locally, Grow Globally – to connect and contract with qualified San Diego production resources.” Educational workshops and networking meetings have been held over the past two years, and manufacturers are encouraged to seek local vendors or even be matched with regional vendors by using the www.connectory.com database of primary industries, developed by the East County Economic Development Council, and the CONNECT Resource Guide.

CONNECT’s SME (Small-Medium Enterprises) Operations Roundtable group has also taken the lead in educating San Diego’s regional manufacturers on how to use the Total Cost of Ownership EstimatorTM developed by Harry Moser of the Reshoring Initiative, by means of a presentation I gave with a local contract manufacturer in February as an authorized speaker on behalf of the Reshoring Initiative.

It is crucial for American companies that do not have offshore plants to be trained on how to do a true Total Cost of Ownership Analysis using the TCO Estimator as a counter to the continuing trend of offshoring manufacturing jobs by multinational corporations that have facilities all over the world. For multinational corporations, the U. S. market represents a smaller piece of a bigger whole in the global economy. While offshoring may no longer be a relentless search for the lowest wages, many corporations go to Brazil, to China, to India, and other countries because that is where their customers are located.

I believe that training people performing two particular job functions is one of the keys to facilitating more reshoring ? supply chain personnel and Chief Financial Officers (CFOs). I have had the pleasure in the past year of speaking to three regional APICS’ chapters and a four-state regional conference last weekend. APICS is composed of supply chain/logistics people. I learned that in the 13th edition of APICS’ dictionary, the definition of Total Cost of Ownership is:  “In supply chain management, the total cost of ownership of the supply delivery system is the sum of all the costs associated with every activity of the supply stream.” This is a good definition, not as complete as mine, but good. If supply chain personnel had utilized this definition in the past decade, a great deal of offshoring would never have occurred.

My question to conference attendees was what prevented the utilization of this good definition. One answer was:  We were not allowed to consider anything but the piece price and sometimes transportation costs in making the decision to select domestic vs. offshore vendors. Another answer was:  We were being mandated by upper management to outsource to China to save money. Others thought that their managers were doing what everyone else was doing; i.e., going to China to save money. In other words, they were following the “herd mentality” like buffalo were driven off a cliff by American Indians in our past history.

Another problem mentioned was that in the cost accounting systems used by most corporations,  transportation costs, travel costs to vendors, rework costs of defective parts, cost of inventory, etc. are in separate accounting categories and there wasn’t any software available to do a true Total Cost of Ownership analysis until Harry Moser developed his TCO estimator. This is why I believe that CFOs are critical in turning the tide towards reshoring vs. offshoring.

 

Yes, I believe that as wages continue to rise offshore, especially in China, transportation costs continue to increase, and risk factors such as political instability, intellectual property theft, and counterfeit parts take their toll, more and more companies will see the economic advantage and wisdom of reshoring.

 

However, we can accelerate reshoring if we can expand the reach of our education and training on understanding and using a true Total Cost of Ownership analysis to CFOs and other C level management. Harry Moser and I are no longer the only persons singing the “reshoring” tune. Consultants at the Manufacturing Extension Programs nationwide, such as California Manufacturing Technology Consulting (CMTC) and Manex are being trained in how to use the Reshoring Initiative’s Total Cost of Ownership EstimatorTM. I have even met former “offshoring” consultants who are rebranding themselves to be reshoring consultants. I urge everyone to do what you can to promote reshoring if you want to help create jobs and save American manufacturing.

 

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Posted in Jobs, Manufacturing, Outsourcing, Reshoring | 1 Comment »

What are the Obstacles to More Companies Reshoring?

Tuesday, July 30th, 2013

While there is still a debate about how much reshoring is actually taking place, there is no doubt it is happening, especially in the seven tipping-point industries that the Boston Consulting Group predicted would reshore:  transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics.

For example, we’ve read about General Electric reshoring appliances such as water heaters, washing machines, and refrigerators to a factory in Kentucky, and Caterpillar is opening a new factory in Texas to make excavators. And, yes, even furniture manufacturing is coming back. At the High Point Furniture Show in April 2012, where the Made in America Pavilion housed 50 U.S. manufacturers, Ashley Furniture announced that it was building a new factory in North Carolina. Lincolnton Furniture also announced they had broken ground on a new furniture factory.

Earlier this year, Apple’s CEO Tim Cook said the company would invest $100 to build a factory in Texas to assemble Macintosh computers, which would include components made in Illinois and Florida, and rely on equipment produced in Kentucky and Michigan.

The results of February 2012 survey from the Boston Consulting Group (BCG),  showed that 37 percent of U.S. manufacturers with sales above $1?billion said they were considering shifting some production from China to the United States, and of the very biggest firms, with sales above $10 billion, 48% were considering reshoring. The factors they pointed to were not only that wages and benefits were rising in China, but the country is also enacting stricter labor laws and experiencing more frequent labor disputes and strikes.

According to BCG, pay and benefits for the average Chinese factory worker rose by 10% a year between 2000 and 2005 and speeded up to 19% a year between 2005 and 2010. Wages have been predicted to rise by 60% this year alone after additional strikes.

So, we might ask, “Why aren’t more companies reshoring? There are three main reasons:

  1. Most companies don’t conduct a Total Cost of Ownership Analysis when making a decision to outsource manufacturing.
  2. The United States has a high overall cost of manufacturing.
  3. There are still tax incentives to offshore manufacturing.

Total Cost of Ownership Analysis

In spite of the fact that I have spoken to hundreds and hundreds of people about the importance of doing a Total Cost of Ownership Analysis since my book came out in 2009, and Harry Moser, founder of the Reshoring Initiative, has spoken to thousands and thousands of people since releasing his free Total Cost of Ownership Estimator™ in 2010, we have only reached a small portion of the people making the decisions about outsourcing.

Most manufacturing companies that have sourced and are still sourcing parts and products offshore don’t do a Total Cost of Ownership (TCO) analysis. They base their decisions largely on low pieces that are based on cheaper foreign-labor rates and government subsidies by the governments of foreign countries to their manufacturers as part of their country’s predatory mercantilist practices.

If a company chooses not to practice TCO, it will impact their success or failure in the long run. It would be better if more companies would move forward by utilizing the freely available TCO spreadsheets, such as the one developed by Harry Moser that will allow you to quantity even the hidden costs and risk factors of doing business offshore.

After doing a thorough TCO analysis on all of outsourced parts for your products, the next step is to build an integrated team will periodically refine and refresh the analysis. You can even expand the definition of TCO to include the physical length of the entire supply chain and the lead times associated with the entire process.

American manufacturers need to embrace the New Industrial Revolution recently written about in the June 11, 2013 Wall Street Journal by columnist John Koten. He wrote, “Welcome to the New Industrial Revolution – a weave of technologies and ideas that are creating a computer-driven manufacturing environment that bears little resemblance to the gritty and grimy shop floors of the past. The revolution threatens to shatter long-standing business models, upend global trade patterns and revive American industry.”

Koten quotes Michael Idelchik, head of advanced technologies at GE’s global research lab, who said, “The future is not going to be about stretched-out global supply chains connected to a web of distant giant factories. It’s about small, nimble manufacturing operations using highly sophisticated new tools and new materials.”

High Cost of Manufacturing in America

While the difference in labor rates between the U. S. and Asia is diminishing, the U. S. has the highest corporate tax rates now after Japan reduced their corporate tax rate last year. In addition, the U. S. has high health care costs that are getting worse instead of better under the Affordable Care Act, and the U. S. has the most stringent environment regulations in the world.

In his November 2011 column in Industry Week, Stephen Gold, president and CEO of the Manufacturers Alliance/MAPI, wrote, “While manufacturers face a host of challenges, the data demonstrate that domestically imposed costs ? by commission or omission of government ? further undermine our ability to compete by adding at 20% to the cost of making stuff in the country…The single most significant drag on manufacturing competitiveness is the United States’ high corporate tax rate ?an average federal-state statutory rate of 40% that has not changed in decades.”

According to the second quarter 2013 survey of 317 manufacturers by the National Association of Manufacturers (NAM)/Industry Week, concerns over health care and insurance costs caused by the Affordable Care Act are mounting. Key survey findings include the following:  82.2 percent of manufacturers identified rising health care and insurance costs as their top challenge, an increase from 74.0 percent in the previous survey and 66.9 percent identified the unfavorable business climate due to taxes and regulation as an important challenge.

Other pressures for American manufacturers are revealed by the results of a joint survey conducted by MSC Industrial Supply Company and Industry Week Custom Research, nearly half (49.3%) of the manufacturing executives polled listed “raw material costs as one of the top market pressures, followed by “attracting and retaining talent” at 36.6%, “competition from countries offering lower costs” at 31.5%, and “expansion into new markets” at 31.0%. To help them be as competitive as possible in the global marketplace, 46% have implemented lean practices, and 26.5% have plans underway to implement lean.

Tax Incentives for Offshoring

According to an article in the Houston Chronicle, the U.S. tax code provides the following deductions, offsets, tax credits and incentives to corporations to “offshore” their profits overseas:

Tax Havens ? “The Organization for Economic Cooperation and Development (OECD) defines a tax haven country as one that imposes no or low taxes, does not exchange information about economic activity and lacks economic transparency.” Tax havens are used by a majority of the largest American corporations.

Offshore Deferral ? U.S. citizens and corporations are supposed  to pay tax on income earned abroad, but  “multinational corporations are allowed to “defer” paying income tax on profits made overseas until — or if ever — those profits are repatriated back to the United States.” U.S. corporations take advantage of this offshore deferral rule by setting up subsidiaries in lower tax countries. Subsidiaries, even when they are wholly owned by a U.S. parent company, are not subject to U.S. taxation. The deferral clause has been in the tax code for more than half a century and has outlasted numerous reform efforts. A USA Today article states that in April 1961, President Kennedy asked Congress to rewrite tax provisions that “consistently favor United States private investment abroad compared with investment in our own economy.”

Profit Shifting ? A U.S. corporation can also avoid paying taxes on its income by shifting its income to its foreign subsidiary in a practice called profit shifting. “Profit shifting involves an accounting practice of transferring assets, such as intellectual property rights and patents, to subsidiaries in tax haven countries. All royalty income earned from these assets is booked by the foreign subsidiary and so is not subject to U.S. taxation.” This practice is particularly prevalent in the pharmaceutical and computer industries; for example, pharmaceutical company Merck made more than $9 billion in profits in 2010 but paid no U.S. taxes.

Earnings Stripping ? Earnings stripping is a practice in which a U.S. parent corporation undergoes a corporate inversion so that its foreign subsidiary in a tax haven country becomes the parent company and the U.S. corporation becomes the subsidiary. This “paper inversion” allows all of the corporation’s global income to be booked by its new foreign parent. In addition, the new foreign parent can “loan” money to its U.S. subsidiary. Because it is a debt of the subsidiary, the money is not taxable. What’s more, the interest on the “loan” that the subsidiary pays to the foreign parent is tax deductible in the United States for the subsidiary.

The same USA Today article states, “Corporate lobbyists say that any move to eliminate deferral would have to be packaged with a significant cut in the 35% corporate tax rate…Otherwise, the largest companies, facing an effective tax increase, would have an incentive to switch their legal residence to another country.” Obviously, no one would want large American corporations to move totally out of the U. S. so the only way to address this problem is to eliminate these tax loopholes while significantly reducing the corporate tax rates. We are long overdue for comprehensive tax reform for both personal and corporate taxes.

At the “Manufacturing in California – Making California Thrive” economic summit that was held on February 14th in San Diego, attendees voted regulatory reform and a national manufacturing strategy as the top two critical issues to be addressed. A national manufacturing strategy would encompass such issues as corporate taxes, intellectual property protection, trade reform, and other factors adding to the high cost of manufacturing in the U. S. If you have a strategy that supports manufacturing, it will alleviate these other issues. A Manufacturing Task Force was formed after the summit, of which I became chair. We have been visiting the elected representatives in our region to provide them with our Task Force report and make them more aware of the needs of American manufacturers. Now our Task Force is evolving into the California chapter of the Coalition for a Prosperous (CPA) which had facilitated the summit. CPA has established state chapters in Ohio, Pennsylvania, and Colorado and is developing chapters in Florida, Michigan, and New York. If you would like to support our work in California, please contact me at michele@savingusmanufacturing.com or contact CPA at sara@prosperousamerica.org for involvement in other states.

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Posted in Manufacturing, Reshoring, Taxes/Regulations, Trade Policy | No Comments »

Made in USA Products Succeed in Home Décor Market

Tuesday, July 23rd, 2013

When ABC began the “Made in America” series on the World News with Diane Sawyer on Monday, February 28, 2011, the ABC team examined three rooms of the home of John and Ana Ursy in Dallas, Texas and removed all foreign-made products. The result was a virtually empty house – no beds, no tables, no chairs, no couches, and no lamps. Only the kitchen sink, a vase, a candle, and some pottery remained.

If the ABC team conducted the same examination today, they might find more Made in USA products. Every season, more and more Made in USA products are available in retail stores, such as Home Depot and Lowes. Consumers are choosing to buy Made in USA products, and retailers are paying attention. Even Walmart, the nation’s largest retailer, announced that it would increase sourcing of American-made products by $50 billion over the next 10 years.

One company was ahead of the trend by providing Made in USA carpet products to the home decor market ? FLOR, owned by $1.1 billion Atlanta-based textile manufacturer, Interface Inc.

In my recent interview with FLOR President Greg Colando, he said, “In 2003, I was requested by Interface founder Ray Anderson to start a company that would use 100% recycled material to make carpet tiles for the consumer market.”

Colando continued, “We started FLOR with three employees in a small office on the west side of Chicago. Our strategy was to grow this brand by word-of-mouth. We sought out design influencers (bloggers, designers, design celebrities) to introduce them to the product, let them fall in love with it, and then spread the word through their own influence.”

We weren’t able to start off with 100% materials in 2003 as they just weren’t available. It was a practice that evolved over many years. First, we committed to the idea that carpet could be 100% sustainable. Back 10-15 years ago, it seemed unattainable to be able to make carpet using recycled materials as you drove through neighborhoods and saw rolled up carpeting at the end of driveways headed for landfills.

We began the process of working with our vendors and demanding they supply us with the materials we were seeking. And here we are, about to celebrate our 10-year anniversary, and our entire line consists of 100% recycled nylon face fibers as it is now possible to get 100% recycled nylon yarn from suppliers. We have some unique texture products, like Fedora (a best seller) where each square you purchase removes five plastic water bottles from a landfill and diverts it into our carpet.”

Today, FLOR is headquartered in Chicago, IL, but their carpet tiles are finished in their manufacturing plant in La Grange, GA. The company has grown from the original three founding employees to more than 100. From their distribution center near Atlanta, their employees are bringing a smarter solution for floor covering to the market place to every store in all the major markets in the United States.

Instead of downsizing during the recession of 2007-2009, Mr. Colando said, “We actually grew our business during the recession. A new idea/product combined with a large home/design market place provided a great deal of room for growth, even as the rest of the world around us seemed to be crumbling. One wonderful asset we had was our ability to trim down spend while increasing efficiency and staying flexible. Now, we are a rapidly growing business, opening 20 of our own stores in the past couple years.”

FLOR’s products are an innovative system of carpet squares that you assemble to create custom area rugs, runners, or wall-to-wall designs of any shape or size. Using FLOR’s patented adhesives, you connect the carpet squares together and not to your floor. In addition to dozens of patterns and colors of carpet tiles that you can design and assemble yourself, FLOR offers 75 pre-designed combinations of rugs ranging from simple two-tile mats, iconic button rugs, to unique shapes such as the Hop-Scotch rug and Faux Hide rug.

Mr. Colando said, “Our Georgia manufacturing plant is not an automated manufacturing plant using robotics. It is a simplistic “pick and pack” product where members of the FLOR team work hard each and every day to put forth the best possible end customer experience. The majority of our orders ship the same day, which shows the efficiency of the operation.”

“Pick and pack” means that an employee selects the carpet design styles and colors to fill a customer’s specific order and packs them in the shipping box. FLOR doesn’t manufacture the actual carpet tiles; they are manufactured in traditional rolls at one of Interface’s domestic plants and shipped to FLOR, where they are cut into carpet squares and stored in the warehouse by color and design.

FLOR’s becoming a success as an environmentally responsible company, making products for the domestic market in the USA was the result of one man’s vision ?Ray Anderson, who founded Interface Inc. in 1973 to produce the first free-lay carpet tiles in America. Interface is now one of the world’s largest producers of modular commercial floor coverings, with sales in 110 countries and manufacturing facilities on four continents. Interface manufactures carpet for the commercial market ? corporate, healthcare, education, retail, hospitality and government. While Interface manufactures carpet in Australia, England, Holland, Shanghai, China, and Thailand for markets in those countries and regions to eliminate shipping products across the ocean, 90% of the carpet for the domestic market is Made in USA.

Anderson first turned his focus toward the environment in 1994 when he read The Ecology of Commerce by Paul Hawken, and also Ishmael by Daniel Quinn, seeking inspiration for a speech to an internal task force on the company’s environmental vision. Hawken argues that the industrial system is destroying the planet and only industry leaders are powerful enough to stop it. Anderson made a decision to transform the company into using recycled materials wherever possible to become a sustainable company.

He made a promise to have the company eliminate any negative impact it may have on the environment by the year 2020 through the redesign of processes and products, the pioneering of new technologies, and efforts to reduce or eliminate waste and harmful emissions while increasing the use of renewable materials and sources of energy. Interface now leads the industry in environmental achievement and the exploration of environmentally efficient products and processes.

In 2009, Anderson said, “Fifteen years later, we’re only halfway there. But we’ve saved over $400 million, which has more than financed everything else that we’ve done — the R&D, the capital expenditures, the process changes, employee training, the whole ball of wax.

Interface’s Mission Zero Progress has been remarkable. The use of recycled and biobased materials has gone up from 1% in 1996 to 49% in 2012. The water use (gallons per square yard) has gone down from 1.9 gallons in 1996 to .4 in 2012. The waste to landfill from Interface’s carpet products has gone down from 12.5 million pounds in 1996 to 2.0 million pounds in 2012. The Greenhouse Gas Emissions (pounds of CO2e per square yard) from Interface’s carpet factories dropped from 2.8 pounds to 1.6 pounds.

In other words, “Between 1996 and 2008, the company cut its net greenhouse gas emissions by 71 percent (in absolute tons), yet sales increased by two-thirds and earnings doubled.”

Anderson chronicled the Mission Zero journey in two books, Mid-Course Correction: Toward a Sustainable Enterprise: The Interface Model (1998) and Confessions of a Radical Industrialist: Profits, People, Purpose: Doing Business by Respecting the Earth (2009). The latter was released in paperback as Business Lessons from a Radical Industrialist in 2011.

As we can see, one man with a vision can have a huge impact. Anderson’s bold vision and ambitious goal has already accomplished things not thought to be possible, but it is a goal that demands constant improvement and attention. The management of Interface and FLOR are committed to continue with the ambitious sustainability goal to achieve a zero environmental footprint by 2020.

Unfortunately, Ray Anderson died on August 8, 2011 after a 20-month battle with cancer. On July 28, 2012, Anderson’s family re-launched the Ray C. Anderson Foundation with a new purpose. The Foundation’s mission is to create a brighter, sustainable world through the funding of innovative projects that promote and advance the concepts of sustainable production and consumption.

Interface and FLOR stand in sharp contrast to many other American companies that have offshored manufacturing to China and other parts of Asia to escape what they perceive as onerous environmental regulations in the U. S., reduce labor costs, and increase profits. If Interface and FLOR can be financially successful American companies in highly competitive markets while exercising environmental responsibility in the conduct of their business and supporting Made in USA products, they should be rewarded by consumers with more business.

 

Posted in Cleantech, Environment, Innovation, Manufacturing | No Comments »

What is the Importance of Unmanned Vehicles to our Economy?

Tuesday, July 16th, 2013

We’ve heard a great deal about “drones” or unmanned vehicles over the last decade of the “war on terror” in Iraq and Afghanistan. While these terms are used interchangeably in the news media, the members of the Association for Unmanned Vehicle Systems International (AUVSI) are quick to point out that the term “drone” was originally coined to refer to pilotless aircraft used for “target” practice by the military while an unmanned vehicle includes the technology on the ground, often with a human at the controls.

The mission of AUVSI is to advance the unmanned systems and robotics community internationally through education, advocacy and leadership. AUVSI represents more than 7,000 individual members and more than 600 corporate members from 60+ allied countries involved in the fields of government, industry and academia. AUVSI members work in the defense, civil and commercial markets.

In March 2013, AUVSI released a report, titled “The Economic Impact of Unmanned Aircraft Systems Integration in the United States” to document the economic benefits to the  U.S. once Unmanned Aircraft Systems (UAS) are integrated into in the National Airspace System (NAS) after the federal government tasked the Federal Aviation Ad­ministration (FAA) to determine how to integrate UAS into the NAS in 2012. This report estimates the economic impact of this integration and estimates the jobs and financial opportunity lost to the economy if there is a delay in enacting the regulations needed to do the integration.

The report states that “the main inhibitor of U.S. commer­cial and civil development of the UAS is the lack of a regulatory structure.” Non-defense use of UAS has been ex­tremely limited because of current airspace restrictions.

The combination of greater flexibility, lower capital and lower operating costs could allow unmanned vehicles to transform fields as diverse as urban infrastructure management, farming, and oil and gas exploration to name a few. The use of UAS in the future could be” a more responsible approach to certain airspace operations from an environmental, ecological and human risk perspective.”

Present-day unmanned vehicles have longer operational duration and require less maintenance than earlier models and are more fuel-efficient. These aircraft can be deployed in a number of different terrains and may not require prepared runways.

The Executive Summary states, “While there are multiple uses for UAS in the NAS, this research con­cludes that precision agriculture and public safety are the most prom­ising commercial and civil markets. These two markets are thought to comprise approximately 90% of the known potential markets for UAS.”

UAS are already being used in a variety of applications, and many more areas will benefit by their use, such as:

  • Wildfire mapping
  • Agricultural monitoring
  • Disaster management
  • Thermal infrared power line surveys
  • Law enforcement
  • Telecommunication
  • Weather monitoring
  • Aerial imaging/mapping
  • Television news coverage, sporting events, moviemaking
  • Environmental monitoring
  • Oil and gas exploration
  • Freight transport

While there are a number of different markets in which UAS can be used, the report concentrates on the two markets, commercial and civil, with the largest potential. A third category (Other) summarizes all other markets: Precision agriculture, Public safety, and Other.

“Precision agriculture refers to two seg­ments of the farm market: remote sens­ing and precision application. A vari­ety of remote sensors are being used to scan plants for health problems, record growth rates and hydration, and locate disease outbreaks. Such sensors can be attached to ground vehicles, aerial vehicles and even aerospace satellites. Precision application, a practice especially useful for crop farmers and horticulturists, uti­lizes effective and efficient spray techniques to more selectively cover plants and fields. This allows farmers to provide only the needed pes­ticide or nutrient to each plant, reducing the total amount sprayed, and thus saving money and reducing environmental impacts.”

Public safety officials include police officers and professional firefighters in the U.S., as well as a variety of profes­sional and volunteer emergency medical service providers who protect the public from events that pose significant danger, including natural disasters, man-made disasters and crimes.”

If sensible regulations are put in place, authors Darryl Jenkins and Dr. Bijan Visagh foresee few limitations to rapid growth in these industries because these products use off-the-shelf technology and thus impose few problems to rapidly ramping up pro­duction. The parts comprising these unmanned systems can be purchased from more than 100 different suppliers so prices will be stable and competitive. They can all be purchased within the U.S. or imported from any number of foreign countries without the need of an import license. For this report, they assume necessary airspace integration in 2015, which is on par with current legislation.

UAS have a durable life span of approximately 11 years and are relatively easy to maintain. The manufacture of these products requires technical skills equivalent to a college degree so there will always be a plentiful market of job applicants willing to enter this market. “The average price of the UAS is a frac­tion of the cost of a manned aircraft, such as a helicopter or crop duster, without any of the safety hazards. For public safety, the price of the product is approximately the price of a police squad car equipped with standard gear. It is also operated at a fraction of the cost of a manned aircraft, such as a helicopter, reducing the strain on agency budgets as well as the risk of bodily harm to the users in many difficult and dangerous situations. Therefore, the cost-benefit ratios of using UAS can be easily understood.”

The authors estimate enormous economic benefits to our country. To calculate the benefits, they forecast the number of sales in the three market categories. Next, they forecast the supplies needed to manufac­ture these products. Then, they forecast the number of direct jobs created using estimated costs for labor. Finally, using these factors, they forecast the tax revenue to the states.

In addition to direct jobs created by the manufacturing process, the authors state that there would be additional economic benefit by the new jobs created and income generated spread to local communities. “As new jobs are created, additional money is spent at the local level, creat­ing additional demand for local services which, in turn, creates even more jobs (i.e., grocery clerks, barbers, school teachers, home build­ers, etc.). These indirect and induced jobs are forecast and included in the total jobs created.”

The economic benefits to individual states will not be evenly dis­tributed. Ten states are predicted to see the most gains in terms of job creation and additional revenue as production of UAS increase, totaling more than $82 billion in economic impact from 2015-2025. In rank order they are:

  • California
  • Washington
  • Texas
  • Florida
  • Arizona
  • Connecticut
  • Kansas
  • Virginia
  • New York
  • Pennsylvania

“The economic projections contained in this report are based on the current airspace activity and infrastructure in a given state. As a result, states with an already thriving aerospace industry are projected to reap the most economic gains. However, a variety of factors—state laws, tax incentives, regulations, the establishment of test sites and the adoption of UAS technology by end users—will ultimately determine where jobs flow.”

The authors conclude:

1. The economic impact of the integration of UAS into the NAS will total more than $13.6 billion in the first three years of in­tegration and will grow sustainably for the foreseeable future, cumu­lating to more than $82.1 billion between 2015 and 2025.

2. Integration into the NAS will create more than 34,000 manufac­turing jobs and more than 70,000 new jobs in the first three years.

3. By 2025, total job creation is estimated at 103,776.

4. The manufacturing jobs created will be high paying ($40,000) and require technical baccalaureate degrees.

5. Tax revenue to the states will total more than $482 million in the first 11 years following integration (2015-2025).

6. Every year that integration is delayed, the United States loses more than $10 billion in potential economic impact. This translates to a loss of $27.6 million per day that UAS are not integrated into the NAS.”

They base the 2025 state economic projections on current aerospace employment in the states and presume that none of the states have enacted restric­tive legislation or regulations that would limit the expansion of the technology. Future state laws and regulations could also cause some states to lose jobs while others stand to gain jobs. States that create favorable regulatory and business environments for the industry and the technology will likely siphon jobs away from states that do not.

In conclusion, the study “demonstrates the significant contribution of UAS development and integration in the nation’s airspace to the economic growth and job creation in the aerospace industry and to the social and economic progress of the citizens in the U.S.

As the top ranked state and home to UAS manufacturers General Atomics and Northrop Grumman, California has active chapters of AUVSI, and the San Diego region chapter is AUVSI San Diego Lindbergh. Since both General Atomics and Northrop UAS plants are located in San Diego’s north county, in 2012, the North San Diego Chamber of Commerce commissioned the National University System Institute for Policy Research to conduct an economic assessment of the industry’s impact on San Diego’s defense economy. The report is titled, “Unmanned Aerial Vehicles:  An Assessment of Their Impact on San Diego’s Defense Economy. The report states, “Unmanned aerial vehicle (UAV) production neared $1.3 billion in San Diego during 2011, according to analysis of federal government Depart of Defense (DoD) contract spending. UAV spending has grown significantly in San Diego over the past five years, nearly doubling since 2008. This growth parallels the increasing role played by UAVs in the U.S. military and the leadership position San Diego companies occupy in the UAV industry.”

While San Diego is still struggling to emerge from the 2008 national economic downturn, “the bright spot in the San Diego economy in recent years has been defense-related spending. Local defense expenditures grew substantially the past decade while military base operations and payrolls expanded. “Many economic observers, including the National University System Institute for Policy Research (NUSIPR), conclude that absent San Diego’s prowess in defense manufacturing and its role in hosting major military facilities, the local unemployment rate would have been significantly higher.”

At the peak of the recession, civilian unemployment in the county climbed to nearly 11 percent, and todaystill hovers around 9 percent. Companies have shed more than 50,000 jobs in the region. Local wages have fallen the past two years, while per capita income remains well below pre-recession peaks.

The important role of UAVs to the San Diego economy is emphasized by the fact that “UAV contracting activities in 2011 supported 7,135 direct and indirect jobs throughout San Diego County,” and “UAVs now comprise the largest segment of San Diego’s defense manufacturing sector. UAV production comprises more than 12 percent of all DoD contracting activities in San Diego County.” While DoD contracting in San Diego started to decrease in the past three years, UAV activity continued to expand.

“Since 2004, San Diego’s aerospace employment, now primarily focused on unmanned aircraft systems, has increased by 1,200 jobs. Just since early 2010, the sector has added 600 jobs. The two major UAV firms locally, Northrop Grumman and General Atomics Aeronautical Systems, each conduct billions of dollars in UAV unclassified contract work in San Diego County. According to Northrop Grumman Vice President Jim Zortman, ‘The center of the unmanned business for aerial vehicles is right here in San Diego.’”

The report states, “Production of UAVs is forecast to double by the end of the decade. Several forecasting firms have predicted the global demand for UAVs will reach $12 billion by 2019, even in the face of significant reductions in U.S. military spending.” There is every reason to believe San Diego is positioned to benefit from this trend given the leadership of Northrop Grumman and General Atomics Aviation in UAV technology.

However, several other states and regions are actively working to attract UAV researchers and manufacturers, and their efforts include the development of specialized educational programs and the preservation of airspace assets. Many states are setting aside dedicated airspace to support the UAV industry. Before the end of this year, the FAA will designate six areas around the country as UAS test sites.

In April of this year, the AUVSI San Diego Lindbergh Chapter joined the San Diego Regional Economic Development Council (EDC), the San Diego Military Advisory Council (SDMAC), the Imperial County EDC, County of Imperial, Holtville Airport, Indian Wells Valley Airport District (IWVAD), and defense contractors including General Atomics, Cubic Corporation, and Epsilon Systems Solutions, Inc. to respond to the Federal Aviation Administration’s (FAA) Screening for Information Request (SIR) and develop an Unmanned Aerial Systems (UAS) Test Range in a partnership with civil and military government agencies, academia, and industry. This coalition has joined an already established entity called the California Unmanned Systems Portal (Cal UAS Portal), which is based in Indian Wells, to create a proposed UAV Test Site that would extend from the NAS China Lake/Edwards Air Force Area, West to the Pacific Ocean, South to the Mexican border, and East to the Arizona border.

If San Diego wants to continue as a leading region for unmanned vehicles, it will be necessary for leaders in the private and public sectors to determine how best to support this industry and influence policymakers to address the high cost of doing business in California that is creating cost pressures on UAS manufacturers’ competitiveness in the worldwide UAS industry. As the report concludes, “Complacency could cause the region [and our country] to lose its leadership position and miss an opportunity to support an industry posed for growth.”

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American Manufacturing Competitiveness Act Would Develop National Manufacturing Strategy

Tuesday, June 25th, 2013

On June 20, 2013, U.S. Rep. Dan Lipinski (D-IL-) introduced H.R. 2447, “The American Manufacturing Competitiveness Act of 2013,”a bill that would bring together the private and public sectors to develop recommendations to revitalize American manufacturing and create good-paying, middle-class jobs here at home.” U.S. Rep. Adam Kinzinger (IL-16) is the lead Republican cosponsor.

This bill is a pillar of the “Make It in America” jobs plan in the House and would require the National Science and Technology Council’s Committee on Technology to develop a national manufacturing competitiveness strategic plan that would be updated every four years. The goals of the strategic plan would be to promote growth of the manufacturing sector, support the development of a skilled manufacturing workforce, enable innovation and investment in domestic manufacturing, and support national security.

In order to develop a manufacturing strategy, the bill would also require the Committee to conduct an analysis of factors that impact the competitiveness and growth of the United States manufacturing sector, such as “the adequacy of the industrial base for maintaining national security,” “Trade, trade enforcement, and intellectual property policies, and financing, investment, and taxation policies and practices…”

The Secretary of Commerce, or a designee of the Secretary shall serve as the chairperson of the Committee, and the Committee would be required to transmit the strategic plan developed to the Committee on Commerce, Science, and Transportation of the Senate and the Committee on Science, Space, and Technology of the House of Representatives not later than one year after the date of enactment of the Act.

I laud Rep. Lipinski for being so persistent in attempting to get a bill passed that would develop a national manufacturing strategy. Last year, he and Rep. Kinzinger introduced “The American Manufacturing Competitiveness Act of 2012” (HR-5865). The bill passed the House on September 12, 2012, by a roll call vote of 339-77. However, the Senate did not act on the bill.

H. R. 5865 was actually a renaming of H.R. 1366, “The National Manufacturing Strategy Act of 2011,” that Rep Lipinski also introduced, which died in the Energy and Commerce Committee. Senators Brown and Kirk had introduced the Senate version of this bill in 2011, but it was never voted on by the Senate. Rep Lipinski had previously introduced H.R. 4692, “The National Manufacturing Strategy Act of 2010,” which passed the House in July 2010 with overwhelming bi-partisan support. Sen. Debbie Stabenow (D-MI) introduced the same bill in the Senate, but it was not voted on by the Senate.

Let us hope this new bill not only passes the House this year, but actually gets voted on and passed by the Senate. This new bill is far superior to last year’s bill in that it would utilize an existing committee rather than set up a new committee with a complex appointment structure for the proposed 15-member committee. It builds on the successful development of the 2012 National Strategic Plan for Advanced Manufacturing and utilizes the expertise and knowledge that was developed in that plan. It would be accomplished with less cost and be consistent with prior Administration work and legal authority. By using the existing committee of the NSTC, the strategy will bring together the many agencies and their expertise that interact with American manufacturing.

“American companies and their workers are operating at a severe disadvantage as they face foreign competitors who benefit from coordinated, strategic government policies that benefit manufacturing,” Rep. Lipinski said. “We need to recognize this reality and bring the public and private sectors together to develop a national manufacturing strategy that specifies recommendations for the optimal tax, trade, research, regulatory, and innovation policies that will enable American manufacturing to thrive. Manufacturing is critical for national security, an essential source of good-paying jobs for the middle class, and drives high-tech innovation.”

“Manufacturing is vital to our economic and national security, and it is critical that we do all we can to promote American competitiveness in the global economy,” Rep. Kinzinger said. “I’m proud to work with Congressman Lipinski to put forward bipartisan legislation that focuses our attention on the challenges facing American manufacturers.”

America has a long and proud manufacturing history. Manufacturing is the foundation of our economy and fostered the development and growth of the middle class in the 19th and 20th centuries. Since the 1970s, however, the number of manufacturing jobs has shrunk, from 20 million in 1979 to fewer than 12 million today. We lost 5.8 million manufacturing jobs just since 2000. The recent recession hit workers in manufacturing especially hard. The hemorrhaging of manufacturing jobs has contributed to the stagnation of middle-class wages – since 2000, the median household income, after it’s been adjusted for inflation, has fallen by $4,787.

In a press release dated June 21st, Scott Paul, President of the Alliance for American Manufacturing, said, “We commend Congressmen Lipinski and Kinzinger for their authorship of the American Manufacturing Competitiveness Act of 2013. Our nation’s manufacturers and their workers stand poised for a manufacturing resurgence, but Washington must do its part by implementing a strategy that actively responds to the challenges of the 21st Century.”

The Alliance for American Manufacturing recommends that “a national manufacturing strategy support private business by focusing government programs on increasing national competitiveness, reducing programmatic inefficiencies and redundancy, and coordinating policies across various agencies and departments.” This type of strategy would require the American government to act smarter in its efforts to promote growth, entrepreneurship, and innovation. AAM recommends that a national manufacturing strategy should:

  • Keep our Trade Laws Strong and Strictly Enforced
  • Combat Currency Manipulation
  • Reduce the Trade Deficit
  • Support Buy America
  • Defend America with American Made Product
  • Prepare for the Next Super Storm
  • Invest in American Infrastructure
  • Create New Ways to Invest in America.
  • Use the Tax Code to Incentivize Domestic Manufacturing
  • Educate Americans for Quality Jobs
  • Invest in Energy Efficiency

The Alliance for American Manufacturing is just one of many organizations that have made recommendations on a national manufacturing strategy. In my book, Can American Manufacturing Be Saved? Why we should and how we can, the chapter on “How Can We Save American Manufacturing?” contains a summary of the recommendations of such organizations as the American Jobs Alliance, Coalition for a Prosperous America, Economy in Crisis, National Association of Manufacturers, Small Business and Entrepreneurship Council, and the U. S. Business and Industry Council, along with my own recommendations.

In April 2011, The Information Technology& Innovation Foundation (ITIF) released a report, “The Case for a National Manufacturing Strategy,” that makes a strong case for such a strategy. Authors Stephen Ezell and Robert Atkinson recognize that “most U.S. manufacturers, small or large, cannot thrive solely on their own; they need to operate in an environment grounded in smart economic and innovation-supporting policies with regard to taxes, talent, trade, technological development, and physical and digital infrastructures.”

Ezell and Atkinson recommend adoption of the following actions as part of the national strategy:

  • Increase public investment in R&D in general and industrially relevant in particular
  • Support public-private partnerships that facilitate the transition of emerging technologies from universities and federal laboratories into commercial products
  • Coordinate state, local, and federal programs in technology-based economic development to maximize their combined impact
  • Provide export assistance to build upon the National Export Initiative, which seeks to double U. S. exports by 2015.
  • Increase export support for U. S. manufacturers through the Export-Import Bank loans

In the past eight years since the National Summit on Competitiveness in 2005, there has been a summit or conference held every year on the topic of revitalizing American manufacturing. A first Conference for the Renaissance of American Manufacturing was held in September 2010, and a second Conference on the Renaissance of American Manufacturing: Jobs and Trade was held on March 27, 2012. This conference focused on solutions to the decline of manufacturing in America and highlighted manufacturing and trade issues.

The President’s Council of Advisors on Science and Technology (PCAST) released a report, “Capturing Domestic Competitive Advantage in Advanced Manufacturing,” in July 2012, prepared by the Advance Manufacturing Partnership Working Group, which makes 16 specific recommendations for policies to enable the United States to resume its leadership in the manufacturing industry and strengthen our position in advanced manufacturing technologies.

We need a committee that will review the many recommendations on a national manufacturing strategy we already have and select the ones that will have the most impact in enabling the United States to have a real renaissance in the manufacturing industry. Since a similar bill has passed the House two out of three times since 2010, it is time for the Senate to pass this legislation and “stop fiddling while Rome burns.” We need real leadership in action, not just words. Contact your Congressional representative to ask them to cosponsor the bill and urge your Senator to bring it to a vote in the Senate after it passes the House.

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Is India a Better Place for Manufacturing than China?

Tuesday, June 4th, 2013

You would think that because India was formerly part of the British Empire and became an independent democracy, there would be less pollution and better working conditions than in China. Well, you would be wrong.

You wouldn’t find it any healthier to live in many of the industrial cities of India than the industrial cities in China. India is developing more slowly, but its growth is already taking a toll on the health of its people. India’s population has more than tripled since independence in 1947, from 350 million people to 1.2 billion, severely straining the country’s environment, infrastructure, and natural resources.

In my last article, I mentioned that four cities in India were listed in the Blacksmith Institute’s “Dirty 30” of the 2007 report, “The World’s Worst Polluted Places.” Consider Vapi, at the southern end of India’s “Golden Corridor,” a 400 km belt of industrial estates in the state of Gujarat. There are more than 50 industrial estates in the region, containing over 1,000 industries and extending over more than 1,000 acres. Many estates are chemical manufacturing centers, producing petrochemicals, pesticides, pharmaceuticals, textiles, dyes, fertilizers, leather products, paint, and chlor-alkali. Waste products discharged from these industries contain heavy metals (copper, chromium, cadmium, zinc, nickel, lead, and iron), cyanides, pesticides, aromatic compounds like PCBs (polychlorinated biphenyls), and other toxins.

The Indian Medical Association reports that most local drinking water is contaminated because of the absence of a proper system for disposing of industrial waste. Industrial waste instead drains directly into the Damaganga and Kolak rivers. Vapi’s groundwater has levels of mercury 96 times higher than World Health Organization standards. Approximately 71,000 people have no choice but to drink contaminated well water, as clean water sources are more than a mile away. The water is so discolored by contaminants it looks like a bottle of orange soda. Local produce contains heavy metals up to 60 times the safe standard. There is a high incidence of respiratory diseases, chemical dermatitis, and skin, lung, and throat cancers. Women in the area report high incidences of spontaneous abortions, abnormal fetuses, and infertility. Children’s ailments include respiratory and skin diseases and retarded growth.

It isn’t any better in Sukinda, in the state of Orissa, where 97 percent of India’s chromite ore deposits are located. Twelve mines operate without any environmental management plans, and more than 30 million tons of waste rock is spread over the surrounding area and the banks of the Brahmani River. The mines discharge untreated water directly into the river. Approximately 70 percent of the surface water, and 60 percent of the drinking water, contains hexavalent chromium at more than double national and international standards. The polluted Brahmani River is the only water source for 2,600,000 people. Health problems include gastrointestinal bleeding, tuberculosis, asthma, infertility, birth defects, and stillbirths.

The Indian economy is growing rapidly, but pollution is quickly spiraling out of control and rivers are dying by the dozens. Fully 80 percent of urban waste, including industrial waste, winds up in the country’s rivers. Much of this comes from untreated sewage. The Ganges River has levels of fecal coliform, a dangerous bacterium that comes from untreated sewage, 3,000 percent higher than what is considered safe for bathing. More than three billion liters of waste are pumped into Delhi’s Yamuna River each day. “The river is dead, it just has not been officially cremated,” said Sunita Narain, director of the New Delhi-based Centre for Science and Environment, one of India’s top environmental watchdog groups, to Spiegel-Online.com in reference to the Yamuna.

Air pollution is also a growing problem. There are four main sources: vehicles, power plants, industry, and refineries. India’s air pollution is exacerbated by its heavy reliance on coal for power generation. Coal supplies more than half the country’s energy needs and nearly three-quarters of its electricity. Reliance on coal has led to a 900 percent increase in carbon emissions over the past 40 years. India’s coal plants are old and not outfitted with modern pollution controls. Also, Indian coal has a high ash content, which creates smog. Vehicle emissions are responsible for 70 percent of the country’s air pollution. Exhaust from vehicles has increased 800 percent, and industrial pollution 400 percent, in the past 20 years.

Although the Constitution of India guarantees free and compulsory education to children between the age of 6 to 14 and prohibits employment of children younger than 14 in any hazardous environment, child labour is rampant. According to an article, “The Hidden Factory: Child Labour in India,” in The South Asian, May 7, 2005, many consumer goods  are “the products of a hidden factory of countless children, many as young as five years old, toiling for tireless hours, under harsh, hazardous, exploitative, often life threatening conditions for extremely low wages.” The article states “India has the largest number of working children in the world.” Credible estimates range from 12 to 15 million child laborers. What is even more horrible is that a large percentage of these children are de facto slaves, bonded to their jobs, with no means of escape or freedom until they can repay their parents’ loans. The major industries using child labor are:

Carpets – An estimated 50,000 to 1,050,000 children, as young as six, are often chained to carpet looms in confined, dimly lit workshops, making the thousands of tiny wool knots that become expensive hand-knotted carpets for export. Recruiters or organized gangs pay landless peasants cash advances to “bond” their children to their jobs. The children suffer from spinal deformities, retarded growth, respiratory illnesses, and poor eyesight.

Brassware – An estimated 40,000 to 45,000 children, as young as six, are involved in brassware production, including jobs like removing molten metal from molds and furnaces, electroplating, polishing, and applying chemicals. If they survive being injured from molten metal and exposure to furnaces operating as high as 2,000 degrees Fahrenheit, they often suffer from tuberculosis and other respiratory diseases due to inhalation of fumes from the furnaces and metal dust.

Leather – As many as 25,000 children, from 10 to 15, are involved in the manufacture of shoes. They suffer from respiratory problems, lung diseases, and skin infections from continuous skin contact with industrial adhesives and breathing the vapors from glues.

Gemstones – Children are commonly engaged as “apprentices” in the gem polishing industry. The learning process takes five to seven years and they work an average of 10 hours a day. Major health issues include tuberculosis and respiratory diseases.

Glass – This industry employs an estimated 8,000 to 50,000 children as young as eight. They work in an inferno due to the intense heat of glass furnaces (1,400-1,600o C) and suffer from skin burns, tuberculosis, respiratory diseases, mental retardation, and genetic cell damage.

Silk – An estimated 5,000 children, mostly girls from five to 16, are employed in silk manufacturing, which includes sericulture, dyeing, and weaving the silk. Chemicals and boiling water in the dyeing process are common health hazards; skin burns from the boiling water and respiratory diseases from the chemicals often result.

Agriculture –Parents pledge children as young as six to landlords as bonded laborers. The number of bonded laborers is not categorized by adults and children, but the total is estimated to range from 2.6 to 15 million. Children are involved in all types of agriculture and are completely controlled by their masters, receiving a bare minimum of food and lodging. More than 90 percent of bonded laborers in India, many of whom became bonded as children, never had the opportunity to go to school.

Mining – A 2006 report, “Our Mining Children,” prepared by a team of non-profit organizations, described the condition of hundreds of thousands of migrant workers in the mining industry.

Karnataka, for example, is a state with vast mineral resources, of which the Bellary district has the most extensive range. Minerals mined include iron ore, manganese, quartz, gold, copper, granite, and decorative stones. India is the fourth-largest iron-ore producer in the world. As a result of new government economic policies, a shift to privatization, an open market economy, and wide-open markets in China, South Korea, and Australia, mining companies have bought up thousands of acres of land in the district since 2000.

All of the mines visited by government teams had child laborers, some as young as five. It is estimated that as many as 200,000, or 50 percent, of the workers are children. The mining economy is only profitable because of large-scale child labor and the flouting of social and environmental laws. The mine owners say they only employ the adults, but as the families live at the mine site, the children join in the work. The parents force their children to work because they say they cannot survive otherwise.

As you can see, India is not any better than China for products to be made ? the pollution is just as bad, working conditions are as bad or worse, and child labor is rampant. Make the better choice ? Made in USA!

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Does it Matter Where Products are Made?

Tuesday, May 28th, 2013

We now live in a globalized economy, and many people say it doesn’t matter where something is made. They say that the industrialization of third world countries is good because it has provided jobs for millions of people and raised their standard of living. American consumers have benefitted from cheaper prices for the products they need and want. However, where products are made should matter to people who are concerned about the environment and the health and well-being of people around the world.

Manufacturing in America developed over a period of more than 200 years. It developed gradually, so there was the opportunity to learn about the hazards of industrialization on a smaller scale than has been possible with the rapid industrialization of developing countries. Pollution caused by specific industries affected small geographic areas, like West Virginia’s coal mining and Pennsylvania’s steel regions.

The Bill of Rights provided freedom of speech, freedom of the press, and the right to assemble, enabling affected communities and workers to address unsafe working conditions and pollution. Residents spoke out against pollution’s health effects in their communities. Workers formed unions to fight for better working conditions and higher wages, especially in hazardous occupations. Newspapers, and later radio and TV, made the public aware of what was happening in factories and mines. After sufficient pressure was put on elected officials at the local, state, and federal levels, laws were passed that improved working conditions, protected worker safety, and reduced pollution.

As a result, great strides on these issues were made in the U.S. in the 20th century. These efforts culminated in the establishment of the Environmental Protection Agency in December 1970, consolidating 15 components from five agencies for the purpose of grouping all environmental regulatory activities in a single agency.

Since then, the U.S. has developed a comprehensive body of law to protect the environment and prevent pollution. The EPA enforces more than 15 statutes or laws, including the Clean Air Act; the Clean Water Act; the Federal Food, Drug, and Cosmetics Act; the Endangered Species Act; the Pollution Prevention Act; and the Insecticide, Fungicide, and Rodenticides Act. In turn, each of the 50 states has its own body of law to comply with federal laws and regulations.

Cleaning up the nation’s air, water, and land hasn’t come cheap. Since passing these laws, the U.S. government has spent trillions of dollars to clean up and prevent pollution. Individuals, small businesses, and corporations paid the taxes that funded these programs. But businesses were hit with a double whammy. They not only had to pay taxes for the government to carry out its end of these programs, they had to pay cleanup costs for their own sites and buy the equipment to prevent future pollution. In addition, they had to hire and train personnel to implement and maintain mandated pollution prevention systems and procedures.

According to a Census Bureau report “Pollution Abatement Costs and Expenditures,” as a result of a survey of 20,000 plants last conducted in 2005, U.S. manufacturers spent $5.9 billion on pollution equipment, and another $20.7 billion on pollution prevention.

The EPA has achieved some major successes:

  • New cars are 98 percent cleaner than in 1970 in terms of smog-forming pollutants.
  • Dangerous air pollutants that cause smog, acid rain, lead poisoning have been reduced by 60 percent.
  • Levels of lead in children’s blood have declined 75 percent.
  • 60 percent of the nation’s waterways are safe for fishing and swimming.
  • 92 percent of Americans receive water that meets health standards.
  • 67 percent of contaminated Superfund sites nationwide have been cleaned up.

As a result, we now have cleaner air in our cities and cleaner and safer water in our streams, rivers, lakes, bays, and harbors than at any time since the Industrial Revolution began. These vast environmental improvements made in the last 40 years have benefitted every single American.

In contrast, India and China have been getting more polluted in the last 30 years as they have industrialized. Since 2006, Blacksmith Institute’s yearly reports have been instrumental in increasing public understanding of the health impacts posed by toxic pollution, and in some cases, have compelled cleanup work at pollution hotspots. Blacksmith Institute reports have been issued jointly with Green Cross Switzerland since 2007.

Six cities in China and four cities in India were listed in the Blacksmith Institute’s “Dirty 30” of the 2007 report, “The World’s Worst Polluted Places.” This list was based on scoring criteria devised by an international panel including researchers from Johns Hopkins, Harvard, and Mt. Sinai Hospital, along with specialists from Green Cross Switzerland who participated in assessing more than 400 polluted sites.

It’s hard to describe the horrors of pollution in Chinese cities. Imagine living in Xiditou (pronounced shee-dee-tow), about 60 miles east of Beijing, where the Feng Chan River that runs through the town is now black as ink and clotted with debris. The local economy has doubled in just four years, but at a terrible cost. More than 100 factories occupy what were once fields of rice and cotton. These include dozens of local chemical plants, makers of toxins including sulfuric acid, and these factories disgorge wastewater directly into the river. Industrial poisons have leached into groundwater, contaminating drinking supplies. The air has a distinctively sour odor. The rate of cancer is now more than 18 times the national average.

According to the USA Today article, “Pollution Poisons China’s Progress,” of July 4, 2005, “People regard their drinking water as little better than liquid poison, but unable to afford bottled water for all their daily needs, most adults continue to drink it. They buy mineral water only for their children.”

Another horrible location is Tianying, in Anhui province, which is one of the largest lead production centers in China, with an output of half of the country’s total. Low-level technologies, illegal operations, and a lack of air-pollution control measures have caused severe lead poisoning. Lead concentrations in the air and soil are 8.5 to 10 times national standards. Local crops and wheat at farmers’ homes are also contaminated by lead dust, at 24 times the national standard.

The ironic note to these statistics is that China actually has more stringent restrictions on lead than the U.S. The difference is that neither the local nor the national government is enforcing the laws. Residents, particularly children, suffer from lead poisoning, which causes encephalopathy, lower IQs, short attention spans, learning disabilities, hyperactivity, hearing and vision problems, stomachaches, kidney malfunction, anemia, and premature births.

Perhaps you would like to live in Wanshan, China, termed the mercury capital of China because more than 60 percent of the country’s mercury deposits were discovered there. Mercury contamination extends throughout the city’s air, surface water, and soils. Concentrations in the soil range from 24 to 348 mg/kg, 16 to 232 times the national standard. To put this into perspective, the mercury from one fluorescent bulb can pollute 6,000 gallons of water beyond safe levels for drinking, and it only takes one teaspoon of mercury to contaminate a 20-acre lake – forever. Health hazards include kidney and gastrointestinal damage, neurological damage, and birth defects. Chronic exposure is fatal.

China is now the largest source of CO2 and SO2 emissions in the world (SO2 causes acid rain). Japan, South Korea, and the northwest region of the U.S. suffer from acid rain produced by China’s coal-fired power plants and higher CO2.readings from easterly trade winds.

The horrific effects of pollution in China and its staggering cost in human life, are a graphic example of why Chinese companies can outcompete American companies – not only because of their disparity in wages, but also because their government does not enforce the same environmental and social standards. As Americans, who place a high value on human life and protecting our environment, we wouldn’t have it any other way. But American manufacturing industries do pay a penalty competing against China.

During China’s rapid industrialization of the last 30 years, the U.S. has spent billions on technologies and equipment to clean up and prevent pollution. China had a golden opportunity to benefit from all the hard lessons learned by developed countries during their own industrialization. If China had purchased the pollution abatement equipment developed in the U.S., their industrialization would not have caused such horrendous pollution. Millions of lives would have been saved!

In the U.S., our landfills wouldn’t be filling up with discarded products from China that are so cheap that it is easier to throw them away than repair them. Wouldn’t it be worth paying more for “Made in USA” products that are higher quality and last longer?

Thus, if you are concerned about global pollution and want to save lives in both China and the U. S., you should choose to buy “Made in USA” products that have been produced in the most non-polluting manner that is technically feasible at present. My next article will take a look at India’s environment.

 

 

 

 

Posted in Cleantech, Manufacturing, Outsourcing | 1 Comment »

Why our Economy Struggles to Create Jobs

Tuesday, May 14th, 2013

There have been many opinions expounded via TV news shows, radio talk shows, newspapers, and magazines over the last four years as to why our economy has struggled to create jobs after the recession of 2007-2009 more than any other recession since WWII.

The economic collapse of the real estate and financial markets in 2008 had more impact on job losses than the recession of 2000-2001 caused by the dot.com bust because jobs related to real estate and construction represented a much higher component of employment than software/dot.com did at the time. During the recession of December 2007-June 2009, construction employment fell from 7,490,000 to 6,008,000, representing a loss of 1.5 million jobs or 19.8 percent of the construction workforce. It has remained less than 6 million as of April 2013 (Source:  Bureau of Labor Statistics).

When consumer demand dropped sharply because of so many people losing their jobs and homes, this eliminated the last thing keeping the domestic market floating on a bubble.

Since then, our economy has limped along at monthly average of a 1.5 to 2 percent growth rate in our Gross Domestic Product (GDP), which is not enough to create the amount of jobs we need. The main reasons why our economy is struggling to create jobs are:

Decline of U. S. Manufacturing

We lost 57,000 manufacturing firms and 5.7 million manufacturing jobs since the year 2000. According to the Bureau of Labor Statistics, we recouped about 500,000 jobs (489,000 or 4 percent) since the low in January 2010.

As I have discussed in both editions of my book and numerous blog articles, this loss of manufacturing firms and jobs was mainly the result of “predatory mercantilism”; i.e., unfair competition/product dumping by China and other Asian nations and the fact that a large number of multinational and American companies outsourced manufacturing offshore and/or set up plants in China and other parts of Asia. These companies literally outsourced American jobs in an attempt to compete with the “China price,” take advantage of less stringent environmental regulations, reduce taxes, and thereby maximize profits.

Transition to Service Economy

In addition to the many reasons previously discussed by myself and others, a key factor was revealed by the in-depth analysis of national and state data presented in the report, “Goods, Services, and the Pace of Economic Recovery” by Martha L. Olney and Aaron Pacitti, Berkeley Economic History Laboratory (BEHL), University of California, Berkeley March 2013.

Their hypothesis was:  Do service-based economies experience slower economic recoveries than goods-based economies? They argue that they do. They conclude that “service-dependent economies experience longer recoveries because they cannot respond to anticipated demand.” Thus, in a service-based economy, the recovery from a recession will take about one year longer than in a goods-based economy.

Why is this? They state, “An economy recovers from a downturn when businesses increase production. Both goods and services can be produced in response to actual demand. But only goods—and not services—can be produced in response to anticipated increases in demand, allowing optimistic forward-looking producers to inventory goods until anticipated buyers appear. Services cannot be inventoried. The more services an economy produces relative to goods, the more production is dependent upon only actual increases in demand, and the slower the recovery.”

Services have to be delivered in real-time by doctors, dentists, lawyers, accountants, web designers, graphic artists, etc. Even in the industrial realm, services such as engineering design, product testing, shipping, and delivery services are performed as needed. These services cannot be produced ahead of the need and “stored.”

The authors argue that there is a connection between the steady rise of services in the U.S. economy over the last half century and the slower pace of recovery from economic downturns. They state, “…as services become a larger share of output in an economy, more production is dependent on just actual and not also anticipated demand, slowing the pace of recovery from an economic downturn.”

The increase in the services share over the past 60 years has been striking. “In 1950, 40 percent of expenditures for U.S. GDP were for services and service-producing jobs were 48 percent of employment. By 2010, services constituted over 65 percent of expenditures for GDP and service-producing jobs were nearly 70 percent of employment.” The rise in services in the U.S. has led to longer recoveries, causing the current recovery to last about one year longer than it would have a half century ago.

End of NASA’s Manned Flight Program

The official retirement of the Space Shuttle program in 2011 resulted in a 19 percent drop in employment from 2007 to 2010 according to the Commerce Department’s Bureau of Industry and Security (BIS) industrial base assessment of the 536 companies in NASA’s manned space flight supply chain. If this steep a drop in employment occurred before the retirement of the Space Shuttle, it will be far worse by the time of the next assessment now that the program has ended.

Of the 536 companies, 50 percent of them are manufacturing companies, of which 21 percent are based in California, and 9 percent based in Florida. The report said that companies that supplied the Space Shuttle and Constellation launch program are facing “large-scale layoffs and facility closures across both industry and government.”

Near the Kennedy Space Center, more than 7,400 people in Brevard County, Florida alone lost their jobs when the shuttle program ended. The mainly contractor positions cut by NASA accounted for just under 5% of the county’s private sectors jobs. Thousands of formerly well-paid engineers and other workers around the country are still struggling to find jobs to replace the careers that flourished during the space shuttle program.

The machinery and tools used to support a manned space program are in danger of being discarded. In a separate assessment of the space flight industry, BIS found that 52 companies that were major suppliers (Tier I) had 48,623 pieces of tools and machinery, 91 percent of which had been paid for by the government. This classifies them as “Government-Furnished Property” so that the General Services Administration can process them by being transferred, sold, scrapped, or donated.

The danger is that the U. S. government may never be able to re-establish a manned space flight program to support ongoing missions to the International Space Station once the supplier base of the manned space flight program has been decimated. At the present, the U. S. has no way of sending astronauts to space in its own vehicles, and NASA is relying on the Soviet-made Soyuz capsules to send U.S. astronauts to space station. Thus, the United States may never again be a leader of space exploration.

Wind Down of War on Terrorism

The end of the Cold war with the Soviet Union resulted in a major downsizing of the military-industrial complex in the early 1990s, causing the recession of 1991-1992 and hundreds of thousands of lost jobs. Likewise, the withdrawal of troops from Iraq and the ramp down of troops in Afghanistan are having a similar effect on the defense/military industry, with a resulting loss of funding for new programs, cutbacks in existing programs, and job loss.

Sequestration

The additional cuts in the Defense Department’s procurement are taking a toll on some critical industries such as ship repair. In February, the Navy canceled all FY 2013 ship repair contracts that had been awarded to San Diego ship repair companies but not yet started. How many companies can survive having all their new contracts canceled?

What can we do?

It is interesting to note that one of the policy recommendations of the authors of the Berkeley report on goods vs. service’ corroborate some that I have presented previously:

“Therefore we believe that industrial policy aimed at restoring the country’s manufacturing sector could be beneficial. For example, tax policy that provides large re-shoring tax credits for goods-producing firms and levies large tax penalties on firms that offshore goods production could increase the share of goods in total output.”

Additional recommendations the authors make are:

  • Targeted investment in public goods and infrastructure would accomplish the same end.
  • Full employment policies and direct job creation programs could be enacted.
  • Targeted and aggressive fiscal spending and an employer of last resort program that guarantees full employment.

The authors conclude, “Longer and slower recoveries place a greater strain on state and federal budgets by decreasing tax revenue and increasing expenditures on automatic stabilizers. States will be forced to cut spending since all states with the exception of Vermont are required by law to run a balanced budget.” We have certainly seen this conclusion take effect as one state after another faces a staggering budget deficit, and our federal deficit has skyrocketed since 2009.

In the past two years, the general public and more economists and policymakers have begun to recognize the importance of U. S. manufacturing. Manufacturing is the foundation of our economy and is crucial to providing the quantity and quality of higher paying jobs we need.

It is high time for Congress and the Obama administration to develop a comprehensive national manufacturing strategy for the United States. Until we make a national manufacturing strategy a top priority, our economy will continue to struggle to create jobs.

 

Posted in Economy, Jobs, Manufacturing | 1 Comment »

Is Reshoring a Myth or Reality?

Tuesday, May 7th, 2013

When I first started talking about saving America manufacturing and returning manufacturing to America four years ago after the first edition of my book, Can American Manufacturing be Saved? Why we should and how we can, came out, I was met with a great deal of skepticism. Some typical comments were:  “I don’t think we can.” “It’s too late.” “I wish we could.” “We need to.” Very few thought we actually could return manufacturing to America.

A lot has changed in four years. At last week’s Del Mar Design and Electronics Show (DMEDS) in San Diego, CA, a very successful fellow manufacturers’ sales rep, stopped me in the parking lot and said, “I used to think you were nuts, but you were right. Manufacturing is returning to America.” While this manufacturers’ representative sales agency is headquartered in southern California, it has affiliate companies in Mexico, Malaysia, China (Beijing, Shanghai, and Shenzhen) and Taiwan (Taipei and Hsinchu) so I did not take this admission lightly.

The theme of this year’s DMEDS was “The Re-Birth of American Manufacturing, and it featured a full-day Reshoring track. This track began with my presentation on “Reshoring: Bringing Manufacturing Back to America Using Total Cost Analysis and ended with “Reshoring:  What is a Fit and How Can it Save Your Company Money?” This track also featured “Lean Manufacturing is the Path to Operational Excellence,” “3D Printing:  What it is, Isn’t, Will Be and Won’t Be,” and “Save Your Factory with Robotic Automation.”

While there were offshore companies exhibiting at DMEDS, it was dominated by U. S. manufacturers, regional contract manufacturers, and local sales reps and distributors. The buzz at the show was that manufacturing is returning to America, and every contract manufacturer I spoke to at the show had experienced a “reshoring” event.

In the past year, there have been numerous articles debating whether “reshoring” is a myth or really happening. For example, the cover article of the April 22, 2013 issue of Time magazine was “Made in USA – Manufacturing is Back ? But Where are the Jobs? The first page of the article is full of pictures of products that have returned from offshore, representing an unbelievable cross section of consumer goods, ranging from toys such as the Frisbee. Slinky and Crayola crayons to electric mixers, barbecues, saws, hammers, and many more.

The reason the article poses the questions about how many jobs are being created by the return of manufacturing to America is that the manufacturing plants of the present and future have more machines and fewer workers than in the past. Robotics, automation, and lean manufacturing are helping companies do more with fewer people, and the rapidly improving technology of additive manufacturing is changing the way parts are being made.

The article featured a glimpse of manufacturing’s future in the stories of two companies:

  • ExOne, near Pittsburgh, PA, providing Digital Part Materialization (DPM) that transforms engineering design files directly into fully functional objects using 3D printing machines
  • GE’s highly automated battery factory in Schenectady, NY.

ExOne needs only two workers and a design engineer per shift to support its 12 metal-printing machines. The GE plant produces Durathon sodium batteries that are large and powerful enough to power cell phone towers. Because of being highly automated, the plant only employs 370 high-tech workers in a 200,000 sq. ft. facility.

What was most encouraging to me was that the article reported that Ashley Furniture is building a new plant south of Winston-Salem, NC that will employ 500 people. This is an industry that even I doubted would ever come back to the U.S.

Key statistics pointed out in the article were that China’s average hourly wage was only $0.50 in 2000 but is projected to be $4.50 by 2015. This is probably a conservative estimate because China’s wages rose by 15-20% over the last five years but are expected to increase by another 60% in 2013 alone. Another factor noted is that the cost to ship a 40-ft. container from China to the West Coast rose from $1,184 in 2009 to $2,302 this year. These facts corroborate the Boston Consulting Group’s 2011 report that there will be a convergence in the total costs between China and the U. S. by 2015.

 

This quote from GE CEO Jeff Immelt concluded the article:  “Will U.S. manufacturing go from 9% to 30% of all jobs? That’s unlikely. But could you see a steady increase in jobs over the next quarters and year? I think that will happen.” I agree and so does Harry Moser, founder of the Reshoring Initiative and developer of the Total Cost of OwnershipTM spreadsheet.

 

Mr. Moser’s organization promotes and tracks cases of reshoring across the U.S. He estimates that between 2010 and 2012, about 50,000 jobs were created in the U.S. because of the trend—which equates to 10% of the 500,000 manufacturing jobs created in the past three years.

 

On the myth side of the debate, the 2012 Hackett Group’s report, “Reshoring Global Manufacturing:  Myths and Realities” by Michel Janssen, Erik Dorr and David P. Sievers

states, “By next year, China’s cost advantage over manufacturers in industrialized nations and competing low-cost destinations will evaporate.” However, they conclude that “few of the low-skill Chinese manufacturing jobs will ever return to advanced economies; most will simply move to other low-cost countries.

 

Using hard data from their 2012 Supply Chain Optimization study, they analyzed the trend in “reshoring” of manufacturing capacity, and their findings debunk the myth that manufacturing capacity is returning in a big way to Western countries as a result of rising costs in China. The report states, “The reality is that the net amount of capacity coming back barely offsets the amount that continues to be sent offshore.”

The report also offers recommendations on how companies should plot their manufacturing sourcing strategies. Interestingly, their recommendations incorporate some of the factors that Mr. Moser and I include as part of a Total Cost of Ownership analysis, such as “integrate the views of manufacturing, procurement, finance and business-unit leadership,” “Establish a game plan to deal with risk: Geopolitical, supply base, environmental and commodity risks are a given,” “Establish a proactive approach to anticipate risks, creating mitigation plans with clear triggers for implementation,” and “Broaden the decision making approach beyond total landed cost.”

The Hackett Group’s definition of “Total landed cost” is not as broad and encompassing as the definition of Total Cost of Ownership I provide in the 2009 edition of my book and that Mr. Moser uses in the TCO spreadsheet he developed in 2010. Their definition is “Total landed cost is the set of end-to end supply chain costs to transform raw materials and components into a finished good ready for sale. Key components include: raw material and component costs, manufacturing costs (fixed and variable), transportation and logistics, inventory carrying cost, and taxes and duties.

My definition of TCO includes the “hidden costs of doing business offshore,” such as Intellectual Property theft, danger of counterfeit parts, the risk factors of political instability, natural disasters, riots, strikes, technological depth and reserve capacity of suppliers, currency fluctuation. Mr. Moser’s TCO spreadsheet includes calculations for factors such as Intellectual Property risk, political instability risk, effect on innovation, product liability risk, annual wage inflation, and currency appreciation.

While the number of companies bringing products lines back to America is increasing, I have to admit that as manufacturers’ sales reps for all American companies; we are still losing business to China for individual parts our principals are quoting. Just recently, we lost several rubber parts that our rubber molder has made for a customer in our territory for 15 years. Our customer had been purchased by a multinational awhile back that has a subsidiary in China, so the new management decided to tool up these parts in China and discontinue ordering them from our molder. I am sure that the decision was made based on the lower piece price without doing a TCO analysis.

You can help your company get the most value for its dollars and help return manufacturing to America by doing the following:

  • Use the TCO spreadsheet available for free at www.reshorenow.org
  • Use the archived webinars to inform staff and customers
  • Work with groups being trained on TCO – Manufacturing Extension Program (MEPs) sites around the country
  • Prepare your workforce for reshoring
  • Submit cases of reshoring for publication and posting using the Reshoring Initiative’s  template
  • Sponsor the Reshoring Initiative

I strongly believe that if more companies would learn to understand and utilize the TCO estimator spreadsheet of the “Reshoring Initiative,” they would realize that the best value for their company is to source their parts, assemblies, and products in America. Doing this would help return manufacturing to America to create a far higher percentage of jobs than the 10% that have been brought back to America thus far and help maintain more manufacturing in U. S.

 

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