U.S. Bank Equipment Finance announced today that it will sponsor the Reshoring Initiative, a Chicago-based group established to educate manufacturers on the benefits of bringing their operations and corresponding jobs back to the United States.

“Over the years, we’ve seen many jobs in the machine tool sector move overseas,” said Ken Rector, executive vice president, U.S. Bank Equipment Finance – Manufacturing Vendor Services. “We’re glad to see the movement of these jobs back to the U.S. due in part to the work of the Reshoring Initiative. We are delighted to help in this effort through a key sponsorship of the Initiative.”

“It is meaningful that U.S. Bank Equipment Finance, a financial leader in the machine tool arena, has stepped up as the first bank to sponsor the Initiative” said Harry Moser, President of the Reshoring Initiative. “We believe that about 25 percent of what has been offshored would come back now if companies used our Total Cost of Ownership Estimator™ to compare domestic to offshore manufacturing and sourcing.  We expect that the visible support of U.S. Bank Equipment Finance will accelerate investment in machine tools, helping companies, employees and our country.”

The Reshoring Initiative assists manufacturers in understanding the benefits of reshoring and U.S. Bank works with manufacturers to facilitate their acquisition of machine tool and other new equipment to help maintain their competitive advantage.

March U.S. manufacturing technology orders totaled $507.91 million according to AMT – The Association For Manufacturing Technology. This total, as reported by companies participating in the USMTO program, was up 30.4% from February and up 3.2% when compared with the total of $491.96 million reported for March 2012. With a year-to-date total of $1,278.05 million, 2013 is down 5.0% compared with 2012.

These numbers and all data in this report are based on the totals of actual data reported by companies participating in the USMTO program.

“When making a year-over-year comparison with these figures, it’s important to take into account just how strong 2012 was for our industry. Our members are doing much better than analysts projected in January,” said Douglas K. Woods, AMT President. “With vehicle sales and housing starts on the upswing, we can anticipate that gains in the consumer economy will also mean buoyancy for the industrial economy, and manufacturing will remain steady for the foreseeable future.”

The United States Manufacturing Technology Orders (USMTO) report, compiled by the trade association representing the production and distribution of manufacturing technology, provides regional and national U.S. orders data of domestic and imported machine tools and related equipment. Analysis of manufacturing technology orders provides a reliable leading economic indicator as manufacturing industries invest in capital metalworking equipment to increase capacity and improve productivity.

U.S. manufacturing technology orders are also reported on a regional basis for six geographic breakdowns  of the United States.

Northeast Region
Manufacturing technology orders in the Northeast Region in March totaled $71.99 million, up 31.8% from February’s $54.61 million but down 3.2% when compared with the March 2012 figure. At $177.37 million, 2013 year-to-date is down 6.5% when compared with 2012 at the same time.

Southeast Region
Southeast Region manufacturing technology orders totaled $36.07 million in March, up 20.2% from the $30.02 million total for February but 38.7% lower than the total for March 2012. The year-to-date total of $103.65 million is 21.1% lower than the comparable figure for 2012.

North Central-East Region
At $145.53 million, March manufacturing technology orders in the North Central-East Region were up 29.4% when compared with the $112.49 million total for February and up 19.1% when compared with March a year ago. With a year-to-date total of $363.91 million, 2013 is up 7.5% when compared with 2012 at the same time.

North Central-West Region
March manufacturing technology orders in the North Central-West Region totaled $105.93 million, 30.1% higher than February’s $81.43 million and up 21.4% when compared with the March 2012 figure. At $259.46 million, the 2013 year-to-date total is 6.5% higher than the comparable figure for 2012.

South Central Region
March manufacturing technology orders in the South Central Region totaled $66.04 million, 15.0% higher than February’s $57.41 million but down 18.4% when compared with the March 2012 figure. At $197.00 million, the 2013 year-to-date total is 27.9% less than the comparable figure for 2012.

West Region
West Region manufacturing technology orders in March stood at $82.36 million, up 54.2% from the February total of $53.41 million and 20.5% higher than the figure for March 2012.  The $176.65 million year-to-date total is 4.6% above the total for the same period in 2012.

Momentum beginning for 2013 after second consecutive month for rising demand

U.S. manufacturers’ new orders of machine tools and related technology rose over 30% during March, the second month in a row indicating rising demand, and also gained an edge over the March 2012 result. The results are contained in the monthly U.S. Manufacturing Technology Orders report, compiled by AMT – The Association for Manufacturing Technology, and based on actual data for domestic and imported products ordered by U.S. machine shops and other manufacturers.

The March new orders totaled $507.91 million, an increase of 30.4% over the revised result for February, $389.37 million. The new result represents $468.09 million in metal cutting equipment and technology, and $39.83 million in orders for metal forming and fabricating products.

The March result is also 3.24% higher than the $491.96 million on record for March 2012, another period of rising demand.

“When making a year-over-year comparison with these figures, it’s important to take into account just how strong 2012 was for our industry. Our members are doing much better than analysts projected in January,” stated AMT president Douglas K. Woods.

2012 started out with indications of strong demand, but orders slowed in the second quarter of last year. An outstanding result for September 2012 helped push the annual total to a positive result.

For the current year to-date, domestic manufacturers have ordered $1,278.05 million of products and equipment, according to the USMTO report. This represents a -5.0% decline versus the three-month total for 2012. The negative result indicates the weak demand that prevailed in the early weeks of 2013.

“With vehicle sales and housing starts on the upswing, we can anticipate that gains in the consumer economy will also mean buoyancy for the industrial economy, and manufacturing will remain steady for the foreseeable future,” Woods continued in his statement.

The U.S. is no longer on the losing end of the offshoring trend in global manufacturing. In the past three years, dozens of foreign firms have created about 5,000 U.S. jobs in the USA.

For decades, U.S. manufacturers fled the country for China to drive down labor costs, then shipped products halfway around the world to sell to Americans, costing the U.S. millions of jobs.

Now, some foreign manufacturers are turning that offshoring trend on its head. In 2011, British-based Rolls-Royce began making engine parts here in Virginia and shipping them to Europe and Asia to be assembled in jet engine factories. That same year, Siemens, a German company, started making power-plant turbines in Charlotte, N.C., most of which it’s shipping to Saudi Arabia and Mexico.

Remarkably, the long-jilted USA is becoming a manufacturing hotbed for dozens of foreign companies in aerospace, energy, chemicals and other industries. Many want to be closer to customers in the world’s largest market. Others are taking advantage of U.S. assets that have grown more valued in the past few years, including low energy costs, a relatively healthy economy, highly productive workers and a cheap dollar.

“The global economics have shifted dramatically,” says Hal Sirkin, a senior partner for Boston Consulting Group. “The wind was in our face, and now we’re starting to see a tailwind.”

From 2007 through 2012, foreign investment in U.S. manufacturing totaled $493 billion, vs. $270 billion the previous six years, according to the Organization for International Investment (OFII).

Foreign manufacturers aren’t the only ones waking up to the benefits of making things in the U.S. Since 2010, more than 200 companies, mostly U.S.-based, have brought back production they had sent out of the country. That phenomenon, known as onshoring, has created about 50,000 new U.S. factory jobs, according to the Reshoring Initiative, an industry coalition.

By 2020, onshoring could generate a few million U.S. manufacturing jobs, including hundreds of thousands at foreign companies, Sirkin says. That could be a boon for U.S. workers. Foreign manufacturers pay U.S. employees 14% more than the industry average, OFII figures show.

Faced with rising demand from airlines worldwide, Rolls-Royce decided to build a new factory in Virginia to make jet engine discs and ship them across the Atlantic rather than expand similar plants in the U.K. A big reason was to be closer to its customers in the Southeast. Boeing began making 787 Dreamliners in Charleston, S.C., in 2011 and Airbus is building its first U.S. assembly plant in Mobile, Ala.

CEOs of those companies “can see that you’re making quality parts in super-modern facilities with the best working practices,” says William Powers, chief financial officer of Rolls-Royce North America.

The company’s gleaming, $170 million factory in rural Prince George employs 100 and looks nothing like the labor-intensive textile, tobacco or furniture plants that were the region’s economic lifeblood decades ago. On a sprawling, spotless white factory floor, rows of hulking computerized machines cut and shape discs that cost $25,000 to $75,000 apiece. Workers are scarce. Two can operate eight machines at a time and 12 make up a shift.

Rolls-Royce is planning two more factories on the Prince George County site.

While automation is part of the story, the Southeast also offered Rolls-Royce a flexible work environment. In Virginia and other southern right-to-work states where union representation is low, factory employees typically can both set up and operate a machine, as well as run multiple machines.

By contrast, in the U.K. and elsewhere in Europe, collective bargaining agreements often limit workers at Rolls-Royce and other companies to single, repetitive tasks, increasing labor costs, Powers and Sirkin say. Partly as a result, from 2005 to 2010, worker productivity increased much faster in the U.S. than in western Europe.

Also contributing to faster U.S. productivity gains: The country was hit harder by low-cost competition from Asia, forcing manufacturers here to cut waste and do more with fewer employees.

Add in the fact that U.S. wages have largely stabilized the past few years while China’s have risen sharply — narrowing the gap between the countries — and U.S. workers are now a better bargain for multinational companies such as Rolls-Royce.

The British company is also benefiting from a growing aerospace ecosystem in Virginia and the Southeast.

Rolls-Royce is working with local community colleges to establish a steady pipeline of manufacturing workers. The University of Virginia and Virginia Tech, meanwhile, are among area institutions that are researching product improvements and turning out engineers to design parts. Less than a mile from Rolls-Royce’s plant, the recently opened Commonwealth Center for Advanced Manufacturing, a public-private partnership, is developing new manufacturing processes for Rolls-Royce and other area companies.

“The U.S. is just a larger network of research-based universities” than the U.K., Powers says.

Other reasons foreign manufacturers are converging on the U.S. are:

• Made-in-America appeal

Some foreign makers are looking to exploit the growing cachet of the “Made in the USA” label. Two years ago, Siemens began cranking out gas turbines at a plant in Charlotte and added 800 employees, largely to serve U.S. utilities that are converting coal-based power plants to natural gas.

It exports most of the turbines to Saudi Arabia and Mexico, which use the same power-grid technology as the U.S. But there’s another reason it’s making the turbines in Charlotte: Saudi Arabian companies often prefer to buy American-made technology products because they perceive them to be of higher quality, says Siemens USA chief Eric Spiegel.

Politics plays a role, too. Saudi Arabia, the second-biggest oil supplier to the U.S., “wants to buy (U.S.) products sort of as an offset program,” Spiegel says.

Such set-ups can smooth potential tensions caused by unbalanced trade between two countries, says Eswar Prasad, a professor of trade policy at Cornell University.

Similarly, Europe’s Airbus is building a $600 million assembly plant in Mobile, in part because North American airlines find the Made-in-the-USA label “particularly attractive,” says Alan Allan McArtor, chairman of Airbus Americas. Airlines, he says, also “can come see the airplane and take delivery” in the U.S. That can help the company better compete with U.S.-based rival Boeing, McArtor says.

Politics are also at work for Airbus as it builds a $600 million facility that will open in 2015 and employ up to 1,000 workers to assemble the company’s popular A-320 family of passenger airliners. “Until you actually create jobs,” McArtor says, “that’s where the real leverage comes with people on Capitol Hill and the public.”

That kind of clout can be invaluable as Airbus battles Boeing in trade disputes before the World Trade Organization.

Airbus, as do other foreign manufacturers, also wanted to take advantage of a dollar that began weakening against the euro in 2010. When the company makes planes in France, it pays employees and buys material in euros, then sells the aircraft in cheaper U.S. dollars. As a result, a 10-cent drop in the dollar vs. the euro means 1 billion euros less in profits, McArtor says.

• Low energy costs

A natural gas boom in the U.S. is luring dozens of foreign chemical makers that use the gas as an energy source and feedstock. The price of U.S. natural gas is now a quarter to a third the price in Europe. That advantage attracted German chemical company BASF, which has invested about $5.7 billion in North America since 2009. It’s building a plant in Geismar, La., that will convert natural gas to make formic acid, used in pharmaceuticals, leather and cleaning products.

BASF Chief Financial Officer Fried-Walter Münstermann says the company will likely continue to locate plants in the U.S. because BASF customers that make finished products are also moving here to exploit cheap natural gas. Europe and other regions “with high energy prices are at a disadvantage,” he says.

• Fewer hassles

For many months, the 2011 tsunami and earthquake in Japan upended the supply chains of manufacturers dependent on Japanese parts makers. That helped persuade Bridgestone, a Japanese tire maker, to choose Aiken, S.C., that year as the place to build new manufacturing capacity for tires sold in North America. The new and expanded plants in Aiken will cost $1.2 billion and employ 850 workers. The crisis also helped lead Nissan and Toyota to shift more production from Japan to the U.S.

“It was kind of an awakening,” says Steve Brooks, chief project officer for Bridgestone America.

For many foreign manufacturers, the U.S. is an oasis of stability — political, economic and infrastructural — in an uncertain world. Michelin recently expanded an Earthmover tire plant in Lexington, S.C., and is building a similar facility in Anderson, S.C., spending $750 million and adding 500 workers. About 80% of the 12-foot-tall industrial tires are exported.

Although Michelin wanted to utilize its only Earthmover tire plant, it could have located the capacity anywhere, including fast-growing India, where it’s building a factory, says Pete Selleck, head of Michelin North America. In India, though, infrastructure (water, power and roads) “is a big challenge,” Selleck says. Many of India’s roads are so marred by potholes, it can take a Michelin truck an hour to crawl 12 miles.

Selleck still grumbles about high U.S. corporate taxes and health costs. But, he adds, “Despite all the problems … it is still a country that seems to work

Potential reshorers would do well to learn from fellow manufacturers that have already made the move back home.

Reshoring success stories faced settling-in difficulties early in their move back home. Companies looking to follow in their path should expect the same.

The challenges and how they impact manufacturing vary from one industry to another but generally, gaps in the supply chain and worker skills are the biggest obstacles.

Reshoring Initiative president Harry Moser said in an e-mail that supplies availability can be an issue because some items are no longer made in large quantities in the US anymore. Reshoring Initiative is an Illinois-based organization tracking reshoring activity.

“In most cases, the problem will be solved by US companies returning to their roots or by Asia vendors that will invest in transplants to restore the US supply chain,” Moser added.

Finding potential providers is one issue. Forming a new and what eventually should be a trusted supply network from these vendors, however, is another. For this, manufacturers will have to vet prospects based on quality, consistency and reliability, just like when they first established factories in China.

On the other hand, companies can retain their current materials and components vendors. The problem with this strategy lies in the fact that the providers are often based within the original offshore location, practically defeating one of the purposes of reshoring: cost savings.

Faced with these options and the challenges that go with them, manufacturers need to ensure their supply chain can be reconfigured quickly to avoid disruptions in production and delivery.

Simple Wave LLC encountered delays in shipping its molds back to the US. “It took much longer than we anticipated to get the China factories to release our molds and ship them to the US,” said co-founder Rich Stump. The molds had to be retrofitted so they could be used on US molding machines.

Skilled workers wanted

Unless they plan to bring in workers from the overseas factory, reshorers-to-be should prepare for a prolonged recruitment and hiring binge on their return to the US.

Figures vary, but it is generally known that the US, similar to China, is short of skilled workers. This has resulted in 600,000 vacancies across various manufacturing industries as estimated by the Manufacturing Institute in its report on skills gap.

Interviewed via e-mail, Michigan Ladder Co. CEO Tom Harrison said the lack of skilled workers in the US is the biggest challenge to reshoring. The manufacturer used to source fiberglass ladders from China and Mexico but shifted to in-house production at its Ypsilanti, Michigan factory in July 2012.

The thinning of production skills in the US can be traced to the manufacturing exodus in the late-1990s and what is left of the talent pool is shrinking further. Reporter Dan Eaton wrote in a Columbus Business First article that the current generation of factory workers is retiring and fewer younger people are pursuing blue-collar careers. Illustrating the last are mid-2012 survey results from the Pew Research Center that show the manufacturing industry ranking only fifth among employment objectives of US college and university graduates.

Eaton also listed the jobs with a worker shortfall – welders, machinists, and certain types of mechanics and engineers – and the industries with the biggest employment needs, including automotive, machinery, metal products and chemicals.

Many industry experts advise manufacturers to act on the shortage fast, pointing to worker training as a worthwhile investment. In the Columbus Business First article, Manpower Ohio regional director Jeanne Farmer said companies should look for applicants who can be upskilled and promoted internally.

“In the short term, we will have to train the workers ourselves,” said Harrison of Michigan Ladder. “It is not really a problem that any one manufacturer can solve. It is a larger issue for our country.”

Reshoring Initiative’s Moser, meanwhile, is optimistic that the movement itself will attract talent as it kicks into high gear. “As more reshoring happens, more and better students will go into manufacturing, improving the workforce.” Based on data from various sources, Reshoring Initiative said about 160 US companies have returned from their offshore locations in recent years. About two-thirds of these companies used to outsource to China.

The Boston Consulting Group expects reshoring to add 2.5 million to 5 million manufacturing jobs by 2020.

Reasons for moving

Costs and time-to-market top many makers’ list of reshoring drivers.

Manufacturing in China has grown steadily expensive in recent years, with rising wages, an appreciating yuan and a shrinking labor pool leaving makers little wiggle room to keep down costs.

Worker salaries, in particular, have been a cause for concern.

In its “Made in America, Again” report from 2011, BCG said wage and benefit increases of 15 to 20 percent annually will cut China’s labor cost edge over certain US states to just 39 percent by 2015. This will reduce cost savings to single-digit figures since labor represents a small fraction of manufacturing expenses.

Manufacturing and reshoring experts believe makers should take into account total expenses and not just worker wages when figuring out how much offshore production is really costing them.

According to Reshoring Initiative, companies can miscalculate 20 to 30 percent of actual offshoring costs if sourcing decisions are “based on price alone.” Moser recommends “all companies reevaluate their offshoring using total costs instead of labor rates or ex-works price. If they do so, companies will bring back as much as 25 percent of what they have offshored.”

As for Simple Wave, reshoring has given it more flexibility in fulfilling various order requirements and tighter control over quality. Further, lead time has been reduced to just one to three weeks. Established in 2008, Simple Wave started out making the CaliBowl, its signature product, in China. The company shifted 100 percent of operations to Northern California in late-2011.

Believing that reshoring will enable it to supply retailers faster, UK-based Symington’s is transferring noodle production from two factories in China’s Guangdong and Zhejiang provinces to a facility in Hunslet, near Leeds.

The new $22.9 million plant will be operational by August 2013. It will make noodles that will be “used in about 100 products, including the Golden Wonder Nations Noodles range,” said Symington’s business development director Henrik Pade. Sourcing the noodles from China takes eight to 10 weeks whereas these will be available at the Hunslet factory in one day.

Together with General Electric, Caterpillar Inc. is among the “giants” that have returned to the US. Caterpillar opened a $200 million factory in Athens, Georgia, in early-2012 for construction equipment, which was previously manufactured in Sagami, Japan.

The products are mainly for the US and Europe and “it made more sense to make them in the US,” said chief corporate spokesperson Jim Dugan. “Similarly, almost all of the machines we manufacture in China are sold there.”

By: Plant Engineering

Even as the reshoring of manufacturing jobs gains momentum in the U.S., other issues still face the industry as it looks to grow in the coming years. Patrick Van den Bossche, the Americas Lead Partner of A.T. Kearney’s Strategic Operations Practice, talks about the skills gap and the issue of restarting closed or underutilized plants that need to be addressed to take full advantage of the resurgence in manufacturing.

PE: The top issue facing Plant Engineering readers is the lack of a skilled workforce. Based on your research, how do we mobilize our workers to meet the challenges and skills needed for modern manufacturing jobs?

Van den Bossche: Dependence on traditional recruitment channels will clearly be insufficient to meet the staffing challenges. To successfully recruit both short- and long-term job seekers, manufacturing needs to be reinvented as an attractive career option. It requires that private, public, and educational sectors take preemptive steps by working together to increase the awareness, interest, and positive perception of manufacturing jobs. It also means that recruits need to be willing to look beyond the “bad rep” that manufacturing has acquired over the years.

Efforts need to address not only new college graduates, but also high school students before they decide on their college majors and career paths. Once recruits are hired, they will need to be trained, and companies need a strategy and plan for training them before they start on the shop floor. Currently employed workers need to be open to being retrained with new skills. Also, in some cases, older workers may need to be retrained in their old skills because manufacturing activity has been absent from the United States for so long that in certain areas the knowledge base has been lost.

Perhaps the biggest challenge is to retain people, especially the Gen Y workers. Unlike earlier workers who spent lifelong careers with one company, this generation has no qualms about switching jobs or careers…frequently. To counter this trend, companies must have robust career progression plans and mentor programs in place, and they must invest in employment incentives that go beyond compensation.

PE: What factors do you see as driving the migration of manufacturing jobs to the U.S.?

Van den Bossche: A number of macroeconomic factors have tipped the balance in favor of domestic manufacturing. Among them, for example, are the appreciation of China’s currency vs. Western currencies, labor rate inflation in China, increased concerns about supply interruption and product adulteration, and in the U.S., falling energy costs due to prospects of shale gas.

Also, the U.S. Economic Development Administration, part of the Department of Commerce, actively encouraging companies through its “Make It in America” challenge, has provided incentives to both domestic and foreign companies to shift manufacturing back to the United States to create jobs and increase the country’s competitiveness on the international stage.

PE: Many former low-cost manufacturing countries, China in particular, are seeing pressure on manufacturing jobs. What are the unique pressures in the U.S. that would slow manufacturing job growth, and what common pressures do all countries have in 2013?

Van den Bossche: In the U.S., there are already more manufacturing jobs available than there are skilled workers to fill them. In 1970, 25% of the U.S. workforce was in manufacturing-related activities. Today, this figure has dropped to less than 9%, according to the Bureau of Labor Statistics. As a result, the Manufacturing Institute’s 2011 Skills Gap Report noted that as many as 600,000 U.S. manufacturing jobs remained vacant across the country due to shortages of skilled workers. A more recent survey of more than 800 U.S.-based manufacturers indicated that 90% of them face a shortage of skilled production employees.

It’s only logical that the competition for talent that can manage and operate manufacturing assets will heat up as companies look to bring back their operations. As a recent IndustryWeek Salary Survey shows, this competition is already starting to result in significant upward pressure on salaries for manufacturing managers. This year’s survey marked the first time since 2008 that the average manufacturing manager salary has breached the $100,000 level. The same pressure can be expected at lower levels of the manufacturing ladder, as the rise in open manufacturing positions further exceeds the overall availability of talent.

Similar issues exist also in emerging markets where there are plenty of “common” low-skilled laborers, but as higher value-add activities have moved to (India and China for example), the demand for higher skilled workers, not just in manufacturing but also in sales and the services sectors, etc., has outgrown the availability of those types of workers, either because of the sheer volume of demand (China) or because those that have the skills prefer to work elsewhere ( IT and services, in the case of India). This is one of the main reasons why in emerging markets compensation levels are expected to increase significantly in years to come and, ironically, it’s also one of the key drivers for manufacturers to look at returning to the U.S.

So the common challenge across most countries will be to make sure that the size and skillset of their (manufacturing) labor force keeps pace with the demands of ever more efficient, more complex manufacturing operations.

Leaders from NCR and Jarden offer insights at the IW Best Plants conference into why manufacturing operations were brought back to the U.S.

Though it has been heralded for a significant U.S. reshoring action, that decision fit firmly in NCR’s commitment to a global structure to serve its markets, Rick Marquardt, senior vice president of global operations, told attendees at the IndustryWeek Best Plants Conference in Greenville, S.C.

Marquardt joined Patricia Gaglione, senior vice president of Business Operations and Supply Chain at Jarden Corp., to share their experiences with reshoring in an executive panel moderated by Harry Moser, founder and president of the Reshoring Initiative

When Marquardt joined NCR in 2006, he had toured the company’s facilities, found them antiquated and decided it would be best to sell them and outsource production. He closed factories in Scotland, Brazil, Canada and Dallas. He decided to improve the facilities in China so that they could be sold. However, he hired new managers for the plants and told them that if they could improve productivity, he would keep them open. At the same time, he outsourced a large amount of work to a contract manufacturer.

“After two years, my internal plants were beating them so handily in costs, speed and delivery that we decided to bring it all back in,” said Marquardt.

In 2009, NCR decided to produce ATMs at a new facility in Columbus, Ga. Marquardt recalled that he had been on a whirlwind tour of possible sites when he landed in Columbus. Unlike the indifferent reception he had received in some other cities, Columbus officials pulled out all the stops to impress him. He was met by the mayor and the chamber of commerce, as well as representatives from three companies that had already relocated to Columbus and from Duke Energy. Within 15 minutes, the site that had been last on his list had convinced him to locate there.

Since it opened, the Columbus facility has grown to 600 employees and NCR has opened two more sites in Columbus. The plant enables NCR to serve its U.S. core customers – big box retailers and banks – with innovative products that it can deliver quickly. Some of these products can weigh up to 3,000 pounds so proximity to customers is an important factor.

Marquardt says he makes a yearly assessment of NCR’s manufacturing locations and how they fit in the company’s strategy. The competitive environment offers plenty of challenges for its facilities.

“It is reinventing the way we manufacture in the U.S.,” says Marquardt. “I told the plant manager the day I hired him, he can’t just be best in class. If he is best in class, I’ll shut him down and move to China. We need to be next in class.” He said plant management and employees have taken on the challenge.

When they made the decision to build the Columbus plant, he recalled, people called him and said NCR was crazy to build it. Today, he said, the plant is “one of the best, if not the best performing plant in the whole system.”

Changing Economic Factors Prompt Jarden Move

Jarden Corp. produces more than 100 consumer product brands around the world. Its products range from Mr. Coffee coffeemakers to K2 skis to Bicycle playing cards. It even produces the blank die for the U.S. penny. The company has approximately 60 plants in 30 countries, including 20 plants in the U.S.

Jarden has grown rapidly through acquisitions from a $400 million firm 12 years ago to a $7 billion public company today, Patricia Gaglione told the Best Plants audience.

As the company has acquired firms, an important task has been assessing the manufacturing assets so that it can determine how best to integrate them into Jarden’s network, establish Jarden cultural and operating norms and make the best use of the additional capacity.

Some of the companies Jarden has acquired had established factories in China. Those companies had moved their manufacturing there to take advantage of low-cost labor. While those decision may have made sense 15 years ago, Gaglione noted, the plants were not efficient and well-run.

Three years ago, one of the local villages in China with Jarden’s two biggest factories told the company they needed to move their facilities. Southern China was developing its economy and officials said they wanted to reduce the presence of such manufacturing operations. Jarden executives were faced with deciding where to move and how to do it in a way that did not interrupt manufacturing for its customers, retailers such as Wal-Mart and Target.

“Getting set up to operate in China and protect intellectual property” in China is hard, Gaglione said, but finding a way to exit gracefully can be even harder.

The reasons for moving to China had changed since those plants were built, Gaglione noted. Materials costs were on par globally and differences in labor costs were narrowing. More important factors to consider now, she said, were time to market, innovation and shortening the supply chain.

Jarden found that it had capacity in its network of plants and was able to move four major product lines to facilities in the U.S. and Mexico. Utilizing lean manufacturing techniques, the company has been able to increase its capacity utilization rates in those facilities and take advantage of existing infrastructure.

Gaglione told the Best Plants audience the moves have not been without challenges. For instance, the company had more difficulty than anticipated finding workers with the right skills to handle two of the lines that were brought back to Minnesota facilities.

Getting Reshoring Past Par

Harry Moser of the Reshoring Initiative estimated that 50,000 manufacturing jobs have been brought back to the U.S. since January 2010. However, he said about the same number of manufacturing jobs are leaving the country per year as being created. The challenge, he said, is to find ways to move manufacturing past parity.

Moser said manufacturers are reshoring primarily to be more economically sustainable, rather than out of patriotism. It makes sense for manufacturers in many cases to serve the U.S. market from domestic plants. While he prefers operations coming to U.S. facilities, Moser said companies that have work with very high labor content may do those operations in Mexico or Costa Rica and then have a U.S. team that handles the high-tech work.

“From the U.S. perspective, it is better to be part of the winning team than all of the losing team, which is what will happen if the work stays offshore,” says Moser.

Companies in the past often offshored work because they failed to take a comprehensive look at their manufacturing costs, he said. As a result, they frequently missed about 20% of the cost of offshore production.

Now, he noted, labor costs in China have soared in recent years. He cited a study by Boston Consulting Group that net labor costs in China and the U.S. should converge by around 2015. As a result, U.S. firms may want to start preparing to bring work back to the U.S.

Understanding total costs helps companies better justify when the investment in lean methodologies, technology and training will help them be competitive manufacturing in the U.S. rather than sourcing to China, Moser said.

“If you did total costs and there is only a 5% or 10% difference, rather than a 30 or 40% difference,” said Moser, then the return on investment from investing in lean manufacturing “is dramatically higher.”

Walk onto the shop floor at Prince Industries in Shanghai, China and it looks like most other manufacturing plants in this country. It’s busy running two shifts, cranking out components that will be shipped to major manufacturers like Caterpillar, Siemens, and Honeywell.

But change is in the air.

The cost of manufacturing in China is going up and rising quickly.

“It’s something that we anticipated when we went to China, we just didn’t know how quick it would happen,” said Mark Miller, CEO of Prince Industries.

China and US Costs Even by ’15

China is no longer a slam dunk for manufacturers looking for the lowest cost for operations.

In fact, a new study by the consulting firm AlixPartners estimates by 2015 the cost of outsourcing manufacturing to China will be equal to the cost of manufacturing in the U.S.

“The Chinese manufacturing cost advantage has eroded dramatically in the last few years,” said Steve Maurer, AlixPartners managing director. “If you go back to 2005, it was pretty common for landed cost from China to be 25 to 30 percent less than the cost of manufacturing in the United States. Based on our analysis, two-thirds of that gap has closed.”

Maurer said higher labor wages, the rising value of China’s currency, and the cost of shipping goods from China to points around the world have made manufacturing in China more expensive.

“If trends continue, the China cost is going to be on par with U.S. cost in the next four to five years,” said Maurer.

Higher Wages, Rising Currency

Since Prince Industries opened its plant in Shanghai a decade ago, wages have increased an average of 12 percent annually, while China’s currency, the RMB, has appreciated 25 percent vs. the U.S. dollar.

The rising value of the RMB was expected and has made it more costly to ship goods built in China around the world.

Meanwhile, hourly wages have been going up steadily due to China raising minimum wages, while competition for labor has forced manufacturers to pay more to attract skilled workers and keep them.

Pulling Out of China or Moving Further Inland?

As the cost of manufacturing in China has risen, so have reports of companies pulling their plants out of the country to find cheaper locations.

Some have re-shored facilities to the U.S., where cost differences are offset by higher productivity of American workers.

But few expect a mass exodus of manufacturers in China.

“I don’t think companies are going to pull out of China,” said Hal Sirkin with the Boston Consulting Group. “Because of Chinese domestic demand which is growing at 8 or 10 percent a year, even if they decide to pull out their export plants they will then convert those plants, basically re-tool them into Chinese consumption because there is a great market in China given all that growth.”

Sirkin said manufacturers squeezed by higher costs in more expensive cities on the coast of China like Shanghai will increasingly look to move plants to inner or western China where labor costs are lower.

“Some companies have found success in inner China and others have decided it is not worth it for them because they cannot get the productivity that they need,” said Sirkin.

Made in China and the US

Even with manufacturing costs rising in China, Prince Industries has benefited from expanding its operations outside Chicago to include a plant in China. Since making the move into China, the firm’s annual revenue has doubled to $40 million.

Much of that growth is spurred by the Prince Industries plant in Shanghai supplying customers who are manufacturing in China.

Given the changing market, would CEO Miller still expand to China?

“I think for us it made sense, it doesn’t make sense obviously for every U.S. manufacturer,” he said. “Once we announced that we were going to China, we had to convince our U.S. workforce that we weren’t going to move all of our manufacturing to China and just become a shell over here. Fortunately for us it worked out.

Bayard Winthrop gets emotional about yarn.

Outside the workshop just south of San Francisco where a platoon of women behind sewing machines assembles his company’s coveted American Giant sweatshirts—you know, the ones that have been sold out for months since being called the greatest hoodie ever made—Winthrop recalled a recent visit to Gaffney, South Carolina. The small town nestled off I-85 among rolling hills adorned with peach orchards was a hub of the South’s textile industry decades ago, back when Americans still wore American-made clothes.

These days, Gaffney is better known for its peaches (and as the hometown of Francis Underwood, the conniving congressman played by Kevin Spacey in Netflix’s House of Cards). But Winthrop says his favorite place in Gaffney is one nondescript building edged by an anonymous parking lot.

“You walk inside the walls of that place and it’s probably the most modern yarn facility in the world,” he says.

At that factory, he says about 250 highly trained, technically skilled workers are spinning Carolina cotton into yarn for fabric that the Northern California factory where we’re standing will transform into what has become one of the most desired articles of clothing in Silicon Valley and beyond.

The American Giant hoodie became a viral sensation after Farhad Manjoo in Slate gushingly praised the sweatshirt, Winthrop and his strategy for making better clothes in the U.S. for which people would willingly pay a premium. Winthrop describes the overwhelming demand, which continues more than four months later, as resembling a “python swallowing a dog.” The desire for American Giant hoodies doesn’t just exhaust the supply of sweatshirts, he says, but sucks the company’s whole supply chain dry, all the way back to the cotton in the ground.

But the internet hasn’t just served up a conventional marketing bump for American Giant. As Winthrop explains, the internet makes possible the kind of business he wants American Giant to be. If he’s right, it’s also the kind of business that could reboot U.S. manufacturing.

Winthrop started his working life as a financial analyst. But an urge to make products, as opposed to just figuring out how to finance them, led him to ditch Wall Street 20 years ago for San Francisco, where he became the third guy at a three-man snowshoe company. Most recently he ran Chrome, a San Francisco maker of messenger bags, clothes and shoes, where he says he became attuned to a different level of quality both expected and made possible by brands connecting directly with their customers online.

The American Giant business model as described by Winthrop depends on a virtuous cycle created by the unmediated marketing and selling the internet enables. People who connect directly with product makers on the web and social media feel more personally invested and come to expect higher value. It’s not just about buying; it’s about buying in. But because those customers are buying direct, Winthrop says, companies like his see much higher margins because no wholesale and retail middlemen are taking a cut along the way. And with more cash in hand, companies have more to invest in making better things that both have value and reflect the values of their makers and consumers.

“Big players compromised by old-world distribution mechanisms are now getting beaten up on quality,” Winthrop says. “They sort of lost their ability to stand for something.”

In American Giant’s case, that “something” is making its products in the U.S. according to what Winthrop sees as classic standards of American quality. But he also insists that “made in the U.S.” for American Giant isn’t some kind of quasi-patriotic marketing ploy. He says the greater “hard costs” incurred by more expensive U.S. labor are more than offset by the greater ease of quality control when you’re closer to your factories and all speak the same language. (He points to Lululemon’s see-through yoga pants debacle as an extreme example of trans-Pacific communication breakdown.)

Overseas apparel manufacturing also means paying well in advance for shipments that will then sit on a boat for a month before ever reaching U.S. shores, which ties up cash. Arrangements with U.S. manufacturers tend to be more flexible, he says. The result is less upfront risk.

At Betabrand, another San Francisco fashion startup with techie fans and a Silicon Valley-style distaste for traditional business models, founder Chris Lindland confirms the general outline sketched by American Giant: direct relationships forged online, higher margins, better quality and responsiveness and lower risk thanks to domestic manufacturing. Unlike American Giant, which is focused on making one thing really well, Betabrand likes to crowdsource ideas and prototype clothes on the fly, constantly updating its line to stay well ahead, or outside altogether, of any traditional fashion cycle.

“We want to take prototype concepts, display them to the internet, gauge interest and turn them into products as quickly as possible,” Lindland says. “And the only way to do that is to make them locally.”

Unlike American Giant, Lindland says “made in San Francisco” doesn’t play a central part in Betabrand’s branding, since he doesn’t believe the U.S. will stay the exclusive place his company makes clothes. For specialized items like shoes or bags, he says Betabrand may need to go overseas to find the workers with the necessary skills, a move he doesn’t want Betabrand loyalists to see as a betrayal.

He also says he’s not certain the apparel manufacturing base in the U.S. will always be able to sustain the demand.

“In some cities like San Francisco, you could argue that there’s somewhat of a decaying manufacturing base,” Lindland says. Part of the problem is simply the expense of Bay Area real estate. “But it’s also because of the age of a lot of people working in that business,” he says. Many of those skilled workers are immigrants whose children follow a time-honored American path of upward mobility, “so you don’t have that refresh occurring.”

Hints of that dynamic are already on display at the Brisbane factory where American Giant’s hoodies are made. Many workers are first-generation immigrants from China. Most of the women on the job—and they all seem to be women—look to be middle-aged. Rolling bins are stacked high with navy, black and heather grey fabric cut into the pieces the garment makers will stitch into hoodies in an elaborate 20-step process that takes time and skill. By each sewing machine, the women keep hammers covered in felt to pound down the thick fabric before feeding sections through the machine.

While the craft that goes into sewing these hoodies may be time-honored, venture capitalist Randy Komisar says American Giant’s local operation signals the arrival of something new. Komisar has mentored Winthrop and advised American Giant as the company has raced to meet the demands generated by its new high profile. He says the kind of massive mass-market manufacturing represented by the Foxconns of the world will never return to the U.S.

Where the U.S. will succeed, he says, is with what he calls “artisinal manufacturing,” which he says American Giant represents: skilled, responsive, flexible and committed to value rather than scale. As American consumers start to see the value in better quality products versus the low-price race to the bottom, smaller companies with loyal customer followings who buy direct will thrive. And more of those companies will make their products at home.

“When you pull the money out of the supply chain and the distribution chain and put it into the product, you actually end up with a better product that can please the customer at a comparable price,” Komisar says. “The jobs that we’re reassembling in the United States are better paying jobs making stuff and being able to do that with a quality and satisfaction that garners respect.”