Regular readers know that onshoring has been a favorite topic of ours. Swimming upstream against the flow of lemmings chasing low labor costs around the globe to move manufacturing back to North America is a neat trick. It's been helped lately by the weak dollar, but having the guts to look inward to reduce costs and improve competitiveness is still a unique and admirable goal. Last year I was honored to moderate a panel discussion on onshoring at Kellogg's Manufacturing Business Conference. Last month I had the pleasure to discuss onshoring as part of an article in the latest HR Wire. Unfortunately a wicked expensive subscription is required, so here are some highlights.
Perhaps it stands to reason that the movement toward more U.S. operations is being driven in part by the tech industry. Offshoring, after all, was pioneered by tech firms seeking to take advantage of lower costs and available talent pools. Now, some of those firms are looking at onshoring for the same reasons. Among companies making news is computer maker Dell, which in recent years has opened call centers in Oklahoma City and Twin Falls, Idaho.
What a breath of fresh air. The article goes on to describe some other examples and the impact of HR, but then gets to my comments.
Kevin Meyer [overly-detailed description of my position and background deleted] sees onshoring from a similar though slightly different vantage point as [Dell Senior VP Jeff] Lande.
For one thing, he's not sure if onshoring is a trend yet. Up until last year the trend toward offshoring was continuing, Meyer tells HRWire. But he points out it has changed for several reasons. For one, weakness of the dollar has made it more costly to manufacture overseas.
Companies are also starting to realize the hidden cost of manufacturing abroad. If a quality defect is found in a product, there is a lot risk for companies, Meyer says. In addition, inventory recalls present greater challenges when products are manufactured overseas. And, regardless of currency exchange rates, it's simply not as inexpensive to offshore as it once was. Meyer cites how wage inflation in China is accelerating very rapidly, to the point that some companies in China are outsourcing. It all has more U.S. companies wanting to onshore, he says.
But these aren't the only reasons. "Probably the more enlightened companies are realizing there's more to the value of a person than just a pair of hands," Meyer says. To illustrate his point, he gives the example of a company that moves a manufacturing operation to Mexico, only to realize that by doing so it has lost knowledge. A real factor is the value of experience of employees, he tells HRWire.
Yet, for companies in this situation, bringing back an operation can be almost as hard as offshoring it, Meyer says. Moving equipment, establishing facilities, and finding and hiring people in an economy that still has only 4 to 5 percent unemployment all present challenges.
And these are the obvious issues. According to Meyer, from an HR perspective, a new issue has emerged. "It's recognizing the knowledge management side of things," he says. In the past, knowledge management has been associated with specific departments and a certain level of worker. However, Meyer sees that changing. "I think, more and more, knowledge management is going to lower and lower levels," he says.
For HR, this means figuring out how to find assembly line workers that have a lot they can contribute. Meyer gives the example of automaker Toyota, which is known for receiving a record number of suggestions per employee per year. And it doesn't only mean hiring with an eye toward greater contribution. HR can spearhead suggestion programs, and help lower-level employees solve problems, Meyer says.
Initially, onshoring was driven by the financial side of things. Now, companies are seeing other benefits to the process. For HR, additional benefits include greater management control as a result of the shorter geographical distance; policies and procedures are easier to implement onshore.
Meyer sees more companies considering the big picture advantages when weighing whether to manufacture off- or onshore. "It really comes down to the only true reason to offshore is to get closer to a customer base," he says. There's obviously a huge market in places like China, and it makes sense to manufacture in a country where products will be sold, he explains. But there is also value, financial and otherwise, in having people based in the U.S.
The HR Wire writer, Paula Santonocito, got my comments right. We've said it before: there's value in them there brains... even if it isn't recognized on an P&L or balance sheet. Value that more and more companies recognize, and realize that it offsets the lower wages from offshoring. Couple that with improved efficiency by focusing inward to reduce waste and you've got a recipe for a competitive manufacturing operation... in North America.