Walmart Lays Off 450 From Headquarters

Walmart lays off 450 from headquartersWalmart laid off 450 employees at its headquarters in Bentonville, Ark., Friday as part of a plan to increase its competitive edge. Read more of this post

Re-Shoring: Manufacturers Make a U-Turn

Source: Chesapeake Bay Candle
Chesapeake Bay Candle’s U.S. factory in Glen Burnie, Maryland.

By: Chris Morris, Special to CNBC.com
Published: Wednesday, 23 May 2012

Chesapeake Bay Candle never thought twice about offshoring its manufacturing when the company started 17 years ago. To make the product it wanted, each candle had to be handmade, and there was no cost effective way to do that in the United States.

Four years ago, however, the company reversed that thinking, centering its operations domestically, and betting that as the global economy changes, the move will actually save it money.

Chesapeake Bay, with a factory in Glen Burnie, Md., is hardly alone in rethinking its manufacturing plans these days. More and more American firms are bringing those operations home — and while it might be a little premature to call this “re-shoring” effort a movement, it’s certainly starting to become a trend.

President Barack Obama, in his State of the Union speech, noted that American manufacturers created new jobs in 2011 for the first time since the late 1990s. In a recent survey by MFG.com, an online marketplace that helps businesses find manufacturers for their products, 40 percent of the manufacturing firms it polled said they had benefited from work that had previously been sourced to a supplier in another country.

“[Consumer’s] desire to customize products is become more and more ravenous,” saysMitch Free, founder of MFG.com. “In order to stay relevant, [companies] have to be able to adapt very quickly. The way you do that is being somewhat close to your market. Instead of producing a big lot overseas and shipping it [here], companies can now rapidly assemble supply chains wherever they’re selling the product. They save on logistics costs. They take advantage of the local currency. And they generate good will in the market.”

MFG isn’t the only study that has pointed to an increase in re-shoring. A survey by the Boston Consulting Group in February found more than one-third of U.S.-based manufacturing executives at companies with sales greater than $1 billion are either planning or considering bringing production back to the United States from China.

Key Points

  • Wages in China are climbing at 15 to 20 percent a year, according to Boston Consulting Group
  • Speed to market is becoming more critical, as companies keep lower inventories.

“Companies are realizing that the economics of manufacturing are swinging in favor of the U.S., for goods to be sold both at home and to major export markets,” said Harold L. Sirkin, senior partner at the company. “This trend is likely to accelerate starting around 2015.”

For Chesapeake Bay, it was less a matter of customization as it was cost control.

The candle company originally based its manufacturing in China, but as anti-dumping laws (designed to prevent predatory pricing) began to impact duty rates, Chesapeake Bay took its operations to Mexico.

Unhappy with the manufacturing ecosystem there, it tried a few other countries, eventually landing in Vietnam in 2000 — a popular manufacturing hub for companies.

“The Vietnamese population is very young and it’s pretty abundant,” says Mei Xu, Chesapeake Bay’s co-founder and CEO. “The work ethics are very similar to those of the Chinese. They all want to work hard to provide a better life for their children.”

Labor costs, however, are on the rise in countries like China and Vietnam. BCG says wages in China are currently climbing at 15 to 20 percent per year, due to the demand for skilled labor. The group expects net labor costs for China and the U.S. to converge in the next three years.

Xu notes that Vietnam closely follows China’s lead on issues like salary and benefits. Today, the average salary for a manufacturing employee in the country is between $300 and $400 per month.

That’s still well below the $12.50 to $13 per hour employees in the United States can earn, but salaries only make up 20 to 30 percent of a product’s total cost according to BCG.

Other factors, meanwhile, such as shipping are seeing prices increase as well, due to rising oil prices. Xu says Chesapeake Bay noticed some shipping companies cutting back their overseas routes as well, which threatened the company’s turnaround time.

That speed to market is more critical today than ever as companies keep lower inventories on hand as a precautionary measure.

“When the economy was strong and the sales of product companies were strong, they were placing big orders offshore,” says Free. “They’d order a billion widgets and they’d get them shipped here. When the recession hit, they were stuck with that inventory, and that hit their profit margins pretty quickly. They knew it would cost more [to place smaller orders domestically], but it was a less risky capital outlay. And if consumer demand turned, they wouldn’t be stuck holding a lot of inventory they would have to eat.”

Meanwhile, advances in technology domestically have made it easier to be competitive with overseas companies.

“We have some new machinery and new methods that can be more competitive with China,” says Bruce Brandel, president of The Packaging Team, which supplies blister packaging for consumer product goods. “We’re starting to see people who moved to Mexico or China say ‘If you look at the total picture and cost, it’s not much of an advantage — and maybe a disadvantage — to be there’.”

For The Packaging Team, the degree of that competitiveness varies by product and order size, but the savings comes from new equipment Brandel says increases the speed of sealing packages ten-fold.

“If you’re spending $2 an hour there, you should be able to spend $20 an hour here with the machinery making up the difference,” he says. “Also, there are what I call soft costs [that go with offshoring]. Things like lost opportunities, being unable to meet timelines or dealing with late deliveries. What does that cost you?”

There are risks to re-shoring, too. Xu says Chesapeake (which has since transitioned to machine-filled candles) spent $5 million to secure a large factory in Maryland when it moved manufacturing here. That plant spans 125,000 square feet and can produce up to 2,000 candles per hour. But right now, it’s not being used to capacity.

The ability to ship product in two weeks versus six or seven is certainly beneficial, but there are overhead concerns. Xu notes that she remains optimistic, though. The number of people required on the manufacturing line is significantly lower in the U.S., which helps lower costs, she says.

Right now, the cost to make a candle in the U.S. is approximately the same as it is to make one in Vietnam, but Chesapeake says its betting it will see notable savings in the future, given the rising salary trends and fuel prices.

Despite what many people might think, capitalizing on the “Made in USA” movement is less of an incentive for many companies.

“In my opinion, there’s only one thing that runs corporations today, and it ain’t pride, it’s all dollars,” says Brandel. “[Made in America pride] is a good concept, but if the dollars don’t make sense, it isn’t going to happen. And maybe that’s the way capitalism is supposed to work.”

Even U.S. consumers don’t seem to be as passionate about it as many claim — though, ironically, there’s a notable demand for U.S.-made products in overseas markets — including China.

“If my Chinese consumers are asking for ‘Made in USA’ product, wouldn’t my U.S. customers do the same and pay a bit more?” says Xu. “Our [U.S.] customers, our buyers, are saying they value [an item that is] made in the U.S.A. if it’s the same price. … If it’s more expensive [at retail], there’s a pain threshold and we don’t know what it is — how much more they’ll pay.”

© 2012 CNBC.com
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What Does the Future Hold for American Manufacturing?

The state of US manufacturing is likely to become a major campaign issue - Getty Images

The state of US manufacturing is likely to become a major campaign issue - Getty Images

Written by: BBC North America editor, Mark Mardell 

Drew Greenblatt is an enthusiast: proud of his company, Marlin Steel, and proud of the factory floor packed with state-of-the-art equipment.

I watch, fascinated, as a little white robot squeezes out a wire, putting kinks and bends in it as it emerges.

Then it hands it over to a slightly larger yellow robot, which holds it steady for a twist in the end before turning it over for another twist at the other end.

Oddly, I find this cutting-edge equipment rather cute and cartoonish.

The question is whether this endearing duo are merely the remnants of America’s industrial past or the sort of equipment that will make the USA world-beaters once again.

The factory floor space at Marlin Steel is being doubled and there is no doubt the company is doing well, prospering even, during the bad years. Read more of this post

FDA Says Brazil’s Orange Juice Is Safe, But Still Illegal

 

Antonio Scorza/AFP/Getty Images Oranges for sale at a market in Rio de Janeiro.

Antonio Scorza/AFP/Getty Images Oranges for sale at a market in Rio de Janeiro.

NPR      by DAN CHARLES  February 22, 2012

If you happen to notice sometime later this year that you’re suddenly paying a lot more for orange juice, you can blame America’s food safety authorities. The U.S. Food and Drug Administration, after several weeks of deliberation, has blocked imports of frozen, concentrated orange juice from Brazil, probably for the next 18 months or so, even though the agency says the juice is perfectly safe.

The FDA’s explanation is that its hands are legally tied. Its tests show that practically all concentrated juice from Brazil currently contains traces of the fungicide carbendazim, first detected in December by Coca-Cola, maker of Minute Maid juices. The amounts are small — so small that the U.S. Environmental Protection Agency says no consumers should be concerned.

The problem is, carbendazim has not been used on oranges in the U.S. in recent years, and the legal permission to use it on that crop has lapsed. As a result, there’s not a legal “tolerance” for residues of this pesticide in orange products. Read more of this post

How to Save U.S. Manufacturing Jobs

By Howard Wial @CNNMoney February 23, 2012: 5:34 AM ET

Howard Wial is a fellow for the Brookings Institution Metropolitan Policy Program.

At first glance, manufacturing jobs would appear to be a dying breed.

The United States lost 6 million manufacturing jobs between early 2001 and late 2009. And despite small gains during the last two years, the trend in manufacturing employment for the last 30 years has been downward.

That has led some to argue that long-term job loss in the industry is inevitable. But our research shows otherwise.

There are two common versions of the “inevitability” argument. One holds that U.S. manufacturing wages are too high to be internationally competitive. The other maintains that manufacturing job losses are the result of productivity growth. Both arguments are wrong. Read more of this post

How To Invest For Jobs Coming Back To U.S.

Brian Sozzi, Contributor   2/16/2012

The grand theme I want to put on the table is the concept of onshoring, sometimes called reshoring, which is the bringing back of U.S. jobs from overseas supply chains.

U.S. businesses have started to realize that while workers in far away lands garner miniscule wages compared to their U.S. counterparts, having operations outside of the country can be a strategic disadvantage.  The speed and structure in which information is consumed has caused U.S. consumers to demand top quality products and to want to buy them whenever they please.

Having a manufacturing plant domestically aids in the quicker movement of goods from design table to sales floor.  Furniture maker Ethan Allen is great example of a manufacturer producing most of its products in the U.S. and doing customization for clients, setting itself apart from price-point focused competitors.

Corporate managers are simply getting over their infatuation with cheap international labor and analyzing the total costs of doing business in the U.S. compared to say, China or India.

There is a dollop of icing on the cake here as well.  The topic of focusing on onshoring to boost employment levels seems to be an area of agreement between bickering Republicans and Democrats.  Republican presidential hopeful Rick Santorum, for example, wants to zero out the U.S. corporate tax for manufacturers.

Anytime the major political parties agree on anything, even the slight thing, it’s cause to sit up and take notice from an investment standpoint.  The Donkeys and Elephants may be a little apart on how to precisely shepherd along the corporate onshoring interest, but at least they are talking the same language.  It’s high time they do find common ground if the following is to be reversed:

  • Manufacturing employment has fallen by approximately 37% since 1980.
  • According to a survey done by the Manufacturing Institute and Deloitte, some 600,000 manufacturing jobs are currently unfilled due to a mismatch between job requirements and experience.

I have read a fair number of columns bantering about onshoring.  Is it overhyped?  Do we really need more jobs in the service sector U.S. economy?  The debates are almost endless.  Unfortunately, though, I have failed to stumble upon investment strategies to profit from onshoring, which has already begun to a certain extent, and could likely gain steam in the years ahead.

Buy-and-hold investors, this should be right in your wheelhouse: a highly probable future event to build positions around in companies with durable competitive advantages.

A few names that come to mind:

  • Waste Management: Owns 260 plus landfills and is the largest waste management business in the U.S.  More manufacturing production means more waste to be piled into the company’s green bins.
  • ADP: Benefits in two manners.  First, workers are hired to run new domestic manufacturing plants (hopefully by people that used the downturn to attain new technological skills).  Second, there should be a trickle down effect in the overall employment sector via a ramp in higher paying manufacturing jobs.
  • Dunkin Brands: “America Runs on Dunkin” as the brand’s slogan goes.  The company’s moat is not as wide as an ADP or Waste Management, but more U.S. manufacturers should mean more egg sandwiches (which Starbucks does not do superbly) and coffee.  Store penetration is increasing in areas of the country that are manufacturing oriented.

This Column Was 100% Made in America

A Hyundai ad that ran during Super Bowl coverage showed workers from the company's plant in Montgomery, Ala.

A Hyundai ad that ran during Super Bowl coverage showed workers from the company's plant in Montgomery, Ala.

By   Published: February 15, 2012

BLUE-COLLAR workers in fields like manufacturing — particularly when they make products on American soil — are again becoming a favorite subject for white-collar workers on Madison Avenue.

The trend was born of the economic worries that followed the financial crisis in 2008. Recently, it is gaining steam — appropriate, since the ads often use blasts of steam to signal something is being built — with proposals in Washington to offer incentives to encourage the location or relocation of factories in the United States.

“We continue to see very heavy emotional response to anything that would leverage against the bad economy,” said Robert Passikoff, president at Brand Keys, a brand and customer-loyalty consulting company in New York. Read more of this post

Obama Takes Fresh Aim at China, Touts “Insourcing”

 

ReutersBy Laura MacInnis | Reuters

MILWAUKEE (Reuters) – President Barack Obama kept up his attack on Chinese trade practices during a campaign-style visit on Wednesday to a Midwest factory, where his call to bring jobs back home was intended to resonate with voters in an election year.

The day after meeting China’s leader-in-waiting, Vice President Xi Jinping, at the White House, Obama cited America’s chief rival a number of times in a speech to promote the potential of “insourcing” jobs back to America from overseas.

“I will not stand by when our competitors don’t play by the rules,” he told workers at Master Lock, a company he lauded in his State of the Union address last month for having moved back about 100 union jobs from China since mid-2010.

“That’s why I directed my administration to create a Trade Enforcement Unit with one job: investigating unfair trade practices in countries like China,” he said in prepared remarks.

Obama took a firm line over trade on Tuesday during his Oval Office meeting with Xi, who is in line to assume the Chinese presidency in March 2013.

This tough stance should appeal to voters in election battleground states like Wisconsin, where Beijing is often blamed for killing American jobs.

Republican presidential hopeful Mitt Romney, a former private equity executive, accuses Obama of being too soft on China and lacking the executive or other leadership experience to steer the U.S. economy toward lasting recovery.

Master Lock, a unit of Fortune Brands Home & Security, is the world’s largest manufacturer of padlocks and related products to secure homes, cars and bicycles. Its story is a positive one for Obama, who must tout his economic leadership to secure another White House term.

The firm says its Milwaukee plant is running at full capacity for the first time in 15 years – an example the White House is eager to replicate as the November 6 election nears.

“They’re deciding that if the cost of doing business here is no longer much different than the cost of doing business in countries like China, they’d rather place their bets on America,” said Obama.

It was his first stop in a three day campaign-style swing when the Democrat will raise funds in California and stop at aircraft manufacturer Boeing in Washington state.

How to cope with a rising China – and compete against cheap Chinese exports – is one of the toughest challenges for Obama to navigate as the election approaches, particularly as opinion polls showing rising U.S. voter frustration with the Asian economic powerhouse.

(Reporting By Laura MacInnis; Editing by Peter Cooney and Cynthia Osterman)

Can Manufacturing Jobs Come Back? What We Should Learn From Apple and Foxconn

business
The Huffington Post

David Paul – President, Fiscal Strategies Group  –  Posted: 02/13/2012 8:30 am

Apple aficionados suffered a blow a couple of weeks ago. All of those beautiful products, it turns out, are the product of an industrial complex that is nothing if not one step removed from slave labor.

But of course there is nothing new here. Walmart has long prospered as a company that found ways to drive down the cost of stuff that Americans want. And China has long been the place where companies to go to drive down cost.

For several decades, dating back to the post World War II years, relatively unfettered access to the American consumer has been the means for pulling Asian workers out of deep poverty. Japan emerged as an industrial colossus under the tutelage of Edward Deming. The Asian tigers came next. Vietnam and Sri Lanka have nibbled around the edges, while China embraced the export-led economic development model under Deng Xiaoping.

While Apple users have been beating their breasts over the revelations of labor conditions and suicides that sullied their glass screens, the truth is that Foxconn is just the most recent incarnation of outsourced manufacturing plants — textiles and Nike shoes come to mind — where working conditions are below American standards. Read more of this post

Dumping China for American Job Shops

More U.S. small businesses are steering their orders to American factories, such as Tennessee-based Bristol Custom Solutions, as costs go up in China.

More U.S. small businesses are steering their orders to American factories, such as Tennessee-based Bristol Custom Solutions, as costs go up in China.

By Parija Kavilanz @CNNMoney  February 13, 2012: 11:51 AM ET

NEW YORK (CNNMoney) — U.S. small businesses that initially rushed to Chinese factories to get their products made are now dumping them for American manufacturers.

And the shift is gaining traction, said industry experts who match U.S. small companies with domestic firms.

Mitch Free, the founder and CEO of Atlanta-based MFG.com, said his company has seen a 15% uptick in inquiries since 2009 from U.S. firms looking for American factories to replace their Chinese suppliers.

MFG.com is one of the largest online directories used by businesses to find domestic manufacturers.

One reason behind the trend is that “Chinese manufacturing has become expensive,” Free explained.

Another is that the U.S. economy is still uncertain. Most small businesses are forced to order large quantities to justify costs when dealing with companies overseas, he said. And that’s a risky move if American consumers are not splurging yet.

Manufacturers closer to home allow small businesses to order smaller batches, which means less of their money is tied up if their inventory is unsold, he said.

Revive Made in USA? Easier said than done

WindStream Technologies opened a new manufacturing facility in North Vernon, Ind., last September to produce small wind turbines for home use.

WindStream Technologies opened a new manufacturing facility in North Vernon, Ind., last September to produce small wind turbines for home use.

WindStream Technologies knows well the value of manufacturing in the United States.

In December 2010, the startup selected a Chinese factory to make 35 prototypes of its wind turbines, because they wanted them “quickly and cheaply,” said David Dingman, Windstream’s lead mechanical engineer.

It was a disaster. “The prototypes that the Chinese manufacturer sent back to us were junk,” said Dingman. “There were parts that were put upside down. Other parts were poor quality. Some even fell off.”

WindStream decided not to have the final products made in China.

The company was able to snag U.S. manufacturers with the help of MFG.com.

And last month, it started mass producing its small wind turbines for home use at its new 45,000-square-foot manufacturing facility in North Vernon, Ind. The company employs 30 workers and is hoping to ramp up to 100, if it lands a deal to sell the turbines at a mass retailer, said Dingman.

WindStream now has its turbine covers made in Chicago, while some metal parts are produced in Ohio.

Some of the turbines parts are still made in China, simply because the raw materials to make them don’t exist in the United States, said Dingham. But “the Midwest proved to be terrific for us,” he said.

Indeed. WindStream produces its turbines at a 10% lower cost per unit compared to what the company would have paid in China, thanks to its American suppliers that provide competitive prices and the elimination of overseas shipping and travel costs.

Del Mar, Calif., entrepreneur and inventor Julie Zizka actually liked the way her tote bags looked after a Chinese manufacturer produced 5,000 of them for her in 2008.

But she still was not a fan of having her manufacturing done overseas. She had concerns about production delays and fretted about how the extensive amount of transportation used was hurting the environment. What’s more, she noticed that her customers were preferring products that were made in the United States.

By 2011, she was looking for a U.S. manufacturer to produce her “Tote Buddy,” a colorful tote for storing reusable plastic bags.

She came across one after searching online and seeing ads for Bristol Custom Solutions, which heavily advertises on MacRAE’s Blue Book.

MacRAE’s has seen a pickup in inquiries — just like Zizka’s — from companies wanting to replace Chinese suppliers with American ones, said Lori Meloche, MacRAE’s vice president of marketing.

The directory — first published in the United States in 1893 as a “blue-colored book” — has since evolved into a website with more than 1.2 million North American industrial manufacturers, which averages 1.5 million users monthly.

What small firms want from Obama’s manufacturing plan

Zizka connected with Bristol, a 26-year-old, Tennessee-based manufacturer, best-known for making secure locking bags used by banks and the federal government to transport cash and other valuables.

“People have been contacting us all the time lately, telling us they don’t want to produce their products in China,” said Brandon Cantrell, Bristol’s general manager.

When Zizka sent Bristol a sample of the tote, the company redesigned it and brought down some of her costs, said Cantrell.

Today, Bristol is making 1,000 new Tote Buddy bags for sale this spring. For Zizka, the unit price for one of her Tote Buddy bags made in Cantrell’s factory is still 170% higher than for one made in the Chinese factory, said Cantrell.

But that doesn’t bother Zizka.

“My customers want my bag made in the U.S.,” she said, “I’m willing to absorb that cost if I can control the quality, get them to my customers faster and help the environment as well.”

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