Small businesses opt for made in U.S.A.
A growing number of small businesses are chipping away at the decades-old trend of manufacturing overseas.
The Associated Press
NEW YORK — When Martin Rawls-Meehan started making adjustable beds in 2004, it was a foregone conclusion that key parts would be made overseas. It was cheaper to manufacture in Taiwan than in the U.S. And from Taiwan it was easier to ship to customers in Asia.
But this year, his company, Reverie, began making some of its beds entirely in a factory in New York. Shipping costs from Taiwan have soared between 50 and 60 percent since the company was founded.
“Shipping costs are tremendous,” he says. “I could put that money into the manufacturing side in the U.S.,” he says.
Reverie is one of a growing number of small businesses that are chipping away at the decades-old trend of manufacturing overseas. They’re doing what’s known as reshoring, moving production back to U.S. factories as labor costs grow in countries like China and India and shipping also becomes more expensive. Over the last 20 years, the price of a barrel of oil has risen to about $95 from $20.
There are other issues encouraging the shift. Owners are tired of having to wait weeks for shipments on slow-moving container ships, and they want to get products to customers faster. Some newer businesses aren’t even considering overseas manufacturing.
It’s not just small businesses. Some of the largest companies in the U.S. are also joining the trend. Apple and Caterpillar are among the manufacturers planning to bring production back to the U.S.
Reverie has had the bases of its beds made in Taiwan since the company was founded. Rawls-Meehan and a business partner in Taiwan agreed that the cost savings and proximity to many customers were good reasons to manufacture there.
“The mentality was that products were going to be manufactured more cheaply in Asia than in the U.S.,” Rawls-Meehan says.
But shipping costs have risen to as much as 20 percent of the wholesale cost of a bed made in Asia. In 2004, it was just 10 percent on some of Reverie’s products. So the company is now making a new line of upscale beds in Silver Creek, N.Y. Shipping on those beds accounts for no more than 5 percent of the wholesale price. That offsets the higher cost of labor in this country.
Rawls-Meehan is considering moving more of his manufacturing to the U.S., but because the company also sells beds to Asia and Australia, he says it likely will always have overseas production.
Reshoring began picking up momentum in 2010 after the recession and as the dollar began to lose value, says Lisa Ellram, a business professor at Miami University of Ohio. Businesses that were unsure how strong their sales would be in a weak economy didn’t want to make as many commitments to far-flung factories.
“They really just didn’t have as much certainty about their volume and their needs, so it was maybe a little bit easier to deal with somebody closer,” she says.
Innovations in manufacturing in the U.S. are encouraging the shift. Many U.S. companies use robots and highly specialized processes that allow them to make custom components for the automotive and aerospace industries.
“Instead of hiring people, we’re using robots,” Ellram says. Chinese companies are also using robots, but U.S. manufacturers are ahead of them, she says.
About 50,000 manufacturing jobs came back to the U.S. between 2010 and 2012, many of them in factories that turn out electrical equipment and components and metal parts, according to the Reshoring Initiative, a nonprofit group that advocates moving manufacturing back to the U.S.
The trend could gain momentum because demand for U.S. goods is growing. Ninety-five percent of manufacturers surveyed last year said they are increasing their purchases from domestic companies, or keeping them at the same level as 2011, according to ThomasNet, a company that operates an online marketplace where businesses can connect with manufacturers, distributors and service companies.
The amount of time it takes to get goods made overseas is another reason manufacturing is coming back to the U.S. It’s taking longer to ship finished products because cargo ships have lowered their speed by 20 percent to conserve fuel, Ellram says. That reduction adds four or five days to a container ship trip from China, she says. It takes two weeks or more for a ship to travel from China to the U.S., depending on which ports it departs from and where it makes its deliveries.
Shipping times matter for companies that need to get their goods to market quickly. Now that Cotton Babies, a manufacturer and retailer of baby merchandise, has moved manufacturing of its cotton diapers to Denver from Egypt, it has cut in half the time it takes to get them to market, says CEO Jennifer Labit.
Quality, and the ability to fix problems faster, gives small domestic manufacturers an advantage over foreign companies, Ellram says.
“Those are the things that (domestic) small businesses can use as a selling point,” she says.