Are We Seeing the Renaissance of American Manufacturing?

Editors Note: This is a guest post from Derek Singleton of Software Advice. If you would like to be considered for a guest post on the MecSoft blog, please contact us at blog@mecsoft.com.

American manufacturing has been making a quiet and unexpected comeback over the last few years. For the first time in a while, companies like Airbus are deciding to open new plants in the United States. But it’s not just new plants that are helping American manufacturing make a comeback. Companies that once took their production overseas are now deciding to produce domestically. It’s a trend that has become popularly referred to as the “reshoring” of American manufacturing.

As a result of reshoring–and the overall economic recovery–we’ve started to see growth in the manufacturing industry. In fact, at the early part of this year, growth in the manufacturing sector outpaced the overall economy, growing 5.1% in the first quarter of 2013. The overall economy, on the other hand, grew by 1.8%. While the pace is slowing a bit, the Manufacturers Alliance for Productivity and Innovation (MAPI) remains optimistic about the future, forecasting modest growth of 3.1% in 2013.

The signs of the recovery are great. But in order to keep the momentum going, companies will need to make smart use of technology to drive efficiencies in operations and remain competitive with overseas manufacturers. Before getting into that, however, I want to touch briefly on why companies are coming back in the first place.

Why Are Companies Coming Back?

There are many reasons why companies are deciding to come back, but much of it has to do with China. Low labor costs were of course what brought so much manufacturing to China, but China’s attractiveness may be waning. Chinese labor costs are expected to increase 13 percent per year through 2015. Concurrently, the cost of shipping products around the world is increasing.

Intangible factors promote reshoring, too. For instance, distance and cultural boundaries can make collaborating on design and engineering challenging; lengthy lead times can complicate supply chain management; and, protecting intellectual property (particularly in China) is a nightmare for some manufacturers. These kinds of indirect costs are often underestimated when manufacturers choose to offshore production.

According to the Boston Consulting Group, this has created conditions for seven industries to bring production back to the United States over the next several years. The total value of these goods, by their estimate, amounts to roughly $200 billion.

While that’s likely an optimistic projection, there is one thing that’s clear–some types of production likely will never come back. The vast majority of industries that we can expect to come back deal with highly skilled and customized manufacturing environments (e.g., advanced electronics, fabricated metals and machinery). But in order to compete with their overseas competitors, manufacturers need to embrace technologies that will help them drive efficiencies in their operations.

The Role of Technology in Bringing Companies Back

Manufacturers have long been automating their processes. We see it in everything from information management to product assembly. However, many manufacturers are still managing their operations with manual processes that slow them down. In a recent study we conducted on why manufacturer’s purchase software, we found that roughly 60 percent of the manufacturers that we advised on software selection currently manage their operations with paper, Excel spreadsheets and other manual methods.

Manufacturer’s Current Methods of Tracking Manufacturing Processes

Tellingly, these same manufacturers reported that they intended to purchase software to improve their efficiency.

Reasons for Replacing Manual Methods

In order to continue recovery in the manufacturing industry, manufacturers will need to embrace technology solutions that can help them become more efficient. That means using making smart use of design and development software such as CAD/CAM software that can feed CNC machines the design file and help automate some of the process of taking a concept design and moving it into production. It also means automating management of information such as materials requirements planning, accounting and inventory management.

If manufacturers are able to continually improve their efficiency, then we’ll likely continue to see growth in the industry. What are your thoughts? Leave me a comment below.

Derek Singleton

Derek joined Software Advice after graduating from Occidental College with a degree in political science. He writes about various topics related to ERP software with particular interest in the manufacturing and distribution software markets. Derek’s work has appeared in publications such as CIO, The New York Times, Huffington Post as well a variety of tech publications, including Sandhill, SYS-CON and ZDNet.