Bringing It All Back Home
Posted: November 30, 2011 by Lauren Powers in: Blog Posts
Here is an article we liked by Julie Bird from the Charlotte Business Journal.
Three years ago, Lincolnton’s Chromcraft Revington Inc. furniture plant went dark as the last of its production shifted to China.
Now the factory lights are back on, production equipment is being installed and skilled furniture workers are being hired. The new tenant, Lincolnton Furniture Co., expects to be building solid-wood furniture at the factory by year end.
It’s an example of what is being called “reshoring,” in which production that had shifted overseas returns to stateside factories. Southern states, with low labor costs and few unions, are well-positioned to reap the benefits.
Furniture is one of seven manufacturing sectors expected to benefit most from the reshoring trend, according to Boston Consulting Group .. . The others are transportation goods, electrical equipment and appliances, plastics and rubber products, machinery, fabricated-metal products and computers and electronics.
Labor costs are rising in China. American productivity is growing, thanks largely to technology and work-force training. China soon will lose its cost advantage in those sectors, Boston Consulting says in a recent report. The firm projects reshoring could create 2 million to 3 million U.S. jobs and $100 billion in business.
That’s no surprise to Bruce Cochrane, president of Lincolnton Furniture. After 10 years in China as a manufacturing consultant, he came home in 2009 convinced the advantage had swung back to the U.S.
“A lot of the problems I saw in China kept getting worse,” Cochrane says. “They couldn’t get enough people to work. That led to poor quality, longer delivery times and rising labor costs. I started to realize the gap was going to narrow between what we could make (furniture) for domestically and what you could get it made in China for.”
His family had run Cochrane Furniture Co. .. for nearly a century, employing up to 1,000 in the same factory where he is launching Lincolnton Furniture. He sold Cochrane Furniture to West Lafayette, Ind.-based Chromcraft Revington in 1996. It began shifting work overseas in the early 2000s, he says, before stopping U.S. production in late 2008.
Lincolnton Furniture is leasing the 210,000-square-foot manufacturing space, with plans to launch production in mid-December. Ten years ago, Cochrane would have needed 250 factory workers, but with advances in technology, he’ll need 131.
Innovative industrial equipment is driving “pretty phenomenal” increases in U.S. productivity, including a burst of 5.3% in the third quarter, says Chad Moutray, chief economist at the National Association of Manufacturers.
“The only way we get that fast of an increase in productivity is technology,” he says.
Meanwhile, competition for skilled labor is driving up wages and benefits 15% to 20% per year at Chinese factories, according to the Boston Consulting report, Made in America, Again: Why Manufacturing Will Return to the U.S.
Southern states, with low labor costs and other advantages, “will turn out to be among the least-expensive production sites in the industrialized world,” the report says.
“Companies are thinking of profits. That’s what companies do, especially when looking at long-term plant decisions,” Harold Sirkin, managing partner and lead author of the report, says in an interview. “In states like North Carolina, the rules are such that it makes it easier to accomplish.”
The Carolinas, like the rest of the South, are right-to-work states where employees can’t be required to join a union.
Unionization generally drives up labor costs 20% to 30%, says David Swenson, vice president at the Charlotte Regional Partnership .. . The cost of living in the Charlotte area is 7% to 8% lower than in the Northeast or on the West Coast, he says.
Economist Moutray says Southern governors have vigorously pursued manufacturers. “There are some very aggressive economic-development policies in the South,” he says.
Barry Matherly, executive director of the Lincoln Economic Development Association .. , says the availability of skilled labor is key. “They’re not looking for the cheapest labor,” he says. “They’re looking for the best labor at a reasonable cost. In the South, skilled labor costs less.”
Matherly cites the case of Main Filter USA Inc., a division of a Canadian manufacturer that recently invested $2 million in a plant in Lincolnton.
Main Filter was looking to expand in Michigan, close to its headquarters in Sault Ste. Marie, Ontario, says Todd Raines, operations manager. Challenges in finding industrial property prompted the company to look to the South, where sites and labor were more plentiful and affordable.
“If we had a unionized work force, it would probably cause us to have to shut down the plant,” Raines says. “When our competitors unionized they had nothing but problems or issues. Almost every single one of them relocated to the southern U.S. or overseas.”
Other factors favor reshoring. U.S. manufacturers are frustrated by long production lead times and inventory problems in China, says Dan St. Louis, director of the Manufacturing Solutions Center at Catawba Valley Community College .. in Hickory.
“You’ve got to order tons of the same stuff and fill a container load before you can ship,” he says. “Manufacturing’s tough. You’ve got to make sure orders are right, and that’s tough to do from a distance. In this economy, nobody wants large inventories.”
Or as Cochrane puts it: “Plenty of people importing products from China are underserved and don’t even realize it. What’s going on in China is just going to get worse.”
St. Louis reports a resurgence in textile and furniture manufacturing because of China’s problems.
Months-long supply-chain disruptions from the April earthquake and tsunami in Japan also shook up manufacturing. The disaster underscored the lack of control manufacturers have when relying on overseas sourcing and production to serve U.S. customers.
“Will (manufacturing) come back tomorrow? No,” says St. Louis. “But we’re beginning to see some pushback this way.”
He says the South has an ace in the hole when it comes to landing returning factories.
“We don’t see them coming just because of labor costs,” he says. “It’s really just the manufacturing heritage. We’re good at it.”