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OM in the News: Small Manufacturers Giving Up On “Made in China”

June 26, 2012

As costs in China rise and owners look closely at the hassles of using factories 12,000 miles and 12 time zones away, Businessweek (June 25, 2012) reports that many small companies have decided manufacturing overseas isn’t worth the trouble. American production is “increasingly competitive,” says the head of the Reshoring Initiative, a group  trying to bring factory jobs back to the U.S. “In the last two years there’s been a dramatic increase” in the amount of work returning. Here are 2 examples:

For LightSaver, a lighting manufacturer, the decision was simple. Neither of the founders has ever been to China, which made communicating with manufacturers difficult. Components that were shipped from the U.S. sometimes got stuck in customs for weeks. “If we have an issue in manufacturing, in America we can walk down to the plant floor,” says the CEO. “We can’t do that in China.” He believes manufacturing in the U.S. is probably 2-5% cheaper once he takes into account the time and trouble of outsourcing production overseas.

Even with strong Mandarin skills, the founder of Pigtronix, which makes electric guitar pedals, discovered that he couldn’t  monitor quality at Chinese factories. After several years of finding glitches in 30% of the pedals, the company decided to move production to  N.Y. Now Pigtronix can run multiple tests on its products and even has a guitarist play each of the 500 to 1,000 pedals it sells monthly before they’re shipped. While manufacturing in the U.S. can cost  from 3 to 6 times as much as it does in China,  Pigtronix benefits from not having capital tied up in products that spend weeks in transit and then pile up in inventory. “In China, you have high minimum quantities you have to order, so you’re building a couple thousand of every guitar pedal. Your carrying costs start to get huge.”

The bottom line: Although manufacturing in China can cost a third what it does in American factories, small companies are bringing production back to the U.S.

Discussion questions:

1. Why is reshoring gaining traction?

2. Why do many companies continue to move production to Asia?

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