China’s overwhelming manufacturing cost advantage over the U.S. is shrinking fast. Within three years, a Boston Consulting Group analysis concludes that rising Chinese wages, higher U.S. productivity, a weaker dollar, and other factors will virtually close the cost gap between the U.S. and China for many goods consumed in North America. Bill Michels, president of ADR North America LLC, a specialty consulting firm that focuses on purchasing and supply chain management and senior vice president of the Institute for Supply management, recently sat down with IMPO to discuss supply chain strategies, government intervention, and the future of American manufacturing.
Q: Why will more and more manufacturing jobs continue to return to the U.S.?
Labor costs are increasing, and that’s an issue. Transportation costs are also on the rise, which offsets some of the benefits of offshore labor. The only reason why anybody would really look at China is the low cost labor. But that’s kind of gone away.
When you start thinking about the foreign sourcing market, it’s more of a ‘replicate’ than ‘innovate’ mentality, and so it’s difficult to get efficiency or Lean manufacturing for manufacturers. You have to really protect your intellectual property, which is difficult in places like China. So for those reasons, anything that’s going to require intellectual property protection may not be good to invest in overseas.
Q: What jobs are coming back to the U.S. – and which ones won’t be?
When I started my career, I worked with business machines and there were 300 people sitting on assembly lines. We had 12 assembly lines in the U.S. with people just screwing screws, tightening bolts, and making adjustments. I think building robotics, maintaining robotics, building software integrations, and building systems – those are the jobs that are going to come back to the U.S. I think the jobs that I worked with in the start of my career are the ones that are going to remain overseas.
The only thing that will be different from that is if a company builds its entire supply chain around key resources overseas, as someone like Apple has done. I don’t see those jobs coming back. It’s because the technology isn’t in America, the know-how isn’t here, and the skill set isn’t here. So how fast can we change the skill set? Because if other countries are investing in education, it’s going to bring that skill set forward and then we have a competitive disadvantage as a country.
Q: Do you think U.S. schools are doing a good job preparing the future manufacturing workforce?
I do not. I really don’t. You need the math and science skills, technical skills, and computers. When you look at what people are coming out of schools for – they can’t read, they can’t write, and they’re not very technical at all. So I think that’s something that we really need to focus on.
We’re no longer a country that thrives on mechanical skills and we’re still teaching people a lot of mechanics. Or if they don’t go into mechanical jobs, they go into service jobs, so I don’t think there are many good programs that are currently preparing our employees. I think there’s going to have to be some retraining.
The government needs to consider two things: One, incentives for people to upgrade their factories and retain their workforce. Two, they need to provide training for the new skills and they’ve got to work with educators to make sure they enhance the technical and science skills, because I don’t think the mechanical skills are going to take workers into the future anymore.