There's no place like home

October 23, 2007
By: Tim Heston

It boils down to a simple fact: Consumers get picky.

That"s according to Chris Kuehl, Ph.D., managing director of Lawrence, Kan.-based Armada Corporate Intelligence. The economist stopped by the Fabricators & Manufacturers Association (FMA), International, headquarters last week to communicate some economic wisdom and, most important, focus that wisdom so that it has direct applicability for the metal fabrication professional.

According to Kuehl, those picky consumers drive everything. Their demand changes fast, sending ripples almost instantaneously up the supply chain: hence the rationale for flexible, lean manufacturing. When consumers shift demand, all suppliers must shift with themand that can include a quick, sometimes drastic shop floor retooling.

Companies have needed to undergo changes in design very quickly under hefty delivery pressures, Kuehl said. In order to do that, they have needed to move manufacturing closer to the consumer.

This has led, he said, to today"s near-sourcing phenomenon. More domestic original equipment manufacturers (OEMs), after a stint of offshoring, have sought to strengthen a supplier base near their own backyard, particularly for high-value products. The greatest benefactors, he said, have been the smaller, innovative companies that, more than ever, are investing in the latest-and-greatest technologies to compete. If an OEM wants them to run fast, stop on a dime, change everything, and run the other way, these small companies can.

Kuehl said some truly amazing strides made by the transportation and logistics industry have formed part of the impetus for this China pullback. Getting something to and from North American manufacturing plants, distribution centers, and retail stores has become immensely easier. On the other hand, when dealing with Asia, logistics expertsdespite all the technology now at their disposalcannot overcome one immutable fact: A really big ocean lies between here and there.

Among other leading companies, Toyota has expanded its local supply base in many areas. According to a 2006 report in the online publication Spend Matters, Toyota spends $20 billion annually with North American parts suppliers, a number up nearly 400 percent from a decade ago.

The trend isn"t limited to the U.S. Across the globe, more OEMs keep their eyes peeled for close-by suppliers. In a 2006 article in Supply & Demand Chain Executive, David Morgenstern, managing director of Low-Cost Country Sourcing for software giant Ariba Inc., called the near-sourcing phenomenon re-sourcing. Says Morgenstern, An emerging trend among manufacturers shows an increase in re-sourcing components that had been sourced to Asian suppliers over the last few years, shifting instead to suppliers close to home.

And unlike much of the developing world, the U.S has quite an established infrastructure (an infrastructure that"s in need of repair, but an infrastructure all the same) and an entrepreneurial work force that"s agile enough to take pretty much anything the OEMs throw at them. This makes the domestic manufacturing base an attractive place.

But hold on here. Haven"t we heard about this country"s dwindling skilled labor pool and the mass exodus of experienced techniciansthat is, the brain drain?

True, said Kuehl, the U.S. well of skilled technicians continues to dry up, while the numbers of engineering grads in China can be staggering. But people often forget, he said, that while China is very adept on the technical end, they have not done so well on the sales, marketing and business-management end. The advantage U.S. workers have is that they are often better at sales and strategic planning. In other words, they are better entrepreneurs.

Put another way, there"s no place like home. The customer drives everything, and despite current economic uncertainty, the U.S. consumer still packs a hefty punch. It only makes sense that more manufacturers should want to stand ringside.

Editor"s Note: The FMA has partnered with Kuehl to produce Fabrinomics™, a semimonthly e-newsletter giving analyses of the latest economics news specifically focused for the metal fabrication professional. For more information, click here or call FMA customer service at 815-399-8775 or 888-394-4362.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314