Onshoring Weather Report: Strong Tailwinds!

Onshoring, reshoring, nearshoring: these terms are showing up with increasing frequency in the news and online. But is there evidence that these are real?

by Miles Free III

Director of Industry Affairs, PMPA

Published March 1, 2024

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There can be little doubt that the return of manufacturing — and manufacturing jobs — to North America is happening. But what are the facts? How can we know that
this is a real, sustainable trend worthy of our investment?

The Opportunity of Manufacturing
According to a report by Deloitte and the Manufacturing Institute, over the next decade, 4 million manufacturing jobs will likely be needed — and 2.1 million are expected
to go unfilled — if we do not inspire more people to pursue modern manufacturing careers (bit.ly/PMPA-PM0324a). Clearly, the potential for employment exists.

New Private Construction for Manufacturing
A look at new private construction for manufacturing is convincing. The hockey stick graph shown below represents investment in construction of new manufacturing facilities (bit.ly/PMPA-PM0324b). Total private construction spending for manufacturing in the United States was $18.867 billion in October 2023 — its all-time high. How many manufacturing jobs will result from this dramatic increase in manufacturing facility construction?

Foreign Direct Investment
Foreign companies are investing in the U.S., and those investments result in jobs. Foreign direct investment (FDI) in U.S. manufacturing was $5,254.816 billion in 2022, according to the Bureau of Economic Analysis’ report “Direct Investment by Country and Industry 2022” (bit.ly/PMPA-PM0324c).
That investment is up almost 20% from 2019’s $4,398.763 billion in Manufacturing FDI. According to the report “FDI in Manufacturing 2017,” produced by Trade.gov, more than
2.4 million U.S. jobs in manufacturing are supported by FDI (bit.ly/PMPA-PM0324d).
FDI in manufacturing is a major force driving manufacturing employment in the U.S.

Foreign Direct Investment
Foreign companies are investing in the U.S., and those investments result in jobs. Foreign direct investment (FDI) in U.S. manufacturing was $5,254.816 billion in 2022, according to the Bureau of Economic Analysis’ report “Direct Investment by Country and Industry 2022” (bit.ly/PMPA-PM0324c).
That investment is up almost 20% from 2019’s $4,398.763 billion in Manufacturing FDI. According to the report “FDI in Manufacturing 2017,” produced by Trade.gov, more than
2.4 million U.S. jobs in manufacturing are supported by FDI (bit.ly/PMPA-PM0324d).
FDI in manufacturing is a major force driving manufacturing employment in the U.S.

Supply Chains and Shipping Rates
Since the 2020 COVID-19 pandemic, the term “supply chain disruptions” has become an almost everyday phrase. While the pandemic is no longer the operative cause, Reuters reported on January 4, 2024, that “Rates for shipments from Asia to North America’s East Coast climbed 55% to $3,900 per 40-foot container. West Coast prices jumped 63% to more than $2,700 ahead of expected cargo diversions to avoid Red Sea-related issues.” While these are serious increases, they are nowhere near those fueled by the prior pandemic: “$14,000
per 40-foot container for Asia to North Europe and the Mediterranean and $22,000 for Asia to North America’s East Coast” ( reut.rs/ 48T2FTv ).
Rate increases like these are no longer acceptable to consumer pocketbooks already stretched by inflation. Buying (and manufacturing) local makes economic sense today, by reducing the direct costs of global shipping, as well as eliminating the costs of delays by events that delay the shipping process – weather, disease, labor disputes. The lack of a logical reason to purchase globally – in the face of so many opportunities for delay and freight cost increases – supports the idea that manufacturing in the U.S. is likely to continue its renaissance. 

Boardroom Sentiment
Bank of America strategist, Savita Subramanian, posted a May 2023 note to clients that mentions of reshoring on earnings calls from S&P 500 CEOs have risen 128% year over year (cnb.cx/3vYoZMY). S&P 500 companies produce durable manufactured goods that need precision machined products to function – automotive, appliance and aerospace to name a few – so a mention by CEOs of these companies is certainly a forward-looking indicator of their intentions and actions in this space.
According to The Conference Board “Executive mentions of nearshoring/reshoring/onshoring in earnings calls and conferences are up 1,100% since the start of the pandemic” (bit.ly/PMPA-PM0324e). Up 1,100%. That’s convincing. And they are the customers for what we make in our precision machining shops.

Chinese Manufacturing
Since 2001, when China became a member of the World Trade Organization, (WTO) China has been seen as the “workshop to the world:’ This narrative has diminished as crises in real estate, high unemployment and a crackdown on its technology sector have dampened China’s growth, in addition to a shrinking population. According to Statista, China’s labor force peaked at 800.91 million in 2015; in 2022, it had declined to 768.63 million (bit.ly/ PMPA-PM0324f).
Nor is Chinese labor a low-cost bargain. According to Global Data, “China’s labor cost index in 2021 stood at 138. The index recorded a growth of 2.8% in 2021 compared to the previous year. Between 2010-2021, the index in China increased by 37.9%” (bit.ly/PMPA­PM0324g). Up 37.98%. China GDP is also declining, as its “share of Global GDP fell in dollar terms for the first time in 29 years:’ according to NikkeiAsia ( s.nikkei.com/ 48KxFVD ).
What are the “strong tailwinds” pushing the onshoring, reshoring and nearshoring trend in manufacturing today? We see the strong boom in new construction for manufacturing as one. Increasing FDI counts as another. Chaos in supply chains and out of control shipping costs are another factor convincing executives to buy local.
Executives themselves continue to announce their plans to bring manufacturing back, and in China, the demographics, and the economic data are showing that the economy may have peaked in terms of its output as a share of global GDP. And I haven’t even mentioned­ U.S. government investments, incentives and efforts to promote domestic production of semiconductor chips and other high-technology products.
These are strong tailwinds. I’m not a weather forecaster, but the data I am seeing leads me to believe that manufacturing and manufacturing employment will be strong for the foreseeable future.

Author

Miles Free III is the PMPA Director of Industry Affairs with over 50 years of experience in the areas of manufacturing, quality and steelmaking. Miles’ podcast is at pmpa.org/podcast. Email Miles

How Do You Know What To Do Next?

Do modern, quality tools provide an answer?

by Miles Free III

Director of Industry Affairs, PMPA

Published February 1, 2024

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How do you know what to do next? Seriously. Do you follow specific work instructions? Standard work? A process flow chart? Just habit? What if the usual stimulus is not present? How do you decide what to do next?
Theodore Roosevelt isn’t quoted or often remembered these days, but my grandfather shared a quote that is often attributed to Teddy: ”In any moment of decision, the best thing that you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.” So, let’s just consider this quote and see how it can apply to our work, and our shops’ success.

The Best Thing That You Can Do Is The Right Thing
Well, that seems obvious. Do the right thing. Ok. What is the right thing to do? In this exact moment, how will we know? Th at is the issue. How do we know, judge or determine what is the right thing to do?
“In the first place, do no harm,” comes to mind, providing us a guard rail or signpost on what we should or shouldn’t do. If it doesn’t protect the customer — the entity that brings our business demand then it is clearly the wrong thing to do. But doing no harm could also be taken as an instruction to do nothing. And that, Teddy states, is the worst thing. So, we need more than just a prohibition on doing harm. Operating at our highest and best use is one of my foundational principles. This tells me to do, but not what to do. We can do things that are within our scope — our responsibilities and authorities. But what to do?

This is where the tools of quality really help. Standard work tells us the What, the When and the How. Standard work is by definition the current best practice for performing a process. When combined with the practice of continuous improvement, it will answer the question that most entrepreneurs mistakenly ask when trying to decide what to do next…“What can I do that will make me the most money?” Th is is absolutely the wrong question, as shown by how it worked out when employed by the folks at Enron. We all know how that ended.

After the standard work is completed, perhaps your organization has (or needs) standing instructions. “If you have time to lean, you have time to clean,” was the motto at one of my early jobs. It stands the test of time and I wonder what other similar wisdom might be added to make a list of standing instructions for our precision machining shops? 

When I set out to write this piece, I was sure that “do the next best thing” would be the inevitable conclusion. But Teddy’s dictum —“doing the wrong thing is better than doing nothing” — gives me pause. In my world, we are performers not employees, and our pay is compensation for our performance. To perform is to do something, not for us to do nothing. And certainly not for us to do the wrong thing.

So back to the initial question how do we know what to do next? In our shops, the ERP, the scheduling software, the foreman or the production planner will generally have this covered. But those moments between jobs, projects and assignments…how do we know?

On our PMPA Mastery Program visits last year, we visited several shops that were practicing not 5-S, but
6-S. What is 6-S? Well, in the United States, we all know “safety first,” so add to that the 5-S method — Sort. Set in order. Shine. Standardize. Sustain. Takes that “time to lean, time to clean” to another level, indeed. So perhaps, as shown on the shop tours we made, 6-S is indeed our industry’s standing instructions.

The initial question was how do we know what to do next? My anticipated answer was “do the next best thing.” Perhaps when we are not at work that answer will do. But frankly, it seems vague and also highly dependent on one’s own values. But having reflected on this, I am certain that when no other work has been assigned, following the 6-S method in the area for which we have responsibility just might be that “next best thing.” What do you think? I would love to get your take (my email is below.)

Author

Miles Free III is the PMPA Director of Industry Affairs with over 50 years of experience in the areas of manufacturing, quality and steelmaking. Miles’ podcast is at pmpa.org/podcast. Email Miles

New Thinking from the New Generation
for the New Year

“We have to learn to think in a new way.”
—Albert Einstein

by Miles Free III

Director of Industry Affairs, PMPA

Published January 1, 2024

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Rather than inaugurate this year with a list of resolutions or prognostications that may or may not be of interest or value, I’d like to share some of the new thinking
from the new generation of industry leaders that I have encountered over the past year. Trigger warning: if you are a fan of continuous improvement, this article’s message may be a bit unexpected.

Incremental Improvement
I met Max Kocher, production manager of grinding at Paul Horn, while visiting Horn Technology Days, and was impressed by the aspirations that were built into his thinking. Max is a convincingly positive ambassador for the company’s commitment to culture and craft, but shocked me when he spoke dismissively of continuous improvement. Here is what he said: “Incremental improvement is insufficient for the future that we intend.”

As a practitioner and leader of continuous improvement, I found it humbling to fi nd that my incremental improvement philosophy had suddenly become “insufficient” in the eyes and mind of this new-generation production manager. Incremental, continuous improvement has been my daily experience and top priority in manufacturing — and life — since being separated from U.S. Steel in 1984, when the domestic steel mills were losing the quality battle against foreign mills. Continuous improvement and statistical and quality tools helped us to win back that business and create processes operating at zero parts per million across multiple years for our automotive production processes. Continuous improvement was sufficient for me.

Max quotes Wolfgang Grupp CEO at Trigema to explain. “Mr. Grupp says, ‘If you have a big problem, you are an idiot. Every big problem was once a small problem.
Fix it when it’s small.’”

This is puzzling. Fixing it when it is small sounds a lot like incremental improvement to me. But Max explains that small problems should not even be tolerated — they should be eradicated, not incrementally improved.

Root causes should be identified and eliminated. No incremental improvement bandages. Intolerance for
insufficient processes. Confronting and eliminating them. Eliminating small problems is not incremental improvement in this worldview. It is a professional obligation.
Th is view does not exactly match my mental model of incremental improvement. Does it match yours?
Wouldn’t we be happy to reduce the impact of a small problem in our process, even if we had not eliminated it? Incremental, continuous improvement, right? Not so.
Max and his mentor are giving us a new value: intolerance for process failures. I will embrace my ‘intolerance’ in this new year. Will you join me?

But Wait, There’s More
Max’s vision also evidences a recalibration of our motivation and intention, “…is insufficient for the future we intend.” Give that a few minutes of thought. “Th e future we intend.” What is the role of intention in our manufacturing practice? With serious reflection, one can get fairly easily to the idea that they intend to make good parts. Th at they intend to not cause waste or excess scrap. Th at they intend to identify some improvements to reduce costs and help sustain the business as a commercial enterprise.
These ideas do not sound like they are anywhere near the “future that we intend” vision that Max has shared.

What Does That Future Look Like?
Here is a glimpse of the Horn view – of the present – from CEO Markus Horn, “We will continue to develop and master the tools needed embrace the technological advancements and new developments in physics that will shape the future … of the world:’

Embrace technological advancements and new developments in physics – nothing is incremental in these words. These words show a vision that is far more ambitious than a mere “better tomorrow than it was today” worldview. These words evidence a commitment to mastery- not only of our culture, craft, and processes, but a commitment to challenge the very limits of our scientific knowledge that we might provide; not better products for our customers to buy, but better solutions to our customers’ problems. Solutions that might not even resemble our current product offerings.

What is the Future That You Intend?
Is it just like today, only a little bit better? That was my thinking until my conversation with Max and with Markus. Until I met this new generation and considered their thinking. Thank you, Max and Markus, for challenging me to reconsider, “What is exactly the future that I intend?” Our approach needs to be a much more aggressive vision of what must and needs to be done, if it is to be worthy of our investment, time, and attention.

What is the future that you intend? Will you get there, a single step at a time? Tradition suggests yes. But this new generation is showing us that those steps need not be incremental, nor baby steps. Perhaps, we need to take a few leaps as well. Happy New Year, 2024. What is the future that you intend?

Author

Miles Free III is the PMPA Director of Industry Affairs with over 50 years of experience in the areas of manufacturing, quality and steelmaking. Miles’ podcast is at pmpa.org/podcast. Email Miles