Kettering alumni discuss national ‘insourcing’ trend
Many companies are now realizing the value in bringing manufacturing jobs back to America. The government is also looking at ways to incentivize companies to ‘insource.’
As manufacturing jobs in the United States dwindled over the last two decades, many analysts believed that America’s status as the largest manufacturing country in the world would be diminished and the country might permanently shift to a more service-based economy. Furthermore, according to the concerns, this exodus would continue to erode our world leadership position. Andy Grove, retired Chairman of Intel, was recently quoted in MIT’s Technology Review magazine saying, “The received wisdom is that ‘everybody knows manufacturing in the U.S. is dead.’ If you believe those things and act on them, they're going to be true.”
Now, as Grove’s comments suggest, that doomsday line of thinking when it comes to Amrican manufacturing is transforming. Many companies are now realizing the value in bringing manufacturing jobs back to America. The government is also looking at ways to incentivize companies to ‘insource’ – bring jobs back to America that were previously outsourced to other countries. In January, President Barack Obama hosted an insourcing forum at the White House and proposed tax breaks for companies who insource jobs. Returning manufacturing jobs to America has also been a major talking point among all of this year’s Republican presidential candidates, so insourcing has become a trend that has bi-partisan appeal.
As the No. 1 Industrial/Manufacturing Engineering non-PhD granting university in the country according to U.S. News and World Report, Kettering is uniquely positioned to be a leader in producing a workforce for these growing manufacturing needs. Dr. Lucy King, professor of Industrial and Manufacturing Engineering, believes that an increase in manufacturing jobs could lead to an increase in students pursuing that career path at Kettering.
“Manufacturing hasn’t been emphasized as much because jobs were going to other countries,” King said. “What we need to do at Kettering is gear up again. Our students are very good with designing and improving processes. They are educated to be truly theory and practice integrated. More manufacturing jobs could absolutely mean more interest in Kettering’s IE/Manufacturing programs and students who complete it.”
Richard Johnson, a 1977 Kettering graduate who is currently the Senior Account Manager for FANUC Robotics America in Rochester Hills, Mich., has specific insight into the importance of keeping manufacturing in-house rather than out-sourcing it.
“There is a great benefit to having the product engineers able to walk the floor and learn about issues with the manufacturing process,” Johnson said. “They can then redesign some design features to correct these issues. When this involves a 14 hour flight to and from the facility and then there is a language barrier, it just doesn’t happen in a timely manner. Companies develop special ways of manufacturing their product over time. When the product is done in their facility, these ‘trade secrets’ can be kept within their company. When the products are produced in a low wage country, they must be taught these secrets and they become less secure. Today the U.S. is the world’s largest producer of manufactured goods in the world. If we allow this expertise to move offshore, it will affect our trade imbalance, and the standard of living for future generations of U.S. citizens.”
Another Kettering graduate also has firsthand knowledge that manufacturing jobs in America will be on the rise. Christa L. Glassburn, who graduated from Kettering in 2002 with a degree in Manufacturing Systems Engineering, is currently the Chief Operating Officer of Pyott-Boone Electronics in Tazewell, Va. She’s also a strong proponent of insourcing. Currently, Pyott-Boone is in the process of moving all of its manufacturing jobs back to the U.S.
“The decision (to bring jobs back) for us really came down to already having a skilled workforce which, with a few days of training, could easily make the new products in addition to our current products,” Glassburn said. “We aren’t a high volume manufacturer but our products are electronic in nature and require employees who can build and assemble electronic products to include manufacturing of PCB boards and cable assemblies. Our products have a high profit margin but that is because our customers rely on our ability to supply any of our 250 finish good part numbers within a few days, if not a few hours, of an order. When a mine is shut down for a violation, time is money. Forecasting is difficult in our industry and with all of our parts assembled manually, we need to have the ability to change directions at a moment’s notice. Because of that, we need to have employees who have the skills necessary to switch between products on an hourly basis and to make multiple products in a shift. In my opinion, outsourcing works best when you have a product that you can produce in high volume with little variability. With a product like that, you can easily set up a production facility to handle the high attrition typically seen in international manufacturing and can invest in error proofing techniques to ensure quality products.” Pyott-Boone Electronics (PBE), which builds high tech monitoring and communications equipment for mine safety and productivity that is used all over the world, is insourcing jobs by acquiring a company that is currently one of PBE’s large suppliers.
“Through the acquisition, we are able to take advantage not only of the margin that we gain from cutting out a level in the production process but we are also able to benefit from the fact that the company that we are acquiring almost 100 percent outsources its production,” Glassburn said. “The products that are outsourced include production processes that we are capable of doing in our Tazewell facility. What this really means is that we keep our employees, and our future employees, fully utilized while continuing to be able to offer a product that our customers love but for a much lower Cost of Goods Sold (COGS). We are not only cutting out the layer of margin from our supplier but multiple layers of margin from the multiple contract manufacturers required to produce PCBs, cable assemblies, and enclosures prior to final assembly and test.”
Companies began outsourcing jobs mainly because there was a perception that the labor would be cheaper. Although King says that the labor itself might have had a lower cost, there are other costs that can quickly escalate, making the savings on labor less relevant.
“The common thinking behind outsourcing was that the labor would be cheaper overseas,” King said. “But that’s a misconception. Yes, the price of the labor itself is cheap, but the baggage that comes with it is not really that cheap – shipping, quality, time are all factors that drive up the cost. By the time mass produced parts shipments come in, if there are mistakes, it’s expensive to find places to fix or remake some or all of the shipment. By the time you add all that up, you might as well do it here. You’ll be less frustrated and have more reliability and accountability with the products that you get.”
Another factor that is helping reduce labor costs, and thus making domestic manufacturing jobs more feasible, is automation.
“One way companies are decreasing their costs is by using automation like robots,” Johnson said. “Robots load faster than operators, increasing the number of parts produced in the same time period. Robots also don’t require breaks, which also increases the productivity. Experience shows that robots also produce higher quality parts since they load the machine tool more consistently without allowing the machine to cool down. The use of low cost vision (for FANUC Robotics this costs about $3,000) allows the robot to error proof the parts and check for defects that are visual.”
Glassburn says that, in her opinion, it has been a misconception over the years that abundant manufacturing jobs in the U.S. would be gone for good.
“I really think that the discussion over the years about the fact that manufacturing will never come back to the U.S. is more of a discussion on ignorance as to the true variance in manufacturing positions and the different levels of skill required for different types of manufacturing. While it is true that you can find labor rates that are much lower overseas, the challenge then falls on training, base skill level, dependability/reliability, and overall quality. The challenges that face manufacturers who have tried outsourcing have been discussed at length in multiple publications but they almost always come up with the same conclusion. While you benefit from low labor rates, you then have to deal with the high cost of continuous training, high attrition rates, and the true struggle to produce a quality product with low scrap rates. In my opinion, insourcing is picking up because companies have finally run the true cost benefit analysis with respect to the total cost to produce a part. I think that we have plenty of areas in this country where we still have the ability to do high quality manufacturing for low cost. The challenge really is in keeping your employees happy by paying a fair wage for a good days work, keeping the cost of living low and supporting employee development/quality of life by doing the right things.”
King believes that the resources are in place in America for manufacturing to thrive once again.
“All the innovations are already here,” King said. “We need to use our talents to bring manufacturing/jobs back to increase our nation’s wealth and maintain our leadership.”
Read more about Pyott-Boone.
Contact: Patrick Hayes