Since it first emerged as a formal business strategy in the late 1980s, outsourcing to overseas partners has resulted in millions of lost U.S. jobs. And no sector has been hit harder by outsourcing than manufacturing. According to the Economic Policy Institute, 3.2 million U.S. jobs were outsourced to China alone since China’s admission into the World Trade Organization in 2001, and more than three-quarters of those jobs were in manufacturing.
Traditionally, labor unions have had limited success in reversing this trend. Well-intentioned movements to encourage consumers to “Buy American” have not stopped it either. Because, ultimately, it all comes down to the company’s bottom line: If outsourcing is an obvious financial advantage, then a company either has to take that advantage or gamble that their principled decision to forego it will help them against competitors who do.
However, outsourcing is no longer as clear of an advantage as it once was. Workers in countries that have enjoyed the benefits of outsourced American jobs are seeing their wages rise. Companies that depend heavily on overseas production are at the mercy of volatile fuel costs. And generally speaking, intellectual property protections are not as strong outside of the U.S. as they are in it.
But there’s another reason that companies are developing a renewed interest in keeping manufacturing jobs local, and even reshoring jobs that they outsourced years ago. And that reason is a new level of efficiency made possible by advances in industrial Internet of Things (IIoT) and machine-to-machine (M2M) technology.
For more than 20 years, Colorado-based FreeWave Technologies has produced industrial networking solutions, with a recent emphasis on M2M and IIoT. Earlier this month, they dismantled their manufacturing line in Boulder — but it wasn’t to outsource those jobs. They took it down in order to upgrade it, increasing efficiency and reducing cost. For FreeWave, having control of their finished goods inventory, their product quality and their intellectual property more than offsets whatever shrinking financial benefit that outsourcing manufacturing would provide.
Another aspect of outsourcing that is becoming increasingly problematic is its inflexibility. Working with a manufacturing partner on the other side of the world puts a company at the mercy of shipping times, customs inspections, weather delays and other unforeseen scheduling issues. Domestic manufacturing allows for greater flexibility and the potential to take advantage of distributed manufacturing.
Distributed manufacturing connects companies to a network of engineers and manufacturers who have the right expertise and some free production capacity. Finding a local manufacturer helps to offset higher labor costs with reduced logistics costs, and helping manufacturers fill excess capacity makes it a win for both parties.
The flexibility of distributed manufacturing made possible with connected technologies also lets companies move their supply chains from a forecast-driven model to a demand-driven model. By expanding planning beyond a demand estimate based on historical data and market conditions, manufacturers can gauge true customer demand with data science algorithms to help identify their lowest-cost, highest-profit customers and integrate relevant data in real time.
By this point, you might be thinking that all of this sounds good, but what’s the evidence that outsourcing is falling out of fashion, and that connected technologies are helping to reshore lost manufacturing jobs?
Much of the data is anecdotal, but it’s probably not entirely coincidental that, under the Obama administration, U.S. manufacturing has increased 45%. 2013 was the “turnaround year,” when the number of jobs leaving the U.S. equaled the number of jobs returning. And while it’s unlikely that we’ll ever return to the record level of U.S. manufacturing that we saw in the 1970’s, connected manufacturing is doing its part to convince U.S. companies that there’s a strong case to be made for reshoring.
About your guest blogger: Bryan Stratton is the Communications Director for Rivetry, an IoT-focused product development company in Portland, OR that connects people and technology in new ways by bringing together digital & physical products to deliver meaningful and innovative user experiences.