Made in America—Good for the Country, Good for the Brand
Americans want to buy products that are made in the United States. However, they also want them to be affordable, which means the products must be competitive in price with those manufactured in China and other low-cost countries.
In 2016, an Associated Press poll showed that nearly 75 percent of Americans prefer to purchase U.S.-made goods, but only 30 percent were willing to pay more for them. Through its own surveys, the Boston Consulting Group has determined that companies can only charge about 5 percent more for products made in the U.S. Still, businesses want to build their products in America for several reasons including:
- Better quality control and safety
- Less expensive and more reliable shipping
- Shorter and more reliable supply chains
- Faster decision making
- American job creation
- The positive impact on the national economy
- “Made in America” improves the company brand
“In fact,” says Harry C. Moser, founder and president of the Reshoring Initiative, “regaining a ‘Made in America’ label is the fourth-most frequently mentioned reason for reshoring, out of the 43 reasons that we track.”
Production Efficiency Is the Key
Products that are successfully manufactured in the U.S. must be competitive in price with the same products made in offshore locations. This means that U.S. manufacturers must reduce their operational costs to be competitive with low-cost countries. A good starting point is determining total cost of ownership (TCO). This tool helps show where costs can be reduced, for both domestic manufacturers and companies that have gone offshore.
The key to manufacturing more “Made in America” products is advanced technology—Industry 4.0. According to the November 2017 McKinsey Global Institute (MGI) “Making It in America: Revitalizing Us Manufacturing” report, Industry 4.0 technologies are starting to transform manufacturing. “This new wave is driven by an explosion in the volume of available data, developments in analytics and machine learning, new forms of human-machine interaction (such as touch interfaces and augmented-reality systems) and the ability to transmit digital instructions to the physical world,” states MGI. “Such complementary technologies can be transformative when applied in industrial settings.”
Supply Chain Is Critical
Making “Made in America” affordable isn’t just about labor and material and production costs—building a short, stable and flexible supply chain of U.S. vendors is essential for success. According to MGI, the weakening of the domestic supplier base has left large U.S. manufacturers more exposed to global supply chain risk, especially to changes in trade terms or exchange rates. One McKinsey study found that inefficiencies in Original Equipment Manufacturer (OEM)-supplier interactions added up to roughly 5 percent of development, tooling and product costs in the auto industry. Having a proactive and creative supply chain can include “contracts with incentives for finding efficiencies or partner with suppliers to go after new opportunities, sharing both risk and reward,” writes MGI. “Companies also need to be engaged in strengthening the entire base of smaller manufacturers. Having an ecosystem of reliable, top-quality suppliers close at hand provides agility when new market opportunities arise.”
Whether a product can afford to be “Made in America” also depends on the delivery model.
For example, in the 1980s, massive offshoring by textile companies did severe damage to this once-vibrant U.S. industry. However, Jimmy and Stephanie MacDonald, owners of Authenticity 50, sell 100-percent “Made in America” luxury bedding with great success.
“Our production process supplies over 500-plus American skilled jobs from coast to coast,” says Stephanie MacDonald. “All parts are seed-to-stitch, right here in the United States.” Although their products cost five times more to make compared to standard bedding, they keep their products competitive, because they adopted an online sales, direct-to-consumer business model with no middlemen. “It is also a very powerful connection you can build with customers by selling direct,” says Jimmy MacDonald.
For domestic success, U.S. manufacturers must scale up their investments in technology to make competitive “Made in America” products. They need to embrace the efficiencies of Industry 4.0 to boost productivity and quality. However, an April 2016 McKinsey survey found that only 16 percent of manufacturers have an overall Industry 4.0 strategy in place.
MGI estimates that upgrading the capital base of U.S. manufacturing would require $115 billion in annual investment—much of that going to new technologies.
“Made in America” efforts have strong government support, with several bills being considered by Congress such as Made in America Manufacturing Communities Act and Made in America Act 2017.
“Helping American consumers purchase American-made products is a win-win,” says Congresswoman Kyrsten Sinema (D-AZ), co-sponsor of the Made in America Act. “It’s simple: buying American-made products supports American jobs and gives America consumers what they want.”
This is all encouraging news to Moser. “An increase in “Made in America” strengthens the U.S. manufacturing sector,” he says. “For every manufacturing job added through “Made in America,” somewhere else another 1-5 jobs are created. As more products are made here, it becomes possible to fill ecosystem niches that had hollowed out from offshoring. As those niches are filled, upstream and downstream sectors expand.”