I have spent the last fifteen years in manufacturing and supply chain, working on and off with companies in China. I’m used to expecting the week off for Labor Day in May and Golden Week in October. I know the time difference by heart. And every year I start planning ahead for Chinese New Year starting in September to ensure we aren’t short on parts or are scheduled to start a product launch when China is essentially closed for a month.
Despite my rigid preparedness, this year was different. Workers left for Chinese New Year but the factories didn’t reopen, and we were told repeatedly for our projects that there was no schedule for reopening. I couldn’t plan for this – no one could.
On one of my projects, the buyer spent their days scouring the planet looking for the specific battery needed in the assembly to keep the US production line going. On another project, we simply waited and waited for the factory to return just to confirm the manufacturability of the proposed design change on the display.
With an early Chinese New Year and Coronavirus sweeping through China, many of our Chinese partners have been out since mid-January. Only now, over three months later, factories are beginning to come back as reports of China’s cases of COVID-19 decrease. Yet, when Coronavirus came to US shores and we sheltered in place, many of our factories remained open.
Ford Motor Company converted its production line from cars to ventilators. Hunter Douglas stopped making blinds and used the raw materials to create face masks. Other factories likewise converted their production lines nearly overnight to begin our combat of the virus causing a global pandemic. Many other factories kept fulling orders to meet demand and, while there has been some drop off in orders, it wasn’t the complete shut down like we saw in China.
All of this made me curious to see how US manufacturing has fared during the COVID crisis in comparison to China. I pulled the US Bureau of Labor and Statics numbers for manufacturing and the slight loss of 18,000 jobs in March is well within a normal monthly variation. The employment numbers out of China are unclear, but practically, I know of well over 50,000 people who were out of work in the factories with whom I have contact.
In my efforts to find a comparable number between China and the United States, I think the Purchasing Managers’ Index (PMI) tells the story. China’s PMI historically hovers around 50, but for March it plummeted to a historic low of nearly 35. In comparison, the U.S. numbers have fluctuated between 47 and 53 in the last 12 months, so 49.1 in March is well within the standard variation, again pointing at a marked difference between US and Chinese manufacturing.
Going back to conversations I had with US manufacturers in 2012, I repeatedly heard how after a decade or more that several of their old customers had grown weary of dealing with China and had brought all of their business back. For nearly eight years, I’ve worked on a handful of projects that I thought were good candidates to move overseas, Asia specifically. Yet, when I’ve run the numbers, US manufacturing has frequently been very competitive, especially once freight and overhead costs are calculated.
With what happened this year with COVID, it has only bolstered my opinion that offshoring may not make the best business sense in every instance. While Chinese manufacturing still might make sense for some projects, the challenges of manufacturing overseas needs to be seriously considered. I’m wondering if it isn’t time to take a long hard look at US manufacturing before looking internationally for new products and emerging industries.Read More