Commerce.gov is getting a facelift soon. See the new design.
Syndicate content

Blog Category: Chief Economist Sue Helper

New tool shows manufacturing in America carries huge potential savings; a reshoring success “toy story”

New tool shows manufacturing in America carries huge potential savings; a reshoring success “toy story”

Guest blog by Dr. Sue Helper, Chief Economist, Economics and Statistics Administration

This week, as we celebrate the country’s vital manufacturing sector, we are excited to unveil a new tool that will allow manufacturers to calculate potentially significant savings that can be realized by manufacturing in America.

With the first iteration of Assess Costs Everywhere (ACE), we assisted manufacturers in deciding where to locate their operations by examining 10 cost and risk factors they should consider.  This week, we present “the Cost Differential Frontier,” or CDF, as part of ACE 2.0.  Developed by economists at the University of Lausanne, this calculator serves as a framework to consider total inventory costs and risks. 

ACE 1.0 examined factors such as labor; trade financing and regulatory compliance costs; product quality; shipping; travel and oversight; inventory; intellectual property; political/security risks; and other inputs to gain a better understanding about the sometimes hidden costs associated with manufacturing location decisions. Great work is underway to further our understanding of the financial implications of these factors.  Applying CDF, businesses for the first time can quantify potential savings that would be derived from reducing lead time, in conjunction with other factors. 

Because customer demand often fluctuates unexpectedly, companies should carefully consider the value of a domestic supply chain with shorter lead times.  Using offshore suppliers increases the time between order and delivery, often by months. As a result, the buyer must place the order based on a forecast.  As the lead time gets longer, the range of demand levels that must be considered becomes wider.  These fluctuations lead to costly stock-outs or overstocks.  The savings from offshoring may need to be large (20 percent or more) to compensate for these mismatch costs between supply and demand. Applying CDF, manufacturers can calculate exactly how the long supply chains and uncertainty add large hidden costs to production.

Moreover, real-life examples such as the successful reshoring story of U.S. toy manufacturer K’NEX demonstrate that the promise of ACE is more than just theoretical. Indeed, with ACE and CDF, a truly compelling case for reshoring is emerging.

Manufacturing: A New Commerce Department Report Shows Renewed Expansion

Guest blog post by Dr.Sue Helper, Chief Economist, U.S. Department of Commerce

The U.S. manufacturing sector is rebounding at a rate unseen since the late 1990s.  For the first time in more than a decade, output and employment are steadily and simultaneously increasing. A new Commerce Department report, Manufacturing Since the Great Recession, provides an overview of the resurgence of this important economic sector, examining production, international trade and the labor market.

Some of the key findings included in the report are:

  • Manufacturing output has grown 38 percent since the second quarter of 2009 when the Great Recession ended, and accounts for 19 percent of the rise in real gross domestic product (GDP) since that time;
  • From March 2010 through May 2014, the manufacturing sector has added 646,000 jobs with an additional 243,000 positions yet to be filled. This is more than a cyclical rebound; the US has gained about four times as many manufacturing jobs since 2009 as would be expected from cyclical factors alone; and,
  • In 2013, average annual weekly hours for production workers in the manufacturing sector were at their highest level since the mid-1940s.

Manufacturing jobs are good jobs: workers earn 16 percent more in manufacturing jobs (in combined wages and benefits) than they would elsewhere. Not surprisingly, quit rates are also lower than in any non-government sector.