is 'made in the usa' back in vogue?

I S ‘ M A D E I N T H E U S A ’ B A C K I N V O G U E ?I N 2 0 1 7 , P O L I T I C S , E C O N O M I C S A N D T E C H N O L O G Y C O U L DR E I N V I G O R AT E M A N U F A C T U R I N G I N A M E R I C A

I S ‘ M A D E I N T H E U S A ’ B A C K I N V O G U E ?

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I S ‘ M A D E I N T H E U S A ’ B A C K I N V O G U E ? I N T E L L I G E N C E N O D E

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T O R E S H O R E O R N O T T O R E S H O R E ? , M A N U F A C T U R E R S W O N D E R

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Y E S , ‘ M A D E I N T H E U S A ’ I S B A C K I N V O G U E

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N O , ‘ M A D E I N T H E U S A ’ I S N O T B A C K I N V O G U E

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I N T R O D U C T I O NAs companies strive to succeed by protecting profitability and real people, there’s no place like home. (Maybe.)

Faced with disruptive international and industry trends, US com-panies in diverse sectors – ranging from technology to automotive and apparel – are debating the pros and cons of manufacturing goods in America to gain a competitive advantage.

Global brands like Apple, Ford and Nike have examined how they can balance the economic and ethical factors that weigh on their decision to manufacture products in the US or abroad. Domestic manufacturing, also called reshoring, means companies relocate their factories in the US rather than foreign markets, where labor costs tend to be far lower.

To make profitable decisions for your own company, consider the factors for and against offering products that are ‘Made in the USA.’

‘To Reshore or Not to Reshore?’, Manufacturers WonderIn recent decades, manufacturing plants in many states in the US midwest have downsized or closed due to offshoring – outsourc-ing manufacturing to foreign nations that offer such business benefits as cheaper labor.

The US Bureau of Labor Statistics states the US currently has more than 12 million active manufacturing jobs, a decrease of 29% since 2000.

As such, reshoring has grown in popularity as a way to reinvig-orate the US manufacturing sector, particularly as hidden costs have started to outweigh the benefits of sending production out of the country.

Retailers’ Top PressuresDeloitte’s recent survey of apparel, general merchandise and grocery retailers found companies face a diverse set of sourcing pressures related to product cost, quality and speed to market. The three top pressures facing retailers are: 1. Raw material cost increases and/or volatility 2. Demand for increased speed to market 3. Evolving product trends causing shifts in consumer

demand

To combat these consumer and competitive pressures, compa-nies’ top emerging strategic response is to reshore production to domestic vendors.

This report shares the reasons why some companies embrace manufacturing in the US – and why othersmanufacture abroad.

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1. The Politics of Protectionism:

Recent political trends suggest reshoring would protect and promote US manufacturing jobs. One of US President Donald Trump’s consistent campaign promises was to bring jobs back to America. During his very first day in the White House, Trump took steps to support the domestic economy and local job creation, including manufacturing, by renegotiating and reversing planned participation in economic alliances and trade agreements, such as the North American Free Trade Agreement (NAFTA) and Trans-Pacific Partnership (TPP), respectively.

Critics of these global trade agreements say the deals make it easier and cheaper to make products overseas, eliminating manufacturing jobs that blue-collar workers desperately need. In a 2010 report, the Economic Policy Institute estimated that US trade deficits with Mexico had displaced 682,900 US jobs since the implementation of NAFTA in 1994. Since 2000, the US has lost 5 million manufacturing jobs, according to the Bureau of Labor Statistics.[i]

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In recent years, government organizations have tried to boost manufacturing in the US by “repatriating operations and incentivizing companies to keep production within the country.” As a result, several big brands such as General Electric, Ford and Boeing have brought some of their offshore production back to the US.

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F O R M O R E W H I T E PA P E R Swww.intelligencenode.com

2. Consumer Demand for Domestic and Local Products:

While global retail and e-commerce strategies offer the allure of a vast, exotic marketplace, more consumers prefer to shop close to home. That’s because the “buy local” movement has grown in popularity among businesses and consumers alike.

A 2015 Consumer Reports survey found 8 in 10 Americans pre-fer to buy an item made in America rather than one imported from abroad. In addition, more than 60% said they would pay 10% more for a product displaying the “Made in USA” tag.

Another study found that by spending $100 at a local business, $68 stays in the local economy. By spending the same amount at a large, multinational business, only $43 stays in the local economy. Companies build goodwill by investing in the local community, and consumers feel good for supporting local people and jobs.

3. ‘Made in the USA’ as a Competitive Advantage:

American Apparel and Shinola differentiate their brand by manufacturing some or all of their goods in the United States. Even new apparel startups like Zady and Reformation have chosen to set their brands apart by adopting a ‘Made in America’ strategy.

Focusing on US production can give these companies greater quality control, accelerate speed to market and make supply chain logistics smoother, all of which contribute to a superior customer experience and competitive advantage.


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“WE ARE SEEING MORE

EVIDENCE OF AN AMERICANMANUFACTURING RENAISSANCE.

”- Harold L. Sirkin, Senior Partner,

Boston Consulting Group

4. ‘Made in the USA’ as a Competitive Advantage:

A recent Boston Consulting Group (BCG) survey found a significant shift in US attitudes toward manufacturing in America. In addition to “rising wages outside the US, executives must weigh such factors as logistics, inventory costs, and ease of doing business” when they make manufacturing decisions.

When BCG surveyed senior manufacturing executives in 2015, 31% said their companies are most likely to add production capacity in the US within five years for goods sold in the US, up from 26% in 2013. BCG also found the share of US-based manufacturing companies actively reshoring production increased by 9% since 2014 and by an astonishing 250% since 2012, as shown by the following chart.

BCG also found 31% of the companies surveyed are most likely to add production capacity in the US within five years for goods sold in the US, up from 26% in 2013.

THE TREND OF THE YEAR-OVER-YEAR(YOY) INCREASES IN COMPANIES

ACTIVELY RESHORING HAS CONTINUED

20

15

10

5

0 2012 2013 2015

Yes, we are already actively doing this

+88%

+31%

2012 17

13

7

Sources: BCG Manufacturing Survey, February 2012, August 2013, August 2014, and September 2015Note: Numbers in the bar charts have been rounded; percentage changes outside the bar charts are based on the actual numbers before rounding.Question asked: “Given the fact that China’s wage costs are expected to grow, do you expect your company will move manufacturing to the United States?” Question asked only of companies that currently manufacture in China. N = 132.

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5. Technology Drives Efficiency in the US:

Investment in technology and other advanced manufacturing can further drive production efficiency and US competitiveness. For Made-in-America brands to compete with foreign fast fashion powerhouses like Spanish retailer Zara on price and efficiency, they will need to invest in automation and robotics to boost speed and flexibility.

That’s because Zara’s ability to keep costs low involves modest budgets for advertising and designers and, more importantly, shrewd operational discipline. Zara operates “the most agile supply chain in the world,” which allows the brand to promptly respond to changes in consumer demand. Even the company’s sourcing decisions reflect a value mindset: While more expensive companies boast of their premium fabrics, Zara deliberately buys fabrics of sufficient quality from suppliers willing to offer an affordable price.

In response, US manufacturers must use technology to uncover ways to keep costs low by eliminating unnecessary waste across their supply chain and internal operations. For instance, automation can replace some employees, which reduces expensive US labor costs. After labor, energy consumption is the second-highest cost for manufacturers. Modern machinery allows manufacturers to run opera-tions slower and more efficiently to reduce costs without compromising productivity.


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6. Reshoring Offers Diverse Business Benefits:

Key factors driving the expansion of manufacturing capacity in the US include costs, access to a skilled workforce, and increased local control to drive quality and innovation.

Boosting US manufacturing can also reduce supply chain risk, simplify logistics, reduce communication barriers and eliminate the stress of chasing overseas suppliers. As the middle class grows in developing countries, workers start to demand higher wages, which reduces the low cost advantage of labor for US companies manufacturing overseas.

As BCG discovered, these are the top 5 reasons US companies decided to reshore their manufacturing: • Shorten the supply chain (76%)• Reduce shipping costs (70%)• Make it easier to do business (66%)• Be closer to customers (64%)• Provide local control over manufacturing processes (63%)

When deciding to locate production in the US or abroad, executives also consider such factors such as inventory costs, and risks associ-ated with operating extended supply chains.

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7. Desirable Benefits for Apparel Brands:

According to consulting firm A.T. Kearney’s Reshoring Index, apparel was the third-highest industry for reshoring in the US in 2014, accounting for 12% of total reshoring. The US Bureau of Economic Analysis found the US apparel industry’s output increased by 4% from 2013 to 2014, making it the country’s second-fastest growing manufacturing sector and representing “the first time we’ve seen in an increase in apparel for at least a decade” Increasing costs in less developing countries makes globalization less appealing than in previous years.

8. Reshoring Can Lead to Success:

At least half (50-70%) of surveyed retailers that have attempted reshoring have been successful. Among the retailers with successful reshoring efforts, Deloitte reports 65% also improved top-line revenue. The highest benefit reported by 77% of successful reshorers was increased visibility into the retailer’s offshore production cost structure, indicating some retailers may be using reshoring to drive better insights across their extended supply chains.

Success Stories

Brooks Brothers, which calls itself America’s “oldest clothing retailer,” has three US facto-ries, which manufacture 45-50% of the company’s clothing, 10% of its shirts, and 100% of its ties. As John Martynec, senior vice president of manufacturing at Brooks Brothers said, “We’re starting to feel resonance in producing in the US again.” The company now makes smaller batches to boost agility and speed up turnaround times to accurately respond to consumer demand and reduce excess inventory.

In addition, online retailer Everlane is so committed to open communication with con-sumers and supply chain partners that its tagline is “Radical transparency.” Everlane’s business model fully embraces information sharing, disclosing such details as where its products are manufactured (both in the US and abroad), product costs, company profits, and both positive and negative customer experiences.

New Balance, J Brand, Save Khaki, Karen Kane, and many other fashion brands also have domestic supply chains in place.


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1. Economics favor globalization:

Industry experts say many US manufacturers are unable to compete with offshore competitors due to foreign exchange issues, a poorly skilled workforce, gaps in training, and high corporate tax rates.

To counter protectionists’ arguments to end international trade agreements like NAFTA, the US Chamber of Commerce said in 2015 that trade with Canada and Mexico supports 14 million US jobs, and 5 million are due to the increase in trade generated NAFTA over the last 20 years. During that time, US trade with Mexico and Canada has almost quadrupled to $1.3 trillion, and the two countries buy more than a third of US merchandise exports.

In the apparel sector, the economic rationale for globalization and free trade is most dramatic. Until the 1960s, America was still making 95% of its clothes. In a sharp contrast, in 2015 a mere 3% was produced in the US and a staggering 97% was outsourced abroad. Most fast-fashion retailers offshore their manufacturing practices to developing countries like Bangla-desh, India, Cambodia, China and Vietnam because of their low wages, lax local labor laws and agreements of free trade.

Not every US company is enamored with the idea of bringing their manufacturing operations back to American soil. The reasons com-panies choose to offshore by manufacturing products in countries outside of the US include:


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2. Reshoring Costs Can Be Exorbitant:

Tied to the favorable figures for globalization are the high costs of domestic production, particularly in fashion and apparel. “Bringing apparel manufacturing back to America in a meaning-ful way is an impossible task” due to the price of labor, warns Edward Hertzman, founder of Sourcing Journal, a publication on the apparel supply chain. “If a worker in the US makes $15 or $16 an hour, in one day they will earn more than someone in Bangladesh earns in a month.”

In addition, he says, “We don’t have trained people that could do that job. We’re no longer a country built on manufacturing. Whatever manufacturing we do have, it’s not based around the garment industry.” In addition, many companies are reluctant to reshore due to concerns about rising US health costs, regula-tory uncertainties, and unclear progress on tax reform.”

3. Affordable Foreign Labor:

The global fashion market is now an almost $3 trillion annual industry. More than a billion people (1 in 6 people worldwide) work in some part of the global fashion industry, making it the most labor-dependent industry on earth, the majority of which is outsourced into the developing world, particularly in Asia. For instance, Swedish multinational H&M is the largest clothing manufacturer in Bangladesh. Many US companies also leverage the cost advantage of inexpensive foreign labor.

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4. Skills Gap in Manufacturing:

Although the ‘Made in the USA’ strategy would boost US em-ployment, the lack of highly skilled manufacturing talent in the US limits growth. Deloitte found the US manufacturing sector needs 3.5 million manufacturing jobs in the next 10 years; how-ever 2 million of those roles will remain unfilled due to the skills gap. An emerging movement to resuscitate vocational training to boost jobs in the manufacturing sector may help to close this gap in the near future.

Over the long-term, manufacturing appears to be a less at-tractive career path among young adults. According to a 2015 survey, only 7% of millennials are interested in working in construction, retail or manufacturing.

5. Technology is Replacing Workers

Beyond cheaper labor in developing countries, the world has changed dramatically due to innovation. Retail giant Amazon recently announced it is testing Amazon Go, physical retail stores that allow grocery shoppers to completely skip a check-out line through the use of artificial intelligence, mobile iden-tification and payment technology. Innovative technology has already led Amazon to replace warehouse workers with robots.

As a CIO magazine article puts it, “Amazon.com is still figuring out how to use robots to fill store shelves, but it’s about done with clerks. With robots already able to mop the floor, and the shelf-stacking problem almost solved … the employee-free grocery store may not be far away.” So, manufacturing workers are not the only ones at risk of being replaced. This trend sug-gests the future face of retail may not be human after all.


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6. Consumers Love (and Expect) Cheap Products:

Industry experts argue cost is still king. “The entire industry is asking for cheaper prices. Brands will publicly state that that’s not the case, but, off the record, if you ask any factory it’s biggest issue right now, I don’t care what country they’re in, they’re going to say, ‘Intense pressure from their clients to lower prices,’” says Edward Hertzman of Sourcing Journal Online. A report by Moody’s states the off-price seg-ment in the US is expected to grow 6-8% from 2015 to 2020, while the overall apparel and home industry is expected to grow just 4% over the same period. Since American consumers love a deal, they may be unwilling to forego low prices.

7. Conscious Consumers Demand Ethics:

Today’s informed, savvy shoppers are more mindful and inquisitive about the companies and products they support. The trend toward conscious capitalism means shoppers are also more vocal than ever about knowing exactly what they’re buying and where it comes from. They turn to digital and social media to denounce companies running sweatshops that value profit more than people.

Globally, over 4 million people work in sweatshops and an average worker in Bangladesh makes about $67 a month or about $2 a day. Over 85% of these workers are primarily women with no health ben-efits or financial security. Unionization is illegal and working condi-tions are often unsafe. Even the tragic sweatshop collapse in Dhaka, Bangladesh, which killed more than 1000 workers, has done little to change companies’ standards for global production.

Despite companies’ well-meaning intentions to reshore and elevate the working conditions for employees, the US currently lacks the modern equipment and facilities to produce garments at mass scale. Surprisingly, many US in operation today also offer poor working con-ditions, given recent sweatshop busts in New York and Los Angeles revealing unlawful working environments.

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I M PA C T SO N D I F F E R E N T B R A N D S

Balancing the popular ‘Made in the USA’ label with practical,profitable production can be tricky, as the following companies attest:

A P P L EAlthough the technology giant has considered assembling iPhones in part in the US, Apple concluded production pric-es would more than double and the US lacks the necessary infrastructure. Apple CEO Tim Cook recently said America lacks a sufficient number of skilled workers for the production of iPhones.

WA L M A R TAd watchdog group Truth in Advertising (TINA) alerted the Federal Trade Commission (FTC) of more than 100 “decep-tive” “Made in USA” claims on Walmart.com. TINA said these products are either manufactured outside the country, made of imported parts and assembled in the U., or have conflicting or-igin information on the webpage. Wal-Mart dropped all “Made in USA” logos from its website after an FTC probe. Walmart has since redesigned the logo to state how much of a product was made domestically and how much was manufactured overseas.

S H I N O L ARegulators say a Detroit wristwatch and bike manufacturer can say “Built in Detroit,” but not “Where American is Made.” An FTC investigation determined Shinola overstated the extent to which certain Shinola products” are ‘made’ or ‘built’ in the United States. Shinola will drop the “Where American is Made” slogan and redesign watches to add, “Swiss and Imported Parts” below “Built in Detroit.”

N A S T Y G A L A N D A M E R I C A N A P PA R E LPopular e-commerce brand Nasty Gal and Millennial favou-rite American Apparel, recently declared bankruptcy. That’s because these midrange fashion brands manufacture in the US and find it hard to compete with fast-fashion rivals that can offer similar designs for lower costs by producing in developing nations. Both companies cited legal troubles and mismanage-ment for their financial troubles, they also retained most of their manufacturing within the United States.”

During the first week of 2017, Amazon and teen fashion chain Forever 21 announced they are considering acquiring American Apparel. (Canadian retailer Gildan Activewear announced its interest in the chain in late 2016.) The outcome will determine the future of an American Apparel manufacturing plant in Cali-fornia, one of the most expensive US states for labor costs.


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T H E B O T T O M L I N E :I T D E P E N D S

M A K E D ATA - D R I V E N M A N U F A C T U R I N G D E C I S I O N STo accurately estimate the true cost of production in the US and compare it to manufacturing in foreign markets, it’s essen-tial to know your numbers. Companies need data insights and analytics to clarify executive decision-making and focus on the facts.

Determine whether US-based manufacturing is viable and attractive by using data metrics that reflect consumer demand, your competitors’ strategies and cost-benefit analysis for differ-ent manufacturing locations.

In addition, the most successful retailers were significantly more likely to prepare in advance of reshoring by proactively:

• Creating a business case and detailed project plans • Evaluating domestic manufacturing production costs and

locations • Mapping raw material and component supply sources

Applying accurate, up-to-date data to each of these best prac-tices would increase the likelihood that decision-makers make smart decisions on where to manufacture their products.

T Y I N G I T A L L T O G E T H E R

To make the right decision for your company, consider the total cost of manufacturing in America or abroad. Plan ahead by weighing political, economic and ethical factors, and use data analytics to support your decision on where to locate your manufacturing investments. Knowing your numbers will help your company choose wisely, based on facts – not fads.

Data analytics can also help you to keep an eye on how your competitors respond to the Made in the USA trend. A leader among retail analytics companies, Intelligence Node is a us-er-friendly retail analytics software platform. Stay ahead of your rivals by closely following your competition and market trends with our proprietary retail analytics software, IncompetitorTM. Get quick and timely insights into your competition’s pricing, promotion and catalogue movement to plan ahead with preci-sion and confidence.

These examples for and against US-based manufacturing prove companies must weigh multiple important factors for companies be-fore they decide where to manufacture their products.

When considering whether the benefits of ‘Made in the USA’ outweigh the benefits of foreign production, executives need to know their numbers. That’s because every company’s strategy and supply chain reflect a unique bundle of costs and consumer needs.

“Companies need to look at the total cost of ownership when making sourcing decisions,” to ensure delivery, quality, intellectual property, and inventory position, says Harry Moser, Founder & President, Reshoring Initiative This means companies should perform a rigorous, product-by-product analysis of their global supply networks that fully accounts for total costs, rather than just factory wages.

In fact, there is even a third option. For companies that must remain abroad, ‘nearshoring’ – where companies bring production back to North America from Asia – is still a good alternative. “It is better for the US economy if production is brought back to Canada or Mexico,” through such trade agreements like NAFTA. “Getting it closer to the United States is more advantageous than keeping it in Asia.”

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S O U R C E SSherman, Lauren. Unravelling the Myth of ‘Made in America.’ Business of Fashion. November 7, 2016.

Weissman, Rich. Why offshoring may not be as cost-effective as it used to be. Supply Chain Dive. November 15, 2016.

Deloitte. 2015-2016 Private Label Sourcing Survey: Shifts in countries and capabilities. September 2015.

Lindsey, Kelsey. Watchdog group calls out Wal-Mart for ‘decep-tive’ Made in USA claims. Retail Dive. June 28, 2016.

Bealocalist.org

Abnett, Kate. Does Reshoring Fashion Manufacturing Make Sense? Business of Fashion. March 9, 2016.

Boston Consulting Group Reshoring of Manufacturing to the US Gains Momentum. December 10, 2016.

Boston Consulting Group. Made In America, Again: Fourth Annual Survey of U.S.-Based Manufacturing Executives. Slide-Share. December 2015.

Narang, Nitant. Supply Chain Beats Marketing: How Zara Quiet-ly Disrupted Fashion. Procurement Sense. October 24, 2016.

Tuan Nguyen. 6 Ways to get Smart and Cut Manufacturing Costs. Manufacturing Automation. January 21, 2014.

Linn, Michele. 3 Ways to Use Transparency in Content to Cut Through the Noise. Content Marketing Institute. March 1, 2016.

Hertzman, Edward. Made in the USA is More Hype Than Reality. Business of Fashion. June 15, 2014.

Sharma, Jeena. ‘Made in America’ Versus Fast Fashion. Observ-er. November 25, 2016.

Deloitte and The Manufacturing Institute. The skills gap in U.S. manufacturing: 2015 and beyond. 2015.

White, Sarah K. 5 things we know about millennials in 2015. CIO. January 11, 2016.

Sayer, Peter. After After warehouse staff, Amazon to replace store clerks with robots. CIO. December 5, 2016.

Off price apparel sales to outperform category: Moody’s. Fash-ion Network. August, 12, 2016.

Chaney, Paul. Could Your Future iPhone Sport a Made in the USA Sticker? Small Business Trends. November 29, 2016.

Shinola to drop ‘Where American is Made’ tag. Petosky News. June 21, 2016.

Sirkin, Harold L., Michael Zinser and Douglas Hohner. Made in America, Again: Why Manufacturing Will Return to the U.S. Boston Consulting Group. August 2011.

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