News Column

West Chester company moves manufacturing work back to U.S.

September 1, 2014

By Chelsey Levingston, Journal-News, Hamilton, Ohio

Sept. 01--Local manufacturers are among a growing number nationwide shifting production back to the United States from China and other low-wage countries, reversing a decades-long trend of sending factory jobs overseas where goods were cheaper to make.

Thanks to technology improvements that make American laborers more productive, and rising wages internationally, more manufacturing jobs that were once offshored are now being "reshored."

"Reshoring; I've been hearing the word for about 10 years," said Greg Knox, chief executive officer of Knox Machinery of Franklin. His company is a distributor of manufacturing equipment to local companies.

"But I have to say in the last, especially five years, since the downturn... I've absolutely seen the real impact of reshoring on manufacturing in this area."

When taking into consideration total operational costs -- wages, freight, shipping and travel times for delivery and replaced parts -- it's now less expensive to produce goods here in this area, than to produce them in China, Knox said.

"We just recently sold a very high-tech machine to a local company that had been buying parts from China that they used to make in the U.S.," Knox said. "Now, with the changing dynamics globally... that same company just bought an expensive high-tech machine from me to make those high tech components again stateside."

General Electric Co. and Whirlpool Corp. are among those corporations returning some production to America.

In 2012, GE Appliances opened a $38 million hybrid water heater manufacturing facility in Louisville, Ky., as part of a commitment to invest $1 billion and create more than 1,300 new jobs in the U.S. by 2014.

In March this year, Whirlpool announced a $40 million investment in its Greenville, Ohio, production facility that will nearly double its size and create about 400 new jobs by 2018. The facility, which currently employs about 1,000 workers and produces KitchenAid small appliances, won those jobs over China, company officials said.

According to the federal Department of Commerce, U.S. unit labor costs dropped nearly 17 percent between 2000 and 2011, meaning that productivity rose faster than labor costs. In contrast, economy-wide unit labor costs in China have spiked by more than 85 percent since 2002.

Manufacturing supports an estimated 17.4 million jobs in the U.S., or about one in six private-sector jobs, according to the National Association of Manufacturers.

In 2013, manufacturing accounted for 12.5 percent of the nation's gross domestic product representing $2.08 trillion worth of output, according to the industry group.

Ten percent of Cincinnati's economy consists of manufacturing companies employing 106,000 workers, according to state estimates.

Knox, also a member of the economic forecasting committing for the Association for Manufacturing Technology, said all the indicators driving reshoring point to sustained growth for the foreseeable future.

For example, the backlog of jet engine orders extends 20 years, rippling through the network of local suppliers to GE Aviation and other aerospace manufacturers, Knox said.

"The biggest challenge for all the manufacturing groups in the area, they all have the same top pressing problem: workforce problems," he said. "The little secret in manufacturing nationwide is there's over 6,000 manufacturing jobs unfilled right now."

"A lot of that is this work is back, but the landscape has changed a little bit. Where people used to think of manufacturing as a grunt job, that has changed," he said. "What we need now is hard working, intelligent employees."

A LOCAL CASE STUDY

West Chester Twp.-based Long-Stanton Manufacturing Co., which fabricates and assembles custom-designed components for other manufacturers, followed its customers to China in pursuit of lower costs.

Not wanting to lose business to Chinese competitors, Long-Stanton established in 2005 a foreign subsidiary in Changzhou. The metal fabricator also formed a joint venture with Lee World Industries named Legend Metal and Rubber LLC of Wuhan, China, to manufacture rubber and rubber-bonded to metal components.

The fear was that if Long-Stanton didn't expand operations abroad, it would lose business to Chinese companies or other American companies that made the move and could produce the same parts, said Marvin Cunningham, president of Long-Stanton.

No operations in West Chester Twp. were cut as a result.

"We heard that some of our larger customers are building factories over there so how long can we continue to make parts for stuff that's assembled over there?" Cunningham said.

New production lines were added in China that Long-Stanton never made in the U.S. before, and most parts were exported back to North America because labor and transportation prices were cheaper.

But over the last 10 years or so, the same factors that drew the industrial manufacturer overseas caused it to bring production back beginning in 2012. That year the Chinese factory was mothballed. However, Long-Stanton still owns a 50 percent stake in the Chinese joint venture.

The cost equation had changed. In 2006, labor was 10 percent of Long-Stanton's total operational costs in China. "It was like labor didn't matter over there," said Tom Kachovec, Long-Stanton chief operating officer.

But the share of wages representing total costs was growing 20 percent a year. China lost its cost advantage. By 2012, labor was 32 percent of costs.

Companies "use to be able to afford bad quality," Cunningham said.

But as input costs rose over the years including labor, transportation and raw materials, "we couldn't raise prices at 20 percent a year. What happened was the margins kept getting smaller, smaller and smaller," Cunningham said.

Products representing 5 percent of Long-Stanton's total sales have been re-shored -- those components that Long-Stanton made at its now closed Chinese factory and now makes in West Chester Twp.

If you add business that Long-Stanton has grown with other foreign manufacturers reshoring work to North America, it now represents about 25 percent of sales.

Going forward, Long-Stanton is bidding on contracts to win business coming to the U.S. from Chinese manufacturers.

One day this August, Long-Stanton had on its factory floor on Sutton Place a nine-foot tall water filtration system for industrial runoff that it had assembled for a Canadian customer. In an example of how reshoring has reversed the tables, the Canadian customer plans to export the product from North America back to Asia, Cunningham said.

Founded 152 years ago, Long-Stanton's 35 employees in Butler County make 1,000s of part numbers ranging from 1-inch wide metal brackets to 9-foot assemblies. Parts include a tank foot used for air compressor tanks and parts that go in airplane brakes. Workers stamp, fabricate, assemble and weld components for the aviation, rail, trucking, pressure vessel and fluid handling industries, among others.

Staff Writer Dave Larsen contributed to this report.

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(c)2014 the Journal-News (Hamilton, Ohio)

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Source: Hamilton Journal News (OH)


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