Even though I once dated a girl from New Hampshire whose father carried around a .22 Ruger in his seat cleat when he went on long bike rides and referred to NPR as "Red Radio," I try to keep an open -- read: centrist -- mind when it comes to listening to our BBC-equivalent in North America. More often than not I'm disappointed in what I hear, but sometimes there is a truly objective story featuring excellent reporting and analysis on either NPR or PBS. PBS recently featured one such interview on the News Hour with Jim Lehrer. In it, Paul Solmon, a reporter for the show, interviews a number of manufacturers in the Wisconsin area about what it will take for them to stay competitive -- not to mention drawing out a few anecdotes on the global sourcing front.
Rather than whining about low-cost competitors, one manufacturer suggests that the best way of closing the "17% gap with low-cost suppliers" is productivity. To prove the case, he points to an investment in a software application to predict and model failure in the production process. The interview next turns to a professor from the University of Wisconsin who suggests that the best way of staying competitive is doing "something on your use of materials. Reduce their cost, make the materials lighter, et cetera, the products lighter." Almost on cue, a local supplier to Harley Davidson offers an example of a single assembly where they were able to engineer out costs (previously, Harley had purchased multiple parts in its place).
The same supplier points out later in the article that they were able to evaluate material specifications and "do it just one piece ... This is the key component, the fact that we were able to put this hinge and holes assembly into the base material and eliminate these extra parts." Referring to the challenges and joys of managing longer supply chains, the supplier even suggests that Harley once lost "a whole shipment of parts, because they sank, the boat sank, or the containers fall off the boat." I suppose that adds a whole new element to the phrase "your container is on the water." But that's not even factoring in, as a Harley executive points out, the challenge if "there's a transportation disruption within China and the product can't get to the port. How do you even solve that problem if there's no airport where the parts are being produced?"
Clearly, despite these challenges, even Harley Davidson would agree that global sourcing is here to stay. But as the dollar continues to weaken against global currencies -- not to mention tax and export tariff changes within China and other countries -- domestic suppliers will once again become more competitive on both a unit and total cost basis. However, as even smaller manufacturers know, productivity and innovation is the key to preserving and even adding jobs to the manufacturing payrolls -- not to mention flexibility and the willingness of suppliers to take on other areas such as product design, vendor-managed-inventory (VMI) and just-in-time (JIT) sequencing programs. Most global suppliers can't compete with these areas. Once manufacturers begin to truly look at total costs such as inventory, transportation, etc. -- not to mention better managing cash flows in markets where credit is tightening -- the local option might become even more attractive.