The Manufacturing Supply Base Shake Up — Much Ado in a Rapidly Changing Environment (Part 2)

In the first post in this series, I shared some of the findings from a recent study looking at trends in the industrial supply base, including the rise of supply disruptions and the "reshoring" of spend from China and other developing market regions back to the US. In the follow-up post today, I will share additional perspective from's Mitch Free and AJ Sweatt, who I traded e-mails with late last month on the topic. I first asked about their viewpoints towards the banking/lending situation that many of's suppliers face. I wanted to know: Is credit still tight? Do they hear anecdotes about borrowing difficulties, etc.? Mitch led off by suggesting that "Yes, credit is still very tight ... it is almost impossible to get new credit and existing lines of credit are being reduced or called."

AJ further noted that "the small and medium manufacturers I talk to say that credit is certainly tight -- the only financing of any consequence seems to be coming from the small, local banks where risk is lessened due to interpersonal legacy relationships. One other factor squeezing these guys is that buyers are showing some serious concerns about the economy AND pending regulations and charges associated with healthcare, finance reform and the environment. Buyers are holding off to see what happens, so it impacts the little guys' books, and it's a vicious cycle. I think this plays out in the latest MFGWatch numbers -- fewer shops are available to source to, so any uptick in production means they have to hire; buyers aren't seeing the demand so they're scaling back bodies to cut costs."

I was also interested in exploring the issue of "reshoring" a bit, specifically the level of activity that is going on at the moment and whether the trend would accelerate. In addition, I was curious about whether or not reshoring was just a reaction to unit price changes versus broader total cost and risk equations. Here's what Mitch and AJ had to say on this subject:

"We do think it will accelerate for a couple reasons: a) cost; and b) uncertainty about demand for their products and the need to be nimble. In addition, this is also a matter of scale. Some buyers are indeed looking at total landed costs and the impact of segregating production from R&D, as well as the agility of bringing products to market faster. Some have moved production back to or nearer to the US."

Moreover, "The 'trend' will accelerate -- but it's a drop in the bucket compared to what's been offshored at this point and too early to call it a trend. It's more Bay City Rollers than Beatles right now. It's also important to consider the political climate. A recent survey of likely voters showed > 80% were very concerned about reestablishing manufacturing production in the US. We're hearing more about that than we have in a long time. What tangible impact that will have on buyers throughout entire value chains remains to be seen. But it will increase as more companies look at the total costs of managing extended supply chains. Some can do it, and some can't."

My big question after picking AJ and Mitch's brains is whether or not reshoring will ever get beyond the "drop in the bucket" they're suggesting. If it does, re-establishing a manufacturing base in the US for the type of parts and components -- and entire supply markets, such as PCBs, footwear, etc. -- that have already moved offshore will not be easy. Early in his campaign and Presidency, Obama supported the concept of Manufacturing Extension Partnerships (MEPs), which provide low-cost consulting and training to manufacturers in lean, procurement, sales, etc.

Some of these have been very successful; others, including one in Chicago I'm familiar with, did not amount to what they could have become, despite the manufacturing legacy in the region and the need for their capabilities and programming. Perhaps a reinvigoration of this program combined with tax breaks and loan programs for small manufacturers will be the recipe we need to provide the type of support the SMB industrial supply base needs.

Interestingly, before I started Spend Matters and Lisa started MetalMiner, we thought about putting our collective energies together to buy a local manufacturer and turn it around, leveraging our collective backgrounds in direct materials sourcing, sales, operations and marketing. With the right incentives and if the right opportunity presents itself, perhaps we'll do just that in our next gig. I know it would give us both great satisfaction to create manufacturing jobs, especially where they did not exist before.

Jason Busch

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