insourcing

rollin coal · Dec 10, 2012

Saw this article posted at another forum. Outsourcing manufacturing to China, India, etc an outdated, costly business model? http://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/

chalupa · Dec 10, 2012

Interesting article....hard to say after the Hostess debacle tho but lets hope so.....

RedForeman · Dec 11, 2012

Haven't read the article yet, but I have a little first hand experience with this in the I/T world. Those 3rd world places are dirt cheap to operate in at first. Once they have some infrastructure and the cheap labor pool gets consumed, prices go up and it's not such a savings anymore.

In areas that require any sort of specialized skill, the savings are also limited. That's what happened in my case. I was directed to place about five positions on my team (highly skilled I/T deployment) with a Bangalore operation. Turns out the smart people over there are just like our own. They don't like working nights and dealing with foreigners.

Also now with the recession and high unemployment dragging on, the PR cost or benefit depending on how a company sources their labor.

rollin coal · Dec 11, 2012

You pretty much hit the nail on the head Red without even reading it. I cut some snippets from the Atlantic link to post here for those of us, myself included, who tend to see a thread like this and not even click the link. Heck, sometimes I don't even read copy and paste quotations LoL... I just thought this was an interesting trend that might bode well for the country at large and trucking in the years ahead... some quotes:

In the midst of this revival, Immelt made a startling assertion. Writing in Harvard Business Review in March, he declared that outsourcing is "quickly becoming mostly outdated as a business model for GE Appliances." Just four years after he tried to sell Appliance Park, believing it to be a relic of an era GE had transcended, he's spending some $800 million to bring the place back to life. "I don't do that because I run a charity," he said at a public event in September. "I do that because I think we can do it here and make more money."

Immelt hasn't just changed course; he's pirouetted.
Click to expand...

Even then, changes in the global economy were coming into focus that made this more than just an exercise'changes that have continued to this day.

Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.

The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)

In dollars, wages in China are some five times what they were in 2000'and they are expected to keep rising 18 percent a year.

American unions are changing their priorities. Appliance Park's union was so fractious in the '70s and '80s that the place was known as "Strike City." That same union agreed to a two-tier wage scale in 2005'and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.

U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can't save much money chasing wages anymore.

Click to expand...

Harry Moser, an MIT-trained engineer, spent decades running a business that made machine tools. After retiring, he started an organization called the Reshoring Initiative in 2010, to help companies assess where to make their products. "The way we see it," says Moser, "about 60 percent of the companies that offshored manufacturing didn't really do the math. They looked only at the labor rate'they didn't look at the hidden costs." Moser believes that about a quarter of what's made outside the U.S. could be more profitably made at home.
Click to expand...

At the public event in September, Immelt captured the lessons of the new Appliance Park. "I think the era of inexpensive labor is basically over," he said. "People that are out there just chasing what they view as today's low-cost labor'that's yesterday's playbook."
Click to expand...

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