**Washington**: Flawed sourcing decisions have led to job losses and a decline in U.S. manufacturing. Experts suggest strategies for reshoring, workforce training, and investment in automation to restore competitiveness in the industry and mitigate geopolitical risks facing the sector.
Flawed sourcing decisions have led to significant impacts on the U.S. economy, prompting introspection about the direction of procurement strategies. According to Quality Magazine, companies that prioritised cost-cutting through offshoring have contributed to millions of job losses, factory closures, and a diminishing middle class in the United States. This shift has resulted in an over-reliance on imports and a weakened capability in the nation’s defence and industrial sectors, leading to a loss in innovation and competitiveness.
Historically, the strategy employed by many C-suite executives has centred on an ‘asset-light’ model. This approach shifted focus away from manufacturing in the U.S., turning instead to outsourcing and offshoring critical tasks. In pursuit of shareholder value, firms moved essential capabilities offshore, creating a frail manufacturing ecosystem more susceptible to geopolitical risks.
Over five decades, the ramifications of this globalization have manifested in the loss of approximately six million U.S. manufacturing jobs and around 70,000 factories. The erosion of employment opportunities, coupled with reduced wages and workforce expertise, has transformed the landscape, resulting in communities once thriving on manufacturing now facing economic decline.
A prominent example of the negative consequences of these strategies is Boeing. Originally recognised as an aviation pioneer, Boeing’s trajectory altered after its 1997 merger with McDonnell-Douglas. The merger prioritised financial outcomes over engineering excellence, culminating in a significant outsourcing initiative that aimed to boost profitability through reduced costs.
The consequences of this strategy became glaringly evident during Boeing’s 787 Dreamliner program. The increase in foreign components from an average of 5% to 30%, with over 70% of design, engineering, and assembly outsourced to more than 50 suppliers, led to numerous operational hurdles. Issues such as defects in parts, delays in production, and substantial cost overruns emerged, transforming what was initially viewed as a $6 billion project into a staggering $32 billion endeavour. The complexity of a global supply chain, marred by a lack of transparency and accountability, ultimately compromised Boeing’s renowned competencies in aerospace manufacturing.
Currently, Boeing continues to face challenges, with persistent design flaws and quality issues raising concerns about its strategic decisions. The company is reportedly in the process of laying off approximately 17,000 workers, representing 10% of its global workforce, as part of an effort to realign its business model and priorities. CEO Kelly Ortberg stated, “Restoring our company requires tough decisions, and we will have to make structural changes to ensure we can stay competitive and deliver for our customers over the long term.”
To address these challenges and restore U.S. manufacturing capacity, experts have highlighted several key strategies. Firstly, businesses are encouraged to adopt appropriate metrics, including Total Cost of Ownership (TCO), to thoroughly analyse local sourcing options and associated risks. Implementing these metrics could potentially reshore 20% to 30% of currently imported goods.
Moreover, companies are urged to reconsider earlier offshoring decisions and identify existing blind spots. Geopolitical risks now stand as a major factor influencing reshoring activities. With rising tensions globally, reshoring and nearshoring are being recognised as viable strategies to counterbalance potential disruptions caused by events such as climate changes and international conflicts.
In addition, firms are advised to leverage government policy incentives that favour domestic manufacturing. Recent legislative changes, including the Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), and the CHIPS and Science Act, have spurred investments aimed at revitalising U.S. manufacturing.
Engaging in workforce training is also critical, with the expansion of manufacturing apprenticeship programmes being highlighted as a key strategy for addressing skills shortages. Recent strides suggest a positive shift, with a reported 83% increase in manufacturing apprenticeships over the last decade.
Lastly, firms are encouraged to invest in upgrading automation and smart manufacturing technologies. These advancements can alleviate labour shortages and enhance production efficiency, allowing companies to attain greater capacity utilisation.
The successful resolution of the manufacturing trade deficit within the next 20 years relies on concerted action from both government and corporations. Initiatives to enhance U.S. manufacturing competitiveness, combined with a more rapid adoption of automation, education, and strategic sourcing tools, will be pivotal in reshaping the future of the U.S. manufacturing sector.
Source: Noah Wire Services
