A new survey of sourcing executives by Panjiva asked where U.S. manufacturing is headed. One-hundred and fifty executives replied – two-thirds were buyers, the rest suppliers. These decision makers had a clear consensus on America’s competitive advantage: in short, it’s about turnaround time.
Panjiva CEO Josh Green said it makes sense for US manufacturers to deliver shorter lead times. Shorter lead times mean firms can capture more revenue by responding quickly to changes in consumer behavior in the world’s most important market.
US apparel manufacturing has been getting a lot of attention recently due in large part to a spate of articles in the New York Times and other publications highlighting growing automation, increases in production capacity and a slowly growing workforce. There’s a shortage of workers that are willing to take apparel manufacturing jobs, but new training programs are addressing that problem.
The press has made progress in explaining current U.S. capabilities, but it hasn’t made much headway in extrapolating current trends to a picture of future manufacturing. The new survey shows that industry decision makers know they’d like U.S. manufacturing to go toward quick turn goods that can benefit from the geographic advantage of making in the U.S.
“Let’s focus on quick response capabilities – let’s focus on what we’re good at,” said Green.
This news comes in contrast to earlier reports from the California Fashion Association, which pushed the idea that U.S. competitive advantage lies in making small batches of very high quality goods, like California denim.
This approach aims to address the main competitive disadvantage the U.S. faces–namely, its high price of labor. By focusing on goods that command a higher price point, the total share of labor in a garment’s final price is lower, shifting the focus toward aspects of manufacturing where the U.S. has strength. The low cost of transportation, strong existing infrastructure network, high level of technology, productivity and quality, and the low cost of energy are all strategic assets for U.S. manufacturing.
This new survey suggests that geography may actually be more important than those factors. While being close to market certainly factors into the cost of transportation, its real import may be in lowering the time from design to retail.
The jury is still out on which approach will dominate; likely, some firms will specialize in high value-add and other firms will focus on quick-turn. Income disparity in the U.S. is a major factor in which strategy will prevail. The hollowing out of the middle class means there are fewer opportunities to sell mid-priced products and more openings for higher priced goods and, on the other end of the spectrum, lower priced goods.
The low priced market can’t sell on quality, but it may be able to sell on novelty, through quick-turn and highly automated production. The higher priced market, on the other hand, generally consists of more durable goods and styles that don’t necessarily benefit from sourcing nearby.
According to Green, most firms are already sourcing some goods domestically and there is an interest in sourcing more. However, investment in manufacturing has been anemic in the U.S. for some time, meaning that existing capabilities may not be able to keep pace with demand. The question becomes, what will unleash the kind of investment needed to create the next generation of apparel manufacturers?
Green expects that Wal-Mart’s recent commitment to source American made products may help. If manufacturers are confident that there will be a market for their goods, they will be more likely to invest in new equipment and automation technology – trends that will continue lowering the share of labor in the final product price.
However, the attempt to re-shore a considerable amount of manufacturing is not without its challenges. As reported recently in the New York Times, a dearth of skilled labor in the U.S. has made it tough for companies to re-shore their manufacturing back to American soil. The reduced supply of labor has hit the apparel industry particularly hard, inducing a sharp increase in wage inflation for cut-and-sew workers, who have seen their compensation spike 13.3% between 2007 and 2012.
Take Minneapolis as an example. While the city employs more than 1.75 million workers a meager 860 have jobs as machine sewers, a paltry fraction of the nationwide total of 142,000. Speaking to the New York Times, Airtex Design Group Mike Miller said, “The sad truth is, we put ads in the paper and not many people show up.”
And the dichotomy between speed or
Whether quality or speed prevails, the important thing is to rebuild U.S. manufacturing around a real competitive advantage. Unlike prior Made in USA campaigns, which largely relied on nationalism to get consumers to buy domestic, a true American manufacturing renaissance would be built on something we do better than anyone else. With this in mind, there will not be a large-scale return of labor-intensive manufacturing in the United States, the survey notes. The U.S. can compete on speed or quality, but it will never compete on the cost of labor.