Is Labor Cost All There Is?

While this magazine addresses a great many topics related to metalworking, one topic these days seems to loom largest of all. Machining work that once might have been performed in an American shop is being sent to countries with lower labor costs, most notably China. Almost everyone who receives this magazine probably has been touched by this trend. If your shop hasn’t lost work directly, you have at least heard the rumble and felt the wind as this economic outflow rushes by.

In a recent column, I argued that federal intervention offers no solution. The various actions government might take all stand to do more harm than good. But if not government, some readers asked, then what can halt this trend?

Various factors make the foreign outsourcing possible. One is consumer preference for low prices—a factor that is not likely to change. But the preferences of another sort of buyer are more fickle. Today, stock market investors essentially encourage companies to send their manufacturing far away. The apparent savings are easy to quantify. However, if enough companies suffer setbacks related to an over-reliance on foreign supply—or if that supply leads to just one Enron-style disaster—then investor attitudes about supply chains may change dramatically.

And yet, this too is a response centered outside our industry, and I’m convinced that’s the wrong place to look for a solution. One privilege of reporting on American metalworking has been the chance to witness so much ingenuity within individual shops. Through some in-house invention or an improved technique, one shop can use the same machines and cutters far more effectively than another. Little innovations alone aren’t the answer, but this creative, critical and individual view of manufacturing processes will serve us well. It may be our greatest asset.

It’s not the only one. American manufacturers can attack other countries’ labor cost advantages by making greater use of technology for using their own labor more efficiently. Meanwhile, they can build on their advantages in responsiveness and quality by shifting to processes that are leaner and more highly engineered.

This industry has a history of rising to challenges. The mobilization of U.S. manufacturing during World War II laid the foundation for an industrial boom through the following decade. A later challenge from Japanese manufacturers spurred U.S. producers to improve their quality and efficiency. Now comes China. In every generation, America must prove herself again. This is the way it should be.