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Manufacturing back in the US

With costs rising, small businesses move production

– When Martin Rawls-Meehan started making adjustable beds in 2004, it was a foregone conclusion that key parts would be made overseas. It was cheaper to manufacture in Taiwan than in the U.S. And from Taiwan it was easier to ship to customers in Asia.

But this year, his company, Reverie, began making some of its beds entirely in a factory in New York. Shipping costs from Taiwan have soared between 50 percent and 60 percent since the company was founded.

“Shipping costs are tremendous,” he says. “I could put that money into the manufacturing side in the U.S.,” he says.

Reverie is one of a growing number of small businesses that are chipping away at the decades-old trend of manufacturing overseas. They’re doing what’s known as “reshoring,” moving production back to U.S. factories as labor costs grow in countries like China and India and shipping also becomes more expensive. Over the last 20 years, the price of a barrel of oil has risen to about $95 from $20.

There are other issues encouraging the shift. Owners are tired of having to wait weeks for shipments on slow-moving container ships, and they want to get products to customers faster. Some newer businesses aren’t even considering overseas manufacturing.

It’s not just small businesses. Some of the largest companies in the U.S. are also joining the trend. Apple Inc. and Caterpillar Inc. are among the manufacturers planning to bring production back to the U.S.

Reverie has had the bases of its beds made in Taiwan since the company was founded. Rawls-Meehan and a business partner in Taiwan agreed that the cost savings and proximity to many customers were good reasons to manufacture there.

“The mentality was that products were going to be manufactured more cheaply in Asia than in the U.S.,” Rawls-Meehan says.

But shipping costs have risen to as much as 20 percent of the wholesale cost of a bed made in Asia.

In 2004, it was just 10 percent on some of Reverie’s products. So the company is now making a new line of upscale beds in Silver Creek, N.Y., near Buffalo. Shipping on those beds accounts for no more than 5 percent of the wholesale price. That offsets the higher cost of labor in this country.

Rawls-Meehan is considering moving more of his manufacturing to the U.S., but because the company also sells beds to Asia and Australia, he says it likely will always have overseas production.

A good deal of U.S. manufacturing shifted to foreign shores in the 1990s and early 2000s. Workers in China, India and other countries earned far less than workers in U.S. factories. That lowered costs substantially for U.S. companies. Between 1997 and 2008, the U.S. lost nearly 4.5 million manufacturing jobs, according to the Census Bureau.

And the amount of overseas manufacturing by U.S. companies grew 141 percent between 1997 and 2010, according to the government’s Bureau of Economic Analysis.

But the growing middle class in countries such as China and India have been demanding and getting higher wages. In Asia, labor costs are rising 20 percent a year, compared to 3 percent in the U.S., says David Simchi-Levi, a professor at the Massachusetts Institute of Technology whose specialties include supply chain management.

A weaker dollar has also made foreign-made goods more expensive. A study by the consulting firm AlixPartners predicts that the costs of manufacturing in the U.S. and China on average would be equal in 2015. .

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