The Insourcing Boom
This is a very interesting article about the growing trend of taking manufacturing that has been outsourced over the last decade to countries all over the world and returning it to the United States. As stated in the article outsourcing is quickly becoming outdated as a business model. One of the main concerns of companies was that they didn’t want to pay the labor costs for American employees, believing that costs would be cheaper in other countries. This was one of the worse mistakes that the United States could have made.
When they outsourced production it not only took jobs away from the United States but also decreased GDP which would bring a decline in the economy and a decrease in the middle class. Companies should have factored all elements before jumping on the bandwagon of outsourcing. Labor costs are becoming a smaller proportion of total cost of finished goods. The recent recession and decline of labor unions in the United States has shifted labor costs where it isn’t as important as other key components such as material costs, shipping costs, and development and design.
I believe that insourcing can be an advantage also because when you outsource you aren’t able to see the process of the product being made. This gives room for things getting taken out or added into development. With lean management you are able to have visual control. You can see how and when everything is being done and operated. From the control of the machinery to the production at work stations. This quality can help recognize problems when they first occur and can resolve them in a timely matter and also prevent defects from happening. There is also a competitive advantage of having your production onshore.
I believe that this is a very important subject matter. First due to the fact that the global economy is changing at an alarming rate. Countries that were once used for cheap labor and manufacturing are turning from developing countries into developed countries. For example China’s hourly wages are constantly increasing and so is their GDP. Once upon a time China would be the place to outsource the production of toys and simple appliances. Now they are outsourcing that production to countries like Vietnam and are only manufacturing high technological products. With this being said China is taking the designs of these products and developing ones of their own that they can sell at a much higher rate and turn a profit.
Since we outsource to countries like China we do not know the full extent of how production is being handle. The cost that the United States allocates for material cost and even labor required to make the product far outweighs any potential benefit of outsourcing. We believe that labor costs will be so much cheaper for outsourcing. Companies in the United States need to realize that everything that glitters isn’t gold. On the surface it may appear that we are saving money by having lower wage workers but if you dig deeper and add the numbers it really is costing more in the long run and GE realized that. If you have more workers that perform unnecessary steps, the time in production goes up and the number of employees increases as well. Having production insourced increases the quality because we have access to equipment, technology and materials that our outsourced country may not have or may not want to use because it is of higher cost. Countries like China aren’t very energy efficient and a lot of their equipment and materials uses massive amounts of energy and produces large quantities of pollution and toxics. Insourcing will save on energy efficient.
One thing that caught my interest in the article was when they were talking about lean management. We recently went over lean management in class. It was interesting to see how GE is utilizing this technique even though it hasn’t caught on widely in the United States. The process of eliminating waste can not only save on costs but