Insourcing is the new buzzword in U.S. manufacturing circles. U.S. economic woes are causing many manufacturers to replace outsourcing with insourcing, an unexpected boon for American workers. The declining value of the dollar against foreign currencies, skyrocketing transportation costs caused by high fuel prices, and decreasing export demand resulting from the global economic downturn are making it more cost efficient for U.S. manufacturers to produce their products at home.
The same economic forces that sent U.S. jobs overseas are now bringing them home. Manufacturing costs in Alabama are currently running 3% below those in China, causing companies like Exxel Outdoors, Inc., which makes sleeping bags for Wal-Mart and other customers, to execute an “about face” on its production priorities. Since the Wall Street tumble, the company has hired more workers, added new equipment and beefed-up production at its Haleyville, Alabama plant, while cutting production at a joint venture in Shanghai. In 2007, 60% of Exxel’s bags were made in Shanghai. This year, the company will make more product at home than abroad and expects to produce 90% of their product at their Alabama facility by 2010.
Exxel founder and CEO Harry Kazazian is predicting a 20% increase in company revenue this year to $42 million. He credits insourcing as a major factor in his company’s success during a tight economy. Since 2005, he has seen the yuan appreciate 17% against the dollar, pushing up Chinese wages, material costs and freight costs. Kazazian says moving production from Shanghai back to Exxel’s Alabama plant just made financial sense.
“Labor is China’s advantage and our weakest link,” he said. “But they can’t compete with me on my just-in-time” production cycle. Exxel can deliver a sleeping bag from its Alabama facility within three days where shipping from China can take two months.
According to government statistics, U.S. manufacturing is contracting at the fastest rate since 2001, the last time America dipped into a recession. As countries around the globe struggle with the growing financial crisis, there has been a marked decrease in export demand. Without demand for the prodigious output that originally spurred outsourcing over the last decade, producing goods in the U.S. is becoming increasingly cost efficient. Smart companies are re-evaluating their outsourcing policies and making the switch to insourcing.