Wages have been rising in countries like China that attracted work from U.S. companies. Other headaches also have emerged.

By Dee DePass Star Tribune

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CEO Dan Ferrise of Miller Manufacturing made the decision to reshore the company’s “Chow Tower” pet food dispenser from China last year. It is now manufactured in Rush City, Minn.

In 2010, Miller Manufacturing Co. in Eagan hired a supplier in China to make its “Chow Tower” automatic dog feeders. No more.

Miller ended the contract last year after ocean-freight costs doubled to $6,000 per container and labor costs shot up. Now, the plastic feeders are molded at its factory in Rush City, Minn.

Moving such work abroad was known as “offshoring.” Bringing it back to the U.S. is being called “reshoring.”

“We saved thousands of dollars by reshoring that one product,” Dan Ferrise, Miller’s chief executive, said. “In recent years, we have brought back a dozen products to the U.S. and made the decision to develop new products and just keep them here. Now we go to China only if we are forced.”

Miller Manufacturing is one of a growing number of U.S. companies deciding that it’s more trouble than it’s worth to make goods abroad in hopes of capturing cheaper wages. In countries like China, wages have risen noticeably in recent years. Meanwhile, delivery delays, quality problems, intellectual property woes and other headaches also are leading many to rethink hiring contract manufacturers abroad.

Some of the biggest names in American manufacturing have become reshorers, including General Electric, Whirlpool, Ford and 3M. Wal-Mart Stores Inc. has tried to encourage the trend by telling suppliers it aims to spend an additional $50 billion on U.S.-made products over the next 10 years.

Minnesota manufacturers also have brought the production of some goods back home. Enterprise Minnesota, a consulting firm, found in a survey earlier this year that 97 factories in the state had “won new business because of the home sourcing or reshoring of customers,” Bob Kill, the firm’s chief executive, said.

Quality Bicycle Products in Bloomington, Outdoor GreatRoom in Eagan, Minnesota Rubber & Plastics in Plymouth and Minco in Fridley are just a few of the companies that have brought work back, the Manufacturers Alliance in Minnesota said.

Wyoming Machine Inc., a contract manufacturer in Stacy, Minn., won new orders because of the reshoring trend. “We have seen some of our customers bringing products that were moved oversees back,” Traci Tapani, the company’s co-president, said. “But even right now we have customers moving products to Asia. From my perspective, this is a constantly changing situation.”

Harry Moser, president of the Reshoring Initiative, said U.S. companies continue to build factories and hire contractors overseas, but increasingly that work is for products sold regionally, not brought back to the U.S. “We are seeing offshore facilities being repurposed to serve the offshore market,” Moser said. “And we’re seeing U.S. factories incrementally invest domestically so they can serve the U.S. domestic market.”

Until recently, reshoring was new. But now the practice is nationwide and done by both large and small manufacturers, said Sue Helper, chief economist with U.S. Department of Commerce. “There are two main reasons why companies are coming back. One is the convergence of labor costs and the other big factor is that U.S. companies are realizing that there are a lot of hidden costs to offshoring.”

Miller Manufacturing’s Ferrise said aggressive cost analysis resulted in the drop the company’s reliance on China-based contractors to less than 20 percent of its products today from 35 percent at a peak several years ago.

“I remember going to seminars around the country 10 years ago. Everybody was saying, ‘If you don’t have a China strategy, you better get one,’ ” Ferrise said. “Now, it’s, ‘If you have a China strategy, make sure you are evaluating it closely because the cost model is evolving continuously.’ So you can’t just outsource your product to China and forget about it. A lot of the labor costs have doubled in the last several years. And their employee turnover rates are very high.”

Minnesota Rubber & Plastics, a maker of medical devices, went through a similar exercise and moved some production from China to the United States and Mexico. “I don’t know that the trend has done anything other than to continue to accelerate,” said Jim Lande, who retired as the company’s chief executive this year and recently spoke about its reshoring at a local conference.

He noted that China’s efforts to raise wages happened as the U.S. was experiencing a lengthy period of wage stagnation. “So the [cost savings] gap has narrowed significantly,” Lande said in an interview. “Labor in China is three to five times as much as five or six years ago … That means China has become far less competitive as a global manufacturer.”

Such shifts are finally showing up in some U.S. economic reports. Some 60 percent of reshored factory work has come from China.

“In 2003, we lost 150,000 manufacturing jobs to offshoring. In 2013, on a net basis we lost zero,” Moser said.

Chad Moutray, chief economist for the National Association of Manufacturers said its members are also bringing back work to the U.S. because of lower energy costs, driven largely by the shale oil boom in Texas, Pennsylvania and North Dakota.

Plastics, fertilizer and petrochemical makers that use oil as a raw material can now buy their supplies closer to home. “Because feed stock costs are low, you are seeing a lot of investment coming into the U.S.,” Moutray said.

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