The FT takes a look at global supply chains in the wake of the recent tsunami:

In the past decade, many manufacturers have shifted component production to multiple contractors, often in low-wage Asian nations. This is to cut costs but it is also part of a general shift to slim operations and concentrate on what they regard as core areas, such as product development and marketing.

However, concurrent moves towards “lean production” – shaving inventories to the minimum and pushing parts through the system as fast as possible to cope with sudden variations in demand – have made supply chains increasingly susceptible to the kind of disruption seen in recent weeks in Japan…

“If all a manufacturer based in the US thinks about is unit costs, then it’s likely to have a global supply chain in which it transports components long distances [to a US assembly facility],” says Matthew Lovejoy, Acme’s president and owner. “But once you think about all the hidden costs that such complex chains involve, including disruptions in transport, the need to vary production to meet changes in your customers’ demands, plus the impact of unpredictable events like the Japan earthquake, then you realise these kinds of networks do not make sense.”

Accordingly, Mr Lovejoy has established three supply chains – each built around Acme’s three factories in Chicago, Brazil and Shenzhen, China. Each is largely autonomous but capable of supplying components to other parts of the business in the event of a sudden, localised disruption…

The lesson for industry from the Japanese disaster is that the consequences of such events on the global production system are always likely to be considerable. There are ways to reduce the sensitivity of supply chains to the effects of such incidents, through better planning and more distributed operations, but too few companies are taking advantage of them.

The whole article is worth reading. I previously mentioned this topic here.

Hat tip: Seb

FT:

General Electric plans to invest $432m in four US centres that design and make refrigerators by 2014. The move will add about 500 jobs and reverse a long-term trend of outsourcing its appliance manufacturing to places such as China.

GE argues that a combination of US production quality, the ability to market goods as US-made, and rising transport, currency and labour costs in formerly cheap manufacturing countries have made the moves practicable.

A series of local, state and federal tax breaks have also played a role. For setting up the design and manufacturing centres in the Midwest and South, GE negotiated about $78m in tax breaks.

Over the past year a number of US companies ranging from Caterpillar, the world’s biggest maker of earthmoving equipment, to Wham-O, the maker of the Frisbee and Hula-Hoop, have announced similar plans to expand US production facilities…

In the US market the investments also make for useful headlines for GE. “You still have to be competitive but when all things are equal, being made in the US tips consumers in our direction,” Mr Campbell said. But behind the moves are a series of hard-headed calculations. Local manufacturing means faster product development and lower costs. GE has also used tough new labour contracts to reduce its domestic production costs.

“Compared to five years ago we have made tremendous progress with our unions, which means the new people we hire on to these programmes will come in at reduced wage rates, and that has gone a long way to help us get competitive,” Mr Campbell said.

[HT: Tepper]

Jagdish Bhagwati and Alan Blinder discussed “Offshoring of American Jobs: What Response from U.S. Economic Policy?” at a Harvard symposium in 2007, with comments from Richard B. Freeman, Doug Irwin, Lori Kletzer and Robert Z. Lawrence. Those papers now appears as a book edited by Benjamin Friedman. Bhagwati and Blinder discussed offshoring last week on Bloomberg Radio (mp3).

Richard Cooper summarizes:

This stimulating collection, like the Harvard symposium that led to it, is built around Blinder’s strong and much-debated thesis that within two decades, 30-40 million U.S. jobs, mainly those in the services industries that require no direct contact between the provider and the customer, could be sent offshore — especially to India, where wages are low and English-speaking university graduates are plenty. Blinder argues that the United States should adapt its educational and labor policies to prepare for this possibility. Bhagwati, for his part, points out that offshoring is just one more dimension of an open trading system, which will produce higher living standards for Americans — and Indians. The contributors observe that this possibility will be similar in proportion to the adjustments that the U.S. economy has already made in past decades, particularly to the decline in manufacturing employment; that for a variety of reasons, not nearly so many jobs will move offshore; and that other countries will offshore some of their jobs to the United States.

The latter comment echoes Richard Baldwin’s argument that offshoring is more likely to be a two-way, intraindustry exchange than a one-way departure of jobs.

The Onion: American Robot’s Job Outsourced To Overseas Robot

The Onion: American Robot’s Job Outsourced To Overseas Robot