GE 'Insourcing' Shows Manufacturing Trend

BOSTON ( TheStreet) -- There's compelling evidence that manufacturers with extended supply chains into low-cost countries may be planning to mitigate risks by moving some work nearer or into the U.S.

In June, General Electric ( GE) Chief Executive Officer Jeffery Immelt announced the company's intentions to bring work back into the country from which it had famously outsourced work over the past 20 years.

"In some areas, we have outsourced too much. We plan to 'insource' capabilities like aviation-component manufacturing and software development," he said.

This announcement was important for two reasons. First, this statement came from the company of "Neutron Jack" Welch, who had helped lead the off-shoring charge in the first place. Second, the sheer size of GE meant that such a strategy, if pursued, would have a rippling effect among its myriad suppliers and partners.

Recently, there have been surveys conducted among manufacturing buyers and product manufacturers that suggest GE's initial intentions and the actual costs of U.S. manufacturing's malaise have resonated across many industries.

In December 2009, Supply & Demand Chain magazine released the results of a survey of U.S. supply chain executives that indicated 90 percent of respondents "had already begun rebalancing their manufacturing and supply strategies or were considering doing so" for 2010.

Also in December, the data arm of The Economist released results from a comprehensive survey of global supply chain and purchasing managers. Among the findings: 50% are seeking to improve collaboration with their suppliers; 38% are moving from a single to multiple-supplier bases; and 36% are conducting risk audits of current suppliers.

And respondents to The Economist survey identified the following groups pressuring them to improve supply-chain resilience: executive management (59%), customers (39%), own business units and staff (28%) and shareholders (21%).

Make no mistake -- low-tolerance, high-volume manufacturing has likely left the U.S. for good. But many issues that contribute to the total landed costs of technically complex, high-quality, high-value products, parts and assemblies with critical integrities are being reconsidered. Logistics, quality assurance, volatile energy costs and currency valuations, rising labor costs and taxes, and other unforeseen costs have been found to offset many of the initial savings brought by low-cost sourcing.

While there certainly will not be a stampede of all work back to the U.S. in 2010, I predict a significant return of meaningful, technically rewarding, job-creating manufacturing projects and services being repatriated to the U.S. this year.
Mitch Free, founder and CEO of MFG.com, a global sourcing marketplace for manufacturers, is an expert in topics of global manufacturing, trade, globalization, outsourcing, turning an entrepreneurial venture into a global business, angel investing and more. Mitch is an avid speaker at technology forums and conferences, including presentations to the Kellogg School of Business at Northwestern University, Harvard Business School, Wharton and the Society of Manufacturing Engineers. He has appeared on CNBC, in Forbes, Fortune Small Business, Business 2.0 and more. INC Magazine named him an "Entrepreneur of the Year" finalist in 2005, and he was an Ernst & Young Entrepreneur of Year regional winner in 2008. Free co-founded Shotput Ventures and is an active angel investor in disruptive Internet-based technologies. Prior to founding MFG.com, Free was the founder and CEO of 3DATUM, a provider of technology solutions for the manufacturing and engineering communities. He also held a variety of senior management positions at Northwest Airlines, where he managed aircraft engineering, technical procurement and aircraft acquisition projects.