Opportunities And Challenges For Small And Midsized U.S. Manufacturing Businesses

Posted by Heidi Schwartz

Bank of the West has published “Made Here: The Business Outlook for U.S. Manufacturing,” a report by the Bank’s Chief Economist Dr. Scott Anderson. The paper highlights the bright economic outlook for small to midsized U.S. manufacturers, the challenges they face, and how their proximity to U.S. customers provides a strong competitive advantage over overseas manufacturers. The paper explains how these developments are fueling the American manufacturing revival.Key Areas That Give U.S. Manufacturing Its Economic Edge.

Various economic factors have contributed to a resurgence in U.S. manufacturing, including greater access to credit, rising labor costs overseas and productivity improvements in the U.S.  The result is that manufacturing output per U.S. employee hour has more than doubled over the past two decades.

The manufacturing sector now has a strong long-term outlook with a rapidly shrinking cost differential between overseas manufacturers such as China, a chief competitor. The manufacturing sector currently faces key short term economic challenges; the strong U.S. dollar, the plunge in crude oil prices and a hard winter drove a modest manufacturing slowdown. U.S. manufacturers also face safety and environment regulations, high corporate tax rates and a talent crunch versus overseas competitors. However, despite the relatively high costs associated with regulations, taxes and labor, the U.S. manufacturing sector is showing healthy growth. Seven years after the economic crisis, U.S. manufacturers are now out-performing the economy overall.

“Proximity to U.S. customers provides a competitive advantage by enabling small to midsized American manufacturers to offer customized products, value-added inventory management and quick delivery—things U.S. customers value highly. And this is helping fuel a manufacturing revival in the U.S.,” said Scott Anderson, Ph.D., senior vice president and chief economist for Bank of the West.

Bank of the West’s small and midsized manufacturing clients were interviewed to understand specifically how U.S. manufacturers’ close proximity to their customers positively impacts their businesses. U.S. manufacturing business owners cited several key areas in which proximity improves business practices, including:

  • Service – a close proximity helps U.S. manufacturers meet customer requests quickly, no matter how demanding.
  • Speed and Inventory Management – through being close to the market, U.S. manufacturers can help U.S. clients minimize their inventory levels and help drive their costs down.
  • Raw Materials Management – having easy access to—and close relationships with—materials providers allows U.S. manufacturers more production flexibility and faster customer service.
  • Quality – proximity to customers gives U.S. manufacturers the power to control product quality and develop close relationships with customers, giving them an edge over overseas companies.
  • Reputation Management – as quality and service reliability grow to play a larger role in market success, building a stellar reputation is particularly important in manufacturing.
  • New Product Development – A close proximity to customers makes feedback processes tight and rapid. The ability to move through product iterations with customers quickly helps to optimize product development and customer satisfaction.
  • Customization – As customers demand more customized products and services, having short, nimble supply chains that can adjust to changes in product specifications quickly is a big advantage.


  1. Thanks Sandy for your feedback and the information regarding The Reshoring software. It’s a good resource for our readers.

  2. We see many companies moving toward localization. We agree that U.S. companies are reshoring and foreign companies are investing in the U.S. to be in close proximity to the U.S. market. It is a good strategic move for many companies due to rising offshore wages, counterfeit parts, IP risks, quality issues, risks along complicated supply chains, long lead times and carrying costs of large inventories. By reshoring and shortening supply chains, companies can greatly improve lead times, responsiveness to customers, quality, innovation and R&D.

    As companies adopt a more comprehensive total cost analysis they are finding that the “hidden costs” of offshoring often counterbalance any remaining savings from cheap price or labor abroad. These companies are investing and sourcing in the U.S. because it makes good economic sense for them to do so.

    The not-for-profit Reshoring Initiative’s free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases, companies find that, although the production cost is lower offshore, the total cost is higher, making it a good economic decision to reshore manufacturing back to the U.S. http://www.reshorenow.org/TCO_Estimator.cfm

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