Procure IQ

In the context of last week’s surprisingly positive job numbers (so surprising in fact that President Obama had to do a last minute rewrite to his speech Friday), two news stories have shared additional good news for US manufacturing. They’re largely anecdotal evidence, but perhaps they show a return of manufacturing jobs to the US for a number of reasons, including hedging against currency fluctuations and utilization of manufacturing capacity.

First, there was news that Daimler AG is moving some production of US bound Mercedes C-class cars from Germany to Alabama. Citing currency fluctuations as the key driver, Daimler officials plan to shift 20% of the production of their most popular model in the US to this Southern US state that is gaining traction in the automotive manufacturing industry. Interesting, the NPR report also points out that Alabama is a “right to work” state that requires far less vacation and other benefits than the 1,800 Stuttgart employees who are losing their jobs enjoyed.

The second story covered the emerging trend of jobs returning to historic manufacturing counties in the US.  The AP article focuses on the furniture industry in western North Carolina. The industry has seen a drastic turn-around in the last 6 months, with companies going from layoffs to aggressive hiring to keep pace with demand. In fact, it’s that demand and the lack of a ramped up workforce that proves to be the underlying lesson of the article. Were companies too quick to shed jobs in the last 18 months? Can they ramp up quickly enough or will their customers see shortages in their supplier’s capacity? And is that excess capacity in manufacturing centers enough to draw renewed hiring from domestic, foreign and globally based companies?

These stories probably stir up more questions than answers about the future of manufacturing in the US. For starters, are these just a nice anecdotal case (Daimler) and a statistical blip (manufacturing jobs) rather than the start of a strong, lasting trend? Will the new normal – in regards to global risk from currency fluctuations, shipping/commodity costs, and consumer demand – lead to more jobs being “onshored” to the US and other countries that had fallen out of favor for low-cost countries in recent years? And if we do see more manufacturing jobs in the US, will they last?

What do you think? Where are we headed? Insights, anecdotes and questions are welcome in the comments (leave them anonymously if you must).

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

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UPDATE: CNBC picked up Pat’s advice today.

With stock markets surging (thus diverting investment money from t-bills) and the US dollar expected to continue its downward slide in the face of “loose” monetary policy, currency fluctuations are reemerging as a spend management priority. Although the ebb and flow of foreign exchange markets are far beyond the influence of even the most powerful CPOs, there are steps organizations can take to prepare themselves and in some cases, reduce the impact of these macro-economic forces.

Although the podcast is a few months old, Jason Busch’s Category Chatter interview with SupplyExcellence contributor and global category management team leader Pat Furey is as insightful and applicable today as ever (download the podcast here).

Pat’s key take-aways for managing the risk posed by currency fluctuations:

1. Be Prepared. Analyze fluctuations not just in domestic currency, but in the local currency of the suppliers you are evaluating and research regions where currency fluctuations may not be as significant.
2. Know your Costs. Take time to determine key total cost inputs for each commodity you are sourcing, including raw materials, labor, capital expenditures, energy, types of labor, geographic distribution, etc. Also be sure to understand the cost structures of your suppliers.
3. Utilize Raw Material Indices Based on US Dollars. Hedge against significant price increases and manage a key portion of overall costs by pegging raw material costs to an index based in US dollars such as the LME or NYMEX exchanges.
4. Diversify your Supply Base across Multiple Currencies. Include suppliers from multiple regions in all rounds of RFx competition and award business across various regions to mitigate the impact of currency fluctuations and ensure consistency of supply. While China remains a relevant source of supply, emerging markets such as Eastern Europe merit consideration as well.
5. Share Currency Volatility with Suppliers. Share the risks and rewards of currency volatility through price adjustment mechanisms to mitigate fears that often cause suppliers to pad their margins. Factors to consider include: minimum change threshold percentages or basing thresholds on total part cost versus exchange rates.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

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