Flawed sourcing decisions have led to millions of U.S. job losses, shuttered factories, a shrinking middle-class, an over-dependence on imports, inadequate defense industrial capability and a loss of innovation, intellectual capital, and competitiveness. In short, by offshoring critical tasks in the name of cost-cutting, U.S. companies undermined their ability to develop and sustain core competencies — both within their organizations and across the broader U.S. economy.

Let’s explore the impact of shifting core competencies offshore and the resulting organizational blind spots. Together we can take action to rebuild the U.S. manufacturing powerhouse.

Ransacked

Wrong-headed decisions by some of America’s C-suite execs would cause an offshoring debacle that would negatively impact economic and national security and ransack the middle class. The ‘asset-light’ strategy concentrated on leveraging core competencies in R&D, marketing, and finance, while closing U.S. factories and outsourcing manufacturing overseas. Assets were reduced and margins increased, driving ROA. Capabilities were transferred to offshore suppliers in an effort to increase shareholder value. The final result was reduced competitiveness, more vulnerability to geopolitical risk and a depleted U.S. workforce.

Growing trade deficits from globalization eliminated six million U.S. manufacturing jobs over the last six decades and approximately 70,000 factories. American employment opportunities were diminished, wages depressed, workforce skills and expertise reduced, and industrial cities and towns hollowed out. Workers for whom manufacturing offered a pathway to the middle class shifted toward lower-wage service-sector jobs. The middle class was decimated.

America’s competitive edge slipped as core competencies shifted offshore and critical knowledge, intellectual property, technology, mission critical components and process engineering were transferred to foreign competitors.

A case in point

Boeing’s legendary history as an aviation innovator began in 1916 with famous achievements like the B-17 bomber and the 747 jumbo jet. It was a culture entrenched in engineering excellence.

Boeing’s cautionary tale begins with its 1997 merger with McDonnell-Douglas, marking a shift in Boeing’s core competencies from engineering excellence to financialization. The new focus was on shareholder value by way of cost-cutting measures like outsourcing and offshoring design and production, culminating in far-reaching consequences and organizational blind spots.

Boeing’s early 2000s 787 Dreamliner program included offshoring several crucial components to foreign suppliers in Italy, Sweden, China, and South Korea and increasing its usual 5% foreign components quota to 30%. Altogether, Boeing outsourced over 70% of the design, engineering and manufacturing to over 50 suppliers.

Brake problems, a fuel leak, a cracked windshield, electrical fires, and emergency landings ensued from a complicated global supply chain that lacked transparency. Known suppliers subcontracted to unknown suppliers causing multiple delays and massive rework of defective parts that didn’t fit together properly, negatively impacting the assembly process and causing massive delays and cost overruns.

The offshoring strategy was an epic fail. Boeing’s expected $6 billion project grew to $32 billion. Deliveries were delayed by years, and the worldwide fleet was grounded. Boeing’s fundamental core competencies that made it the gold standard in aerospace manufacturing had been compromised.

Still troubled today

Boeing continues to be plagued by design flaws, quality problems, faulty planes, midair mishaps, fatal crashes and FAA groundings, bringing into question Boeing’s decision-making and unaddressed organizational blind spots.

As of this writing, Boeing is in the process of laying off 10% of its global workforce (17,000 workers) to "align with our financial reality and to a more focused set of priorities." Boeing CEO Kelly Ortberg said, "restoring our company requires tough decisions and we will have to make structural changes to ensure we can stay competitive and deliver for our customers over the long term." We look forward to a positive outcome.

Lessons Learned -Rebuilding A U.S. Manufacturing Powerhouse

1. Use the correct metrics

Companies can utilize the Reshoring Initiative’s free tools to compare alternative and local sourcing options. The TCO Estimator quantifies all relevant costs and risks. Universal use of TCO, alone, would gradually reshore 20 to 30 percent of what is now imported.

Geopolitical risk (GPR) is defined as the likelihood that, within one year, a significant disruption in trade will occur, causing the U.S. to stop importing goods from a particular country due to a negative geopolitical event. The Geopolitical Risk measure helps a company decide whether any higher U.S. TCO is worth paying as insurance of component availability and quality.

2. Rethink earlier offshoring decisions - check your blind spots

Geopolitical risks are the #1 factor in reshoring and foreign direct investment (FDI) trends. Consider reshoring and nearshoring as safeguards against catastrophic disruptions like climate change events and ongoing global conflicts and tensions.

3. Take advantage of policy incentives

U.S. policy has created favorable conditions for reshoring and FDI facility construction. New investments by domestic and foreign firms accelerated more than anticipated due to the Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), and CHIPS and Science Act.

The Reshoring Initiative advocates for a comprehensive U.S. industrial policy with measures for substantial workforce investment and improved competitiveness that would minimize the need for subsidies. Our recommendations are quantified in our Competitiveness Toolkit.

4. Engage in workforce training

Expanding our manufacturing apprenticeship program to the level found in Germany and Switzerland is key to reducing the workforce deficit. The U.S. skilled workforce lacks the quantity and quality needed for faster reshoring. However, trends are moderately positive. Manufacturing apprenticeships are up 83% in the last 10 years and about 49% of reshoring cases mention skilled workforce availability as a reason the company reshored.

5. Upgrade, consider automation and "smart" manufacturing

New automation technologies that overcome labor shortages and offset higher U.S. wages are helping to close the labor-cost gap and reshore more manufacturing to the United States. Consider digital information technology like artificial intelligence (AI) and the Internet of Things (IoT) to enable data-driven decision-making. By reshoring, we can get companies back up to the 80% capacity utilization where they have the need and finances to upgrade and automate, creating a virtual spiral enabling still more work to come back.

Conclusion

Success in balancing the manufacturing trade deficit within the next 20 years will depend on two actions. Government: increasing the price competitiveness of U.S. manufacturing. Corporations: implementing more rapid automation, skilled workforce training, and greater use of strategic tools, like TCO, in sourcing and siting decisions.