Manufacturing making slow resurgence in the suburbs

Acme Industries in the last six months alone hired 53 new employees to help churn out locomotive engine components, mining truck steering arms and other large, complex high-precision parts at its Elk Grove Village facility.

In St. Charles, workers at Bison Gear and Engineering Corp. are back to assembling gear motors that were, until recently, produced in China.

And Peerless Industries in Aurora, which makes audiovisual mounting solutions, returned its manufacturing to Illinois over rising labor costs and concerns over protecting intellectual property.

Those aren't exactly signs of an industry long presumed dead or gone overseas, never to return.

Though experts agree that U.S. soil will never again be home to all the manufacturing jobs that left, signs continue to point toward a resurgence in the suburbs as the economy slowly improves and the cost gap between domestic and foreign production narrows.

"Over the last few years, manufacturing in this country has been having a bit of a Renaissance," Acme Industries CEO Warren Young said. "My business, for one, has been having some wonderful success lately."

Local trends mirror what's going on in the rest of the country.

U.S. manufacturing expanded 34 consecutive months before contracting slightly in June, according to the Institute for Supply Management manufacturing index.

Employment rising

Along with production, the number of manufacturing jobs is creeping back up.

Though significantly below January 2008 levels, jobs statewide and regionally have steadily rebounded since bottoming out two years ago.

As of May, the Illinois Department of Employment Security reported there were 592,800 manufacturing jobs in Illinois and 327,800 in the eight Chicago-area counties, an increase of 42,500 and 16,500 since January 2010, respectively.

IDES reported that manufacturing in Lake and Kenosha counties, where statistics are combined, rose by 1,900 jobs over the same period to 55,900 total jobs in May.

According to the most recent figures available by county from Evanston-based publisher of state manufacturers directories Manufacturers' News Inc., between November 2010 and November 2011, industrial jobs rose 4.7 percent in DuPage County, 3.7 percent in Lake County and 5 percent in Kane County. Cook County dropped 1.4 percent to 301,209 jobs, while McHenry County saw a 3.7 percent decline.

Elk Grove Village, which accounts for the second-highest industrial employment in Illinois behind Chicago, also saw a 1.8 percent decrease, due to closings such as the National Envelope facility.

Despite the uneven gains, the Bureau of Labor Statistics reported that a total of 495,000 new manufacturing jobs have been created since 2010 in the U.S., mainly in the Midwest, Texas, Louisiana and other Southern states.

Driving a comeback

There are numerous factors behind the comeback, the most significant being the rising cost of foreign labor.

University of Southern California economist Baizhu Chen said Chinese wages have averaged 14 percent annual increases during the past decade, and are likely to maintain the same pace for the next five to 10 years. Similar trends are taking place in other manufacturing centers throughout Asia.

"Production in other countries isn't as cheap as it was in the past," said Gad Allon, a professor of operations management at Northwestern University's Kellogg School of Management. "Whether to offshore used to be a clear-cut decision, but for many firms it's making sense to come back."

More than a third of U.S.-based manufacturers with sales greater than $1 billion are planning to bring back production from China, or are at least considering it, according to Chicago-based Boston Consulting Group.

In the global management consulting firm's April survey, executives most cited labor costs, product quality, ease of doing business and proximity to customers.

Seventy percent agreed that sourcing in China is more costly than it looks on paper, and 92 percent believe labor costs will continue to escalate.

Allon pointed to shipping costs, which began surging about two years ago. He also said most companies keep their research and development in the U.S., so design changes require engineers to shuttle back and forth between sites.

"Firms now realize it's not only about finding the cheapest location, but the cost from the moment of production to delivering it to the customer," Allon said. "In order to be innovative in the market, it can be significantly more beneficial to have everything located in the same place, or at least the same country."

One Kildeer man is on a mission to get that message out.

In 2010, Harry Moser founded the Reshoring Initiative in an effort to bring quality, well-paying manufacturing jobs back the U.S. by assisting companies to more accurately assess their total cost of offshoring, and shift "collective thinking from 'offshoring is cheaper' to 'local reduces the total cost of ownership.'"

His website, reshorenow.org, features software that calculates those total costs based on factors such as taxes, packaging, time and money being tied up, impact on quality and intellectual property. The site also includes articles and case studies about companies that have brought some or all production back to the U.S.

"Maybe 25 percent could come back today based on the total cost of ownership, and that could mean hundreds of billions of dollars and millions of jobs," said Moser, who estimates he'll do 120 presentations on the topic this year across the country. "A lot of companies made a mistake by ignoring all these other factors."

Challenges ahead

Despite the positive trends, manufacturing's resurgence faces numerous challenges.

For one, there are indicators such as last month's contraction that the industry's growth is slowing.

Experts say the European debt crisis and confidence among U.S. consumers, which in June declined to its lowest level this year, are impacting domestic production.

Companies also are struggling to find skilled labor to support their expansion.

The type of factories that are returning aren't based on manual labor cranking out high volumes of an identical product, such as cheap apparel.

Instead, many positions require skilled workers capable of more sophisticated production.

Boston Consulting Group's survey said examples of sectors most likely to return are transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, computers and electronics.

Jim Nelson with the Illinois Manufacturers' Association said the industry will need to replace 30,000 production workers in the state every year for the next 15 years as baby boomers retire. At the same time a Deloitte survey found that while 75 percent of the public believes manufacturing is an important part of a local economy, only 25 percent would encourage their child to go into it.

"For a long time, manufacturing has had a reputation of being dirty, dark and dank, but it's no longer that," Nelson said. "And people don't realize that this is a career, not just a job."

The Department of Commerce, Nelson said, estimates that the average advanced manufacturing job earns $74,400 in total compensation. He believes the industry needs to work on changing its image, "particularly to moms and guidance counselors."

Cindy Tomei, president of the Valley Industrial Association in Aurora, said that it's crucial to get out the message that manufacturing isn't dead and offers a viable career. She lauded efforts such as a new partnership between more than 50 area companies and Harper College in Palatine to offer paid internships for students enrolled in a new advanced manufacturing program.

"Many of our high schools that had technical centers have gone by the wayside, so we've lost a generation of these skilled workers," Tomei said. "America has always been the innovator, so we need to support efforts that will build up that pipeline again."

Factories: 'People don't realize that this is a career, not just a job'