In this week’s readings we learned about many considerations
that must be made when designing the geographic layout of a supply chain. These include labor costs, landed costs, transportation
time, etc.[1] Many manufacturers, of electronics in particular,
are shifting operations offshore to capitalize on cheaper labor costs. While it is common for American manufacturers
to stop making products in the U.S., some foreign automakers seem to be
shifting operations to the U.S. The
topic of this blog will be to consider the reasons why car makers have chosen
this supply chain strategy.
Auto manufacturing is a huge industry that really has a
global presence. In the past, car
manufacturers served as part of a country’s national identity and pride—Ford of
America, Toyota of Japan, Mercedes-Benz of Germany, Fiat of Italy. At the present level of globalization, auto
manufacturers no longer use their home countries as the sole location of their
manufacturing operations. The positioning
of assembly operations within the supply chain has become more of a strategic
decision, rather than a matter of patriotism.
This can be observed in a list of the ten “most American-Made cars”:
Rank
|
Make/Model
|
U.S. Assembly Location
|
Last Rank
|
1.
|
Georgetown, Ky.;
Lafayette, Ind. |
1
|
|
2.
|
Dearborn, Mich.; Claycomo, Mo.
|
—
|
|
3.
|
Marysville, Ohio
|
2
|
|
4.
|
Princeton, Ind.
|
6
|
|
5.
|
Lincoln, Ala.
|
—
|
|
6.
|
Lansing, Mich.
|
8
|
|
7.
|
San Antonio
|
9
|
|
8.
|
Toledo, Ohio
|
—
|
|
9.
|
Lansing, Mich.
|
10
|
|
10.
|
Lansing, Mich.
|
—
|
As you can see, Japanese car makers hold half of the top-ten
rankings for “most American-Made cars”. This
list is determined by each car’s percentage of domestic parts content,
total U.S. sales and U.S. assembly.[2]
Given that labor costs are so high in America,—especially compared to places
like China—why have Japanese car manufacturers chosen to source parts from and
assemble vehicles in the U.S.? According
to Goel et al., there must be a tradeoff between labor costs and landed costs.[3] For these auto makers, savings in costs like
freight, shipping, and tariffs must outweigh additional expenses incurred for
higher labor costs. The Capgemini
publication in this week’s readings suggests other motivations for these
decisions. This could include sustainability
issues such as energy consumption and CO2 emissions. Not having to transport millions of
automobiles half way around the world could result in huge reductions in these
two factors.
As you can see, foreign automakers have many reasons why
assembling cars in the U.S. may be attractive, even at the expense of high
labor costs. I’d like to draw your
attention to one more aspect of the “most American-Made cars” index. Notice that only one Ford vehicle is found on
this list. This might be explained by
Ford’s significant commitment to Mexican auto manufacturing. For example, in 2012 Ford invested $1.2
billion in its northern Mexico plant (Sarmiento, 2012). By strategically
placing assembly facilities in northern Mexico, Ford might actually have lower
landed costs to major markets like California.
This is because NAFTA simplifies trade between the U.S. and Mexico. Also, logistics costs would be low due to the
close proximity of northern Mexico and Border States. So, if auto makers like Toyota could cut
labor cost and control landed costs by shifting operations to Mexico, why do
you think Toyota allows Camry to be the “most American-made” car on the market?
Mays, K. (2012). The Cars.com American-Made
Index. Retrieved 26 Feb, 2013, from http://www.cars.com/go/advice/Story.jsp?section=top&subject=ami&story=amMade0712&referer=advice&aff=national
Sarmiento, T. (2012). Ford to Invest $1.3 Billion in
Northern Mexico Plant. Retrieved 27
Feb, 2013, from http://www.reuters.com/article/2012/03/30/us-ford-mexico-idUSBRE82T0X220120330
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