Manufacturing in the US vs. China
As a product design engineer with just about a decade of experience designing and manufacturing products, one of the biggest questions people looking to produce a new piece of hardware ask me is whether to produce in the United States or in China. Before COVID, I would typically spend 3–4 weeks a year out in China visiting vendors, supervising manufacturing and production lines, and working with factory engineers to optimize products.
For the past 40 years, China has been the go-to location for manufacturing. US factories slowly shut down as this factory work was “offshored” to Chinese factories who could manufacture the same parts cheaper and faster. The conversation about moving production away from China and back to the US communities, has been in the news recently — spurred by the supply chain crisis and COVID-19. I’m going to share with you some pros and cons of US manufacturing, and give a bit of context that sheds light on why this is a complex issue and what you might need to know if you’re considering producing a product.
A factory of factories
Much of hardware manufacturing takes place in Shenzhen, a city bordering Hong Kong. Up until 1979, Shenzhen had a population of around 30,000 people, but it has grown vastly in recent history. Its location within the bay made it a desirable location to be made into a special economic zone (SEZ), which granted it more free market-oriented economic policies and flexible governmental measures by the government, creating a city whose purpose was to attract foreign interest and investment. Within 30 years, Shenzhen has exploded into a massive city with a population over 10 million and has cemented its title as the manufacturing capital of the world.
What makes Shenzhen unique is how it was specifically designed alongside its purpose as a manufacturing city. By building with this goal in mind, warehouses and highways were constructed intentionally purposely to improve the shipping of goods between facilities, and the government encouraged and helped to form Shenzhen into what it is today: a massive factory. Typically, parts for the product are shipped to a contract manufacturing facility, where they’re assembled into the final product, packaged, and are ready to ship.
Each contract manufacturer has selected vendors they rely upon for one portion of their production process. For example, a wire harness factory, an injection molding facility, a sheet metal painting factory, or even a test fixture design facility all form a connected web to manufacture whole products. Individual vendors tend to be located near the contract manufacturer, making it easy to transport goods and visit the production line if there are ever issues.
Because of the complex orchestration of production, the turnaround time is impressive. Once, I was assisting in the creation of a new production line and we had questions about the factory layout and need for additional test fixtures. In less than an hour, members from the operations department were working with their fixture vendors and the line leaders to determine a better layout. The next morning, I arrived at the production line to see a brand new and far more efficient layout and dozens of newly fabricated assembly fixtures up and running already. This city is made to make things!
In contrast to China’s new and government subsidized initiatives, manufacturing in the United States was booming for decades from the 1700s, hitting its peak in 1979. Famously, Henry Ford’s invention of the assembly line in 1913 and focus on efficiency and repetitive production laid the groundwork for modern manufacturing. Today, much of US manufacturing focuses on military, aviation, and telecom projects or for machinery. These products are typically produced for domestic purposes and are expensive to ship. As a result, most of the American factories expertise lies in creating high-quality and tight-tolerance components that demand a higher price tag.
Domestic vs Chinese manufacturing
Most consumer goods require low-cost and high-quality mass-manufactured components, like injection-molded plastic housings in specific colors, material, and finishes designed by the industrial design teams. Companies are constantly pushing the boundaries of what can be accomplished with die casting, CNC machining, and injection molding in order to make the latest and greatest shiny new gadget. Consumer goods typically consist of many types of components, such as batteries, cable harnesses, custom printed circuit boards, and housings with high cosmetic requirements. All of these components tend to be custom designed for each product in order to squeeze into the tightest of form factors and reduce weight or size. Order quantities can be anywhere from a few thousand to a few million units a year, and cost is always a primary concern.
Manufacturing in China has an advantage when it comes to labor costs. American labor laws ensure workers are compensated a minimum amount. Unfortunately, China has far more relaxed standards, and the result is that labor costs are a negligible contribution to manufacturing abroad, coming in at around $4/hr versus $26/hr in the United States. Production lines can have dozens or even hundreds of workers helping to build a product, depending on complexity and order quantities, and that hourly rate can add up fast. While cost of living is different around the world, it’s certainly a factor when considering the end cost of producing a product.
Another benefit in manufacturing in China is the scale and network of available factories. In the US, you’d be hard pressed to find a custom LiPo battery manufacturer stateside who could deliver hundreds of thousands of low-cost and high-capacity batteries to a contract manufacturer that is within an hour drive, as the complex networking systems of Shenzhen don’t exist. Multiply this by every stage of production, such as packaging, molded enclosures, die-cast housings, custom circuit boards, or producing any products that require more than one form of manufacturing, creating an additional layer of logistics on top of the production process.
There isn’t a single manufacturing hub in America where factories are all within shouting distance and can work together to make products like the next iPhone — which require die casting, CNC machining, injection molding, PCBA fabrication, custom batteries, and have high cosmetic requirements. Products need to be shipped across the country and across time zones, making communication and quality control more difficult and increasing the time and costs required to manufacture products.
While there are certainly financial incentives to manufacture in China, If we could identify factories willing and able to make consumer electronics products and set up our production line stateside with fair wages and policies, would consumers actually want to pay for that premium? Marketplace estimated that the cost of an iPhone produced using domestic manufacturing and components would cost about twice as much to manufacture domestically. While some customers are happy to pay that premium for ethically and environmentally friendly products, many will not. Luckily, we’ve seen more and more acceptance and even demand for such products and hope to see environmentally and socially responsible products such as Pela Case become more mainstream.
One of the primary issues we face while manufacturing in China are lead times, or the time it takes between beginning to manufacture a part and when it’s received. During the design and manufacturing process, there are many revisions required to fine-tune each component and assembly process. Typically, two or three rounds of changes are commonly required before a product is ready for large-scale production. These changes may take between a day and week to implement in China, but then require 3–4 days of shipping to a designer in the United States to validate the change or request additional fixes. Multiply this by a dozen or so parts all requiring changes, and this phase of iteration can take months.
In the past, I’ve traveled to China for a week or two at a time to be at the factory during this phase to speed up the process. A day in China can easily save 3–5 days of shipping and communication, so it’s well worth the 16-hour flight and jet lag. Another factor impacting lead times is the speed of shipping manufactured goods. Typically, pallets of packed products are loaded onto shipping containers, which are placed on a boat and sent on a month-long journey to a shipping port in the United States, where the products are sent to distribution centers. While boat shipping is cost effective, COVID has caused massive shipping delays and increased both the cost of shipping and the time it takes. To reduce shipping times, some companies are forced to pay significantly more to ship via airplane. Overall, the costs of shipping have increased dramatically over the past few years, and these costs get passed onto customers as well. Manufacturing in the United States would mitigate some of the shipping costs, at the expense of additional shipping costs during the manufacturing phase due to the lack of a true manufacturing hub in the country.
There are companies trying to overcome some of these hurdles, such as Tesla, which has been building “gigafactories” across the country to manufacture electric vehicles and batteries since 2018 and presents a compelling argument against the idea that manufacturing in America isn’t viable. Their secret lies with two strategies — vertical integration and a focus on automation. Unlike many factories, Tesla manufactures a majority of their components in-house and controls the manufacturing process themselves.
Most automotive companies lean on vendors to manufacture sheet metal components for them, building custom parts to spec and shipping them to a final location for assembly. Tesla has invested millions of dollars into turning sheet metal into final components within their gigafactories, reducing part costs and allowing for a tighter control of the production process. Tesla also invested heavily in automation , replacing tedious or lengthy assembly steps with carefully orchestrated robotic arms working in tandem with skilled workers to quickly build vehicles. This video from 2016 shows some of the automated manufacturing of sheet metal components for the Model S, and recently, Tesla began using a massive die-casting machine to create a single part that can replace a current assembly of around 70 components. This focus on automation reduces the need for additional labor and allows for faster and more efficient production lines.
Not every company has a few billion dollars laying around they can invest in vertical integration and automation, however, so they look elsewhere to manufacture their goods. FInally, a car is expensive to ship across the ocean since it’s bulky and not space efficient due to the empty areas inside, while a shipping container filled to capacity with goods is relatively inexpensive. Manufacturing these large and expensive-to-ship products near the customer saves costs and reduces the time it takes to deliver to the end user. Tesla hasn’t removed any of the existing barriers to manufacturing domestically, but it has displaced and reorganized the supply chain in favor of producing this specific product at a heavy investment.
Which is right for you?
There are certainly pros and cons to manufacturing domestically or in China. Most customers won’t tolerate a 2X price increase that comes with domestic manufacturing, and China already has an advantage in experience, speed, and sheer manufacturing volume. I believe that the answer is to not try and compete at all, but to innovate like Tesla did and leverage the benefits of each method. Some customers may be willing to pay a premium for a product manufactured domestically, ethically, or if it’s part of a way to subvert the existing supply chains.
It’s clear that the United States isn’t set up for manufacturing consumer goods using traditional processes, but it’s possible to focus on what new technologies are available to make the next generation of products. For example, instead of building new injection-molding facilities that require expensive machines and molding equipment, material handling and storage facilities, and skilled labor, a new manufacturer might consider building factories that leverage cutting-edge CNC machining and 3D printing technology.
New advances in 3D-printing technology from companies like Carbon 3D and Desktop Metal enable high-quality and low-cost manufacturing of intricate components that would otherwise require multiple assembly steps and parts. These technologies enable customization and changes to the parts that can be realized immediately — whereas typical manufacturing changes require weeks and can cost thousands of dollars to implement. Similarly, the cost to automate production lines has decreased dramatically over the past few years. While this may reduce the number of humans working on a production line, it also generates new opportunities for maintaining and programming these machines and replaces unfulfilling and tedious roles with robots that can work for hours on end. The creation of agriculture and farming kicked off a drastic change in how humans spent their time, and allowed for the arts to flourish. Maybe a similar impact will be seen when we no longer need to work long hours at repetitive jobs.