Made in the U.S.? It May Not Be So Simple

These labels of course imply manufacturing in the United States. But depending on context, that’s often not the full story. 

Whether we see it or not, we all experience manufacturing in our everyday lives. A simple example: baking cookies.

In its basic process, we could describe cookie manufacturing as mixing flour, sugar, milk and eggs, then baking pieces of that mixture to delicious perfection. If we did this commercially in say, Turtletown, TN., we’d label the cookies “made in the U.S.,” right? Well, let’s consider the ingredients. The sugar likely came from Brazil — the top producer in the world.

For our cookies, the other ingredients (flour, milk and eggs) would likely be U.S.-sourced. But the dollar value for Brazilian sugar might be more than 50 percent of the total dollar value for all ingredients.

To further complicate things: Imagine our mixing and baking was done across the border in Mexico, and then the product was sent to the U.S. for packaging. Even if U.S.-based labor was used for packaging and handling, the resource dollar value of the equipment (mixing and baking) could many times exceed the dollar value of that domestic labor.

The packaging could claim “made in the U.S.” — even though the outsourced ingredients and labor make up most of our cookies’ dollar value. 

The deeper you dive into production levels, the more complex this becomes. For example, a variety pack of cookies could have a dozen different flavors — five of which are baked in the U.S. Does this mean the whole pack qualifies as “made in the U.S.”? What if all labor used to assemble the pack was U.S. workers?  

Understanding Country of Origin

We can complicate our scenario even more by bringing in the concept of “country of origin” (COO). Some trade agreements call for certain COO percentages from preferred countries in order to qualify for different tariff rates. These agreements can add up to hundreds of millions of dollars saved by a single company.

Tracking COO is also required by some governments or regulators. Other reasons include freight cost differences, vendor performance issues — and even sourcing perception. A whiskey originating in Scotland, for example, might be perceived as superior in quality than a whiskey originating in Japan.  

Recording and substantiating COO percentages can be very complex, and even some of the most robust systems have rudimentary COO recording capability. Some issues that should be addressed:

• A company might be required by a customer to buy only from suppliers that source from approved countries. But when a company buys items for resale, does it track and provide true origin? This information usually comes from the supplier, and it can be difficult to acquire (without significant effort).
• A company might buy for resale an item that can be sourced from multiple countries, but a customer might only accept items from an approved list. Tracking those items in a warehouse with various quantities of multiple COOs can be a logistics nightmare.
• Most inventory planning systems show on-hand quantity and expected quantity (based on replenishment and demand) — but not organized by COO.

New tools to manage COO requirements, including information data systems, can help navigate these issues, but the cost can be high — and they’re almost always proprietary. Many companies resort to primitive or manual systems.

Though complex, understanding COO can be crucial for businesses in an age of growing global trade. 

Curt Bouler is director of supply chain consulting for Tata Consultancy Services.