Jobs 'Insourcing' Gets Another Boost from Starbucks

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Starbucks CEO Howard Schultz (AP)

Over the last few years, Starbucks (SBUX) CEO Howard Schultz has made it one of his personal missions to put Americans back to work. And he's actually doing it.

Last Friday, the company announced it will build a state-of-the-art manufacturing facility in Augusta, Ga., that will employ 140 people. This comes after the company's announcement last month that it will source a line of coffee mugs from a plant in East Liverpool, Ohio, one of the country's oldest ceramics manufacturing towns.

Call it insourcing. Call it reshoring. Call it whatever you like, but bringing jobs back to the U.S. is starting to look like a trend.

Who's Doing It, and Why

The Wall Street Journal is reporting that a survey conducted by supply-chain expert and Massachusetts Institute of Technology professor David Simchi-Levi shows 14% of 108 major U.S. manufacturers plan to bring some of their manufacturing capability back to the U.S.

Some cite political pressure to do so, but others cite other factors, including the following:

  • Being able to bring products to market more quickly
  • Lower transportation and warehousing costs
  • Better quality
  • Better intellectual property protection

Some of the companies besides Starbucks that are currently reshoring some of their manufacturing -- or are planning to -- include:

  • Google (GOOG), which will be making its new Nexus Q media player here, a rare event in the world of consumer electronics.
  • Caterpillar (CAT), General Electric (GE), and Ford (F), all of which have made commitments in the last two years to move some currently offshored manufacturing back to the U.S.

Schultz: "We Can Make a Difference"

 Starbucks mugs from American Mug and Stein"There are thousands of facilities like the one we found in East Liverpool, and hundreds of small towns in America that have been left for dead. I think we're better than this. We can make a difference. We can't be bystanders." So said Howard Schultz last month on his decision to source a new line of Starbucks coffee mugs from American Mug and Stein in Ohio.

Schultz got passionate about the depressed state of the American labor force not long after the financial crash. The plight of millions of displaced workers inspired him to start "Create Jobs for USA": a corporate initiative that teams the coffee retailer with Opportunity Finance Network, a national network of specialized low-income lenders, to invest in low-wealth American communities.

Schultz seeded Create Jobs for USA with an initial grant of $5 million from the Starbucks Foundation. And if you go into any Starbucks cafe today, for $5 you can buy a wristband with the word "Indivisible" on it, the proceeds from which go to the Create Jobs for USA foundation.

Augusta, GA (Sir Mildred Pierce, Flickr.com)Get Ready to Brew 'Ready Brew,' Augusta

Starbucks' new $172 million manufacturing plant in Georgia will make what are called soluble products, which include the company's VIA Ready Brew instant coffee, as well as the coffee base for its wildly popular Frappuccinos and other ready-to-drink beverages.

Approximately three-quarters of the positions will be what the company is calling highly skilled manufacturing jobs, which will include engineering technicians, roasting operators, and soluble process operators. The remaining jobs will be management and administrative staff.

Starbucks also says that the plant will create "hundreds of indirect jobs related to construction, shipping, and other supply chain functions." The new facility is scheduled to open in early 2014. It will be the company's fifth manufacturing plant in the U.S.; the other four are green coffee roasting facilities.



When $172 Million Is Not Enough

As if building the plant wasn't enough, part of the Augusta project also includes a $200,000 investment in the community. Over the next several months, Starbucks will work with elected leaders and civic organizations to support programs that will help Augusta develop a deeper sense of community.

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"During such challenging economic times," Starbucks executive vice president Peter Gibbons said in a recent statement, "I am thrilled that we are creating jobs and building something special right here in Georgia. With access to a skilled labor force, advanced technology, and critical transportation and logistics infrastructure, Augusta is a great example of how building high-tech manufacturing facilities in America makes good business sense."

Good for American business, and good for American workers. That's a trend worth raising a Grande Latte to.

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Jobs 'Insourcing' Gets Another Boost from Starbucks

Nucor (NUE)  A company in a cyclical industry like the steel-making business could certainly be excused for paring down its workforce during tough times. During the Great Recession, Nucor's revenues were cut in half -- and yet the company didn't lay off a single worker.

Following a plan instituted by his predecessor, F. Kenneth Iverson, CEO Dan DiMicco has the company carry out a "pain-sharing" program when business is slow. Executives are the first to take pay cuts -- and they can be steep. After that, hours are reduced. That can hurt, but in the end, everyone keeps their jobs.

Whole Foods (WFM)  Sure, it's great that this grocer is encouraging Americans to eat smarter, but that alone isn't enough reason to celebrate it. The presence of Whole Foods has encouraged the proliferation of organic foods, which are unquestionably better for the environment. The company's color-coded seafood sustainability index encourages customers to consume responsibly, and it has taken huge steps to encourage sustainable farming in Costa Rica.

But it doesn't end there: Whole Foods also has an admirable approach to salaries. Co-CEO and founder John Mackey gets a $1 salary and took home just $78,000 in 2011 in accrued vacation time; no executive is allowed to earn more than 19 times the average worker's total pay.

Berkshire Hathaway (BRK-B)  Warren Buffett's baby makes it on to the list for how it's run: with an uber-long-term horizon and the utmost respect for shareholders. Arguably the greatest investor the world has ever seen, Buffett has also set the standard for transparency when it comes to communicating with the financial community.

Case in point: the David Sokol fiasco of early 2011. Sokol, one of Buffett's top charges, convinced Berkshire that Lubrizol -- a chemicals company -- was worthy of acquisition. The problem: Sokol held a substantial amount of Lubrizol shares that stood to appreciate upon the acquisition, and he didn't disclose the holding.

Sokol left the company around the time this information became known. Buffett was quick to give a full account of the situation, baring all for outsiders to see -- including his later bewilderment with Sokol's behavior.

Starbucks (SBUX)  Sure, it's easy to see this coffee king as a symbol of all that's wrong with corporate America. Satirical newspaper The Onion once joked that the stores were so ubiquitous, a new Starbucks was being opened in the restroom of an existing Starbucks.

All jokes aside, the company has been a model employer and partner with suppliers. Any employee who works just 20 hours per week is given health-care coverage. During the economic downturn, the company spent more money on this benefit annually than it did on all the coffee it bought. Starbucks has spearheaded the move for fair-trade coffee as well. It is the world's largest purchaser of fair-trade coffee, and it often pays above market value to its producers in developing countries.

And this past year, CEO Howard Schultz launched a drive to kick-start American job growth. In the program dubbed "Create Jobs for USA," the company collects donations from customers. All of the donations are poured into a fund that facilitates micro-loans to spur small-business job growth.

Costco (COST)  Competitor Walmart (WMT) has been in the headlines a lot lately. Whether it's for bribing officials in Mexico or not allowing employees to form unions, there seems to be a dark cloud hanging over the company. So why doesn't Costco get any bad press when the majority of its employees don't have union representation either?

It's actually quite simple: The company believes in its employees, and it backs that up with its actions. Employees are paid an average of $17 per hour and have generous health-care and retirement benefits -- two things Walmart employees certainly can't claim.

And customers are huge beneficiaries as well. Costco has razor-thin margins -- which means nearly every penny of savings Costco can squeeze out using its size and efficiency is passed on to customers. The company's profits, in fact, are almost entirely accounted for in membership dues -- not sales. The approach has worked out well for shareholders, too; including dividends, Costco shares have returned 131% over the past decade, doubling what the larger market has offered up and quintupling Walmart returns.

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John Grgurich is a regular contributing columnist to The Motley Fool, and owns no shares in any of the companies mentioned in this piece. The Motley Fool owns shares of Ford, Starbucks, and Google. Motley Fool newsletter services have recommended buying shares of Starbucks, Google, and Ford, as well as creating a synthetic long position in Ford and writing covered calls on Starbucks.


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