We all have heard of Off-Shoring where companies move jobs out of the United States to save money, however, there is a nice trend of companies Re-shoring, where they bring jobs back to the United States that were once moved out of the United States. Why is this trend gaining steam…SAVING MONEY !!! Some companies have found that it is CHEAPER to manufacture within the United States. Small companies to companies like Boeing, Catepillar, General Electric, General Motors and NCR are looking to move some production back to the US.
Companies have been lured by the low piece cost they could obtain for moving production to low cost countries like China. However, some have found:
1) The Cost of Quality – many companies have found poor quality from overseas suppliers forcing them to reject full containers or more than 50% of a shipment routinely. This creates disruptions in your supply chain and has forced some companies to increase their inventory levels. Also, some have hired inspectors just to do a quality inspection on parts from overseas suppliers. So think, what is the cost of quality, increased inventory costs, supply chain disruptions, additional inspectors will increase the per piece price you were quoted.
2) Long Delivery Cycles – how responsive to the customer can your organization be if it takes months longer to get items from overseas suppliers than if an item is made within the United States. Some companies have had to forecast months out what items will sell and are not able to respond to actual customer demand quickly.
3) Stolen Intellectual Property – some companies have experienced counterfeit products in the market produced by the same overseas companies they have producing their products because intellectual property laws are harder to enforce in places like China.
Other Items Helping Re-shoring:
1) Chinese wages and shipping costs are continually increasing, while American wages have remained relatively flat.
2) Desire to be more responsive to customers by manufacturing where the US companies’ engineering base is for rapid innovation cycles. Also, when there are customer changes to an order, overseas production came create communication and delivery issues.
3)
American Productivity – American manufacturing has become more and more automated in the last decade removing much of the benefit of manufacturing in low wage countries. My company has even helped a variety of manufacturers become more productive using our
engineering pyramid methodology where we train them standardization, systemization, maximizing reuse and moving to more configuration engineering from starting from a clean sheet of paper with each design. All in an effort to become more productive and profitable.
4) Cash Management – typically orders have to be paid for before they are shipped from China and these orders may not arrive in the US for another 30 days. This practice ties up precious cash for longer periods of time that could be better used in the business.
Not all manufacturing is a candidate for re-shoring. Mass produced, labor intensive items will not be coming back. Look at the textile and apparel industries.
Thanks,
Ben Moore
Agent Technologies, Inc.
