Shift to Reshoring: Striking the Right Balance with Supply Chain

Gartner’s “Predicts 2012: Four Forces Combine to Transform the IT Landscape” states that by 2014, 20 percent of Asia-sourced finished goods and assemblies consumed in the U.S. will shift to the Americas. More than a decade after many manufacturing companies started moving their production operations to low-cost emerging economies, there is empirical evidence that a significant shift is taking place that will bring manufacturing jobs back to the U.S. According to an article in the Financial Times titled “Factories Begin to Shift Back to the U.S.” by @HalWeitzman, two-thirds of big U.S. manufacturers have moved factories in the past two years, with the most popular destination being the U.S.

Further, according to new research by The Boston Consulting Group titled “U.S. Manufacturing Nears the Tipping Point: Which Industries, Why, and How Much?”, the U.S. is poised to add approximately $100 billion in manufacturing output during this decade via higher exports and the return of production from China across industries.

What’s driving this trend? Gartner states that many companies underestimated the true costs of long supply chains offshored to Asia; miscalculating inventory costs, greater issues with product quality, lost sales or discounted prices due to long lead time. In addition to higher than anticipated overall product costs, offshore production also introduces a latency lag in bringing new products to market and responding to market trends.

While it’s clearly time for companies to assess their global manufacturing strategies, I believe that best-in-class companies will do so with a deliberate, balanced approach that considers the total cost of manufacturing a product and flowing it through the supply chain for a specific market before making any long-term capacity decisions. This means understanding the driving characteristics of the different market segments of the business and developing a strategy that involves holistic analysis, dynamic processes and the flexibility to continuously optimize across the global network with the speed of change.

Below are key considerations for manufacturers when leveraging segmentation to assess, define and create the best sourcing and supply chain strategies:

  • Drill into the cross-sections of the different market attributes and dimensions  to identify unique market segments. Companies need to move beyond simply looking at market demand and better evaluate the attributes of the customers, channels and product they service. For instance, a high-volume, low-configuration product with few options that moves through a particular channel to a specific market might warrant a different overall sourcing and supply chain strategy than other products that have volatile demand and high production costs.
  • Recognize the tradeoffs when developing a sourcing and supply chain strategy for each segment. Leverage network and sourcing optimization tools to evaluate the trade-offs between labor costs, logistics costs, inventory costs, quality assurance costs with the importance of speed to market. Execute with flexibility and efficiency. Optimally execute against differentiated production, service and logistics strategies with flexible capabilities that match specific market segments with the most efficient supply chain strategy.
  • Factor in the value of speed to market. Reshoring production should be considered when speed-to-market provides a competitive advantage. Consider moving manufacturing nearshore to where the demand is to decrease latency in go-to-market plans. This is especially valuable for companies with frequent new product introductions and short product lifecycles.

Managing the global supply chain with a holistic approach helps companies gain visibility and determine where they can realize the quickest speed to market with the lowest cost to serve. This means as consumers change their preferences, companies are able to swiftly devise an appropriate strategy and guide product inventories through channels and into the end customers’ hands.

Time will tell how the reshoring shift will impact the global and national economies.. What is clear is that today’s manufacturers need to leverage the right innovative technology tools to make intelligent business decisions. Accenture’s Richard Bergmann said it best: “In today’s era of permanent volatility, manufacturers need agile operating models to surpass the competition. An adaptable, cost efficient global manufacturing network not only improves financial performance, but can help respond to fast changing market demands and maintain the high levels of customer satisfaction that underpin long term growth.”

To learn more, I urge you to read an article I authored for Real Results Magazine titled “The Shift to Reshoring.”

Also, take a listen to an interview I did at JDA’s FOCUS 2012 conference on the topic of reshoring:

  1 Comment   Comment

  1. Excellent analysis of the evolution of global distribution networks. To take best advantage of these changes, small to mid-size manufacturers must implement the principles of FEWER, FASTER, FINER – smaller average order size, speed to market, and attention to product safety/quality exploits key weaknesses in the China manufacturing business model.

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