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Reshoring production demands careful management



More and more American manufacturers with supply chains based in Asian economies are bringing their production back to the Americas. The benefits they had found in low-cost labour in overseas economies have been steadily eroded in recent years, as offshore labour rates have risen by as much as 15% per year in some places. Wages in developing countries now average five times higher than they were 15 years ago. While costs were low it was worthwhile bringing in substantial inventory to cover the lead times involved in having production located on the other side of the world. This cost advantage is rapidly disappearing as Asian workers become more skilled and demand higher salaries.

A variety of factors has also meant that greater agility is often needed in the current economic landscape than can be tolerated by sourcing from overseas. Short lead-time demands by customers and lean business techniques that demand lower inventory levels work against the long purchasing cycles of offshore supply.

However, some companies that have reshored their production have found a number of challenges which, if mismanaged, can have a significantly negative effect on the bottom line. Relocating manufacturing can be costly under the best circumstances and there is opportunity in the process for all sorts of things to go wrong. Detailed planning is essential for any business planning relocation of production, especially when the move includes an overseas component.

Some points that must be considered while planning such a major move include:

  • Will the location planned for new production facilities have access to a sufficiently large and skilled labour pool? Some firms have found after building a new US plant that the region lacked workers with the skill profile needed. On the other hand, intelligent automation may reduce the number of skill workers needed. Training programs can sometimes overcome labour shortages, but have they been taken into account?
  • Think carefully before combining a relocation of production with a major undertaking such as ERP or SAP implementation. These are major projects in their own right and combining complex projects on top of each other can overwhelm a company, leading to lost customers, missed deadlines and cancelled orders.
  • Check availability of raw materials. Economies such as China have been soaking up global supply of a number of raw materials in the last decade and some may not be readily available in the quantities or at the costs required.
  • Is the necessary supply chain in place? If component suppliers remain overseas the extended supply chain may hinder production.
  • Where is the customer base? If your company is exporting to an overseas customer base, does it make sense to bring production back?

A careful analysis of these and similar concerns will go a long way to dodging complications that could otherwise crop up when reshoring production.

What concerns do you have about reshoring?



1 comment to Reshoring production demands careful management

  • We agree that careful planning is extremely important to successfully reshoring.

    The Reshoring Initiative Can Help

    The not-for-profit Reshoring Initiative’s free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases, companies find that, although the production cost is lower offshore, the total cost is higher, making it a good economic decision to reshore manufacturing back to the U.S.http://www.reshorenow.org/TCO_Estimator.cfm

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