The Reshoring Trend


These are exciting times for the rebounding U.S. industrial base. Since the end of 2012, we have heard the news of Apple’s plans to move some Mac production back to the United States, and of Walmart’s commitment to spend $50 billion on additional U.S.-made products over the next decade. While these are small steps relative to the companies’ scale, it is a big deal that large corporations are making significant and well-publicized efforts to bring production back to the United States. And this is just the latest on the heels of the 50,000+ manufacturing jobs that have been added as a result of reshoring in the last three years.

There are other clear signs that the economic logic of local sourcing versus offshoring is penetrating the consciousness of both the business world and consumers. This past January, the Reshoring Initiative won a debate [1] in The Economist, supporting the motion that multinational corporations have an obligation to maintain a strong presence in their country of origin. This was a great achievement since the majority of Economist readers (the voters) traditionally support laissez-faire free markets and 100 percent profit maximizing over longer-range thinking that more fully recognizes corporate costs and risks, and considers the value of a strong society to the corporation and its shareholders. Voters, and especially the manufacturing community, stepped up and made it clear that investing and producing at home is a priority and is the choice that most benefits shareholders, companies and country alike.

Consumer preference is another indicator of bolstered support for U.S. manufacturing. Boston Consulting Group recently released two survey reports[2] pointing to a strong and growing consumer preference for “”Made in the USA”” products, and to a marketing advantage for brands with the Made in the USA label. They report, “More than 80 percent of U.S. consumers stated that they are willing to pay more for products labeled “Made in USA” than for those labeled “Made in China.” Concerns about quality and a desire to keep jobs in the U.S. were the key drivers.”

Reshoring improves U.S. competitive advantage by strengthening R&D

For the electronics and technology sectors, every reshoring case matters. Reshoring improves U.S. competitive advantage by strengthening R&D, and reducing IP loss. Returning manufacturing to the United States, of course, also adds jobs for electronic, computer and software engineers. The relationship between engineering and production is well understood: innovation works best if they are together. Harvard Business School Professors Pisano and Shih have documented the negative impact of separating these critical functions [3]. It is in the self-interest of engineers to encourage domestic manufacturing, because if their companies offshore manufacturing, engineering is likely to follow.

In addition to OEMs (original equipment manufacturers), contract manufacturers also reshore. For example, Zentech [4], an EMS (Electronics Manufacturing Services) company reshored over $1M in manufacturing in 2012 with plans to reshore even more in 2013. President and CEO Matt Turpin reports, “”Zentech is experiencing growth in all industry sectors and continues to see opportunities in the area of reshoring. CEOs and CFOs are realizing that total cost of ownership (TCO) for offshore manufactured goods is rising even faster than per-unit costs for the same items. Since focusing on reshoring, Zentech experienced a 50 percent growth in its customer base in 2012, and is forecast to increase revenues by as much in 2013. Many of these new customers have the ability to utilize offshore EMS providers but fortunately understand the TCO implications.””

Reshoring is based on the economic logic of producing near the customer

This logic applies to all manufacturing companies in their own sourcing decisions and in their sales efforts versus offshore competitors. As companies adopt a more comprehensive total cost analysis they are finding that rising offshore labor rates (going up by 18 percent per year in China, 500 percent in the last 12 years) combined with other “hidden costs” of offshoring often counterbalance any remaining savings from cheap price or labor abroad. An example of a hidden cost is millions of counterfeit and scrap electronic components from China getting into military and other systems. Reshoring more parts reduces this problem and increases the quality and safety of U.S. products.

The trend of returning to local sourcing is a shift in understanding and approach that has major positive implications for individual companies and the national economy. First, reshoring can improve the bottom line for a wide range of companies. Second, bringing manufacturing jobs back stabilizes the economy and makes the nation more self-sufficient. If the resurgence of American sourcing continues, we will see a large reduction in imports, which is the most efficient way to lower the trade deficit, the budget deficits and unemployment.

Reshoring is a Long Term Business Decision

The key to successful reshoring is for companies to use a comprehensive Total Cost of Ownership (TCO) analysis that calculates the true cost of offshoring. The non-profit Reshoring Initiative provides free TCO Estimator software. The initiative also offers a database of 380+ reshoring articles and a Case Studies feature where companies can share their real cases of reshoring. These resources are available on the website at: www.reshorenow.org.

The impact of using TCO analysis instead of price for sourcing decisions is demonstrated by a statistical analysis of TCO user calculations. Figure 1 aggregates the results for 27 recent cases in which users of the method had compared sourcing in China versus the United States.

Check out the whole article with images from the source link below.

Source: cerasis.com/2013/09/25/reshoring/
Image: Same

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