So, are the positives we’ve seen recently that made the U.S. a preferred source country for manufacturing no longer valid?
Hardly. While the aforementioned costs have indeed decompressed, other issues have replaced them that will continue the near-sourcing trends of the past 12 months.
Your prospects in the U.S. must still consider the total cost of ownership. The global financial crisis makes inventory a really BAD thing, due to the unpredictable future behaviors of consumers (“What if I have to sit on this product; What if it won’t sell?”). Long, global supply chains simply aren’t very efficient for maintaining a just in time inventory strategy. The fact is, volatility of the global markets makes reducing logistics costs and better management of supply chains just as important today as the fuel and currency conditions did months ago. Add to that the continuing inflation and rising labor costs in China, and the options to cut costs and reduce long-term inventory risks are pretty clear.
Quality is the bugaboo that we warned everyone about. While China and Asia in general are improving their technology adoption and competence, they are still a long way from feed and speed and design nirvana. The costs and effort to maintain quality for high-tolerance parts and complex assemblies long-distance—while acceptable a few years ago—are now being scrutinized as potential cost targets. Costs to rework or repair products with unacceptable tolerances and quality are becoming less acceptable, as well. Localized or regional manufacturing makes sense in any environment for many higher-tech or high-demand products, for the same reason that cellular manufacturing and lean principles work—they reduce waste, require less resources to manage and directly contribute to the bottom line.
Green manufacturing isn’t going away. Despite the distractions of the economic turmoil, the green cow of manufacturing and business is out of the barn. Its impact on costs is becoming more obvious to pragmatic, cost-conscious buying organisms. The simple truth is: global supply chains aren’t green. Manufacturing nearer the source is.
We hear from manufacturers everyday that are seeing work coming back from Asia and other low-cost countries, and they cite these same reasons for regaining this work. It’s not a tsunami yet, but it is happening.
The mantra of “free and open markets” that fueled the dogma of off-shoring over the past decade works both ways. In the 80s when outsourcing many corporate functions was en vogue, companies began to realize that not all functions were best maintained outside their corporate walls—and they pulled those roles and functions back in-house. We’re seeing some of the same dialing in today as companies realize that sourcing is a balance, and that the knee-jerk reaction to the low-hanging fruit of low-cost manufacturing may not be low cost after all.
How the economy goes is still up in the air. Uncertainty will hang over us for the first months of 2009. But understanding these shifts and how they’re happening can help manufacturers to not just survive and thrive in volatile times—capitalizing on them may be key to attracting and retaining work to our country.