HOUSTON–()–After decades of relying on global manufacturing sourcing, many U.S.
manufacturing firms are taking a closer look at reshoring – a term
referring to manufacturing that was previously done in foreign countries
and has been moved back to America. According to an analysis by Acorn
Systems, a leading provider for profitability and cost management
solutions, 28 percent of its current manufacturing customers have saved
an average of $23 million in annual costs from domestic sourcing.
“We are certainly addressing the topic of reshoring with our current
U.S. manufacturing customers. With the help of our profitability and
cost management solutions, a growing number of our manufacturing
customers can see that, from a pure financial perspective, reshoring is
the best business decision for them”
Acorn Systems’ analysis shows that a major driver of the reshoring trend
is the manufacturers’ customers themselves. One specialty retailer
evaluated all its product categories and analyzed domestic versus import
sourcing and then rationalized for lowest cost sources. For many low
dollar items, U.S. sourcing is actually more cost-effective when the
total picture of all costs is included. Acorn has observed both this
indirect and direct evaluations resulting in demand for reshoring.
Gone are the days of low-cost labor to get the “cheapest price” for an
end product. U.S. manufacturing and retail companies are now giving more
attention to attaining the “lowest total price” or “net landed costs” to
avoid the sting of rising wages for Chinese workers and a strengthening
Chinese currency. According to a recent report from The Hackett
Group, the most important decision-driver in the sourcing strategy
for manufacturing firms is net landed costs, which incorporates
components historically overlooked, such as raw material costs,
manufacturing costs, transportation and logistics, inventory carrying
costs, taxes, duties, etc.
Other factors cited when considering the option to reshore include:
-
Product quality – For manufacturers, quality is always top of
mind. Justin Rose, a principal with the Boston Consulting Group says,
“You never know what’s being sourced from local suppliers and if it’s
up to quality standards.” Rose also points out that extra-long supply
chains add uncertainty to the shipping and distribution process,
causing manufacturers to hold a lot more inventory to ensure that
retailers can be kept stocked. -
Shorter product life expectancy and faster time-to-market: The
life expectancy of products is shrinking so it is important for
manufacturing firms to provide high-quality products as quickly as
possible to stay ahead of the competition. A recent survey by Mitch
Free, CEO and founder of MFG.com, indicated that locating
production near a company’s engineering/marketing teams provides
crucial collaboration for innovation and quicker time-to-market. -
Nationalism/political pressure: According to a recent
survey by Massachusetts Institute of Technology (MIT) engineering
professor, Dr. David Simchi-Levi, 21 percent of manufacturers listed
“pressure to increase jobs” as a factor in reshoring. Dr. Simchi-Levi
reported that survey respondents “appear to feel both political and
market heat to show that they make products in the U.S.”
“We are certainly addressing the topic of reshoring with our current
U.S. manufacturing customers. With the help of our profitability and
cost management solutions, a growing number of our manufacturing
customers can see that, from a pure financial perspective, reshoring is
the best business decision for them,” said Leland Putterman, CEO, Acorn
Systems.
Reshoring is a growing trend and is certain to be a major topic of
debate in the upcoming presidential election. President Barack Obama
recently announced plans for new tax proposals that would reward
companies for creating jobs in the U.S. and possibly eliminate tax
advantages for moving them overseas. Many high-profile manufacturers
such as Caterpillar, GE and Ford have already announced plans to reshore
some products to the U.S.
Other recently published surveys validate Acorn’s findings. The MIT
survey also shows that 14 percent of U.S. companies ultimately plan to
move some of their manufacturing back home. A survey by the Boston
Consulting Group (of 100 U.S.-based manufacturing companies with
sales over $1 billion) reported that 37 percent responded that they are
planning to reshore manufacturing operations back to the U.S., or are
“actively considering it.”
About Acorn Systems
Acorn Systems provides companies with profitability and cost management
solutions to drive better business decisions. Combining proprietary
technology with proven methodology, Acorn reveals enterprise-wide profit
opportunities. Our unique approach enables clients to make continuous,
fact-based decisions to improve their bottom line.
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