Headed Home: The Role of Proximity in On Shoring

There is a new kid on the block, aspiring to become the No. 1 driving force behind onshoring: proximity to customers.

For all the rage about soaring industrial wages in China turning US companies back to the homeland, some observers believe moving closer to the customer base comes with advantages that have yet to be widely considered.

A report from McKinsey & Company put the importance of proximity to demand and innovation this way:

Both are crucial in a world where evolving demand from new markets places a premium on the ability to adapt products to different regions and where emerging technologies that could disrupt costs and processes are making new supply ecosystems a differentiator.

Chris Anderson, chief executive of 3D Robotics, took another approach:

The metabolic rate of innovation in technology has risen. The [product] cycles of the Samsungs and the Apples have put pressure on everybody else in the electronics industry to maintain that same kind of cycle. That’s faster than it used to be and it’s too fast for a 12,000-mile contract.

Polymera Inc., is an example of an American company that relocated its entire polymer factory from the Middle East to Ohio for the sole purpose of getting closer to its customers and suppliers. Tired of waiting four to five weeks for shipments to clear the docks overseas, president Maan Said decided to make the move and has since seen sales double every quarter.

Moreover, a survey of 229 companies in the electronics industry with global sales totaling $930 billion echoed Said’s reasoning, citing being closer to the customers as the primary reason to establish new operations in the United States. In the same vein, nearly 80% of the companies included in a study by the Hackett Group indicated responsiveness to local customer and market needs played an important or very important role in their manufacturing sourcing decision.

The benefits are counted in leaner supply chains, reduced transit times, reduced transportation costs and risk, and quick corrections of any defects, essentially creating a “win-win” for both the supplier and the manufacturer.

In addition, in terms of innovation there is growing evidence companies have a lot to gain from keeping designers and manufacturers together.

New investments in the United States by automakers such as BMW, Ford, and Chrysler illustrate the point. After the nosedive in 2008 of the American automobile industry, domestic demand has picked up. Capturing customer preferences and translating those preferences into new designs is easier when all the players — innovators, makers, and consumers — are not kept in isolation, oceans apart.

For Motorola, onshoring the assembly of its flagship smartphone, Moto X, brought an advertising campaign — “Designed by you — assembled in the USA” — and an opportunity to allow customers to personalize the products.

What do you see as the main benefits of proximity to the customers?

Related posts: