“When companies began shifting manufacturing facilities to Asia in the 90’s, a lot was based on cheap oil,” Simchi-Levi told Mass High Tech. “At that time, oil was maybe $25 a barrel. Now it’s closer to $100 barrel – that’s an increase by at least a factor of four or more, which has enormous implications on supply chain logistics and costs.”
Despite the rapid growth in sophisticated manufacturing infrastructure around the world, America’s technological edge is proving to be key in the fight against cheap foreign labor. “Companies are slowly realizing that when they increase automated manufacturing processes, it becomes less important to be located in low-cost labor countries,” said Simchi-Levi.
As a result, according to an April 2012 Boston Consulting Group survey of more than 100 US-based manufacturing companies with sales over $1 billion, 37 percent responded that they are planning to reshore manufacturing operations back to the US, or are at least “actively considering it.” The top factors cited in the survey were labor costs, product quality, ease of doing business, and proximity to customers.
In their own survey of just less than 200 manufacturing companies, Simchi-Levi and his colleagues went a little further. While their results were similar to BCG’s regarding companies considering relocating back in the US (33 percent), 13 percent of survey respondents confirmed that they were in fact moving manufacturing operations back here, citing three major reasons: time to market, product quality, and the hidden cost of offshoring.
ZeeVee Inc. of Littleton, a manufacturer of digital video distribution products, is one such company that has embraced reshoring after moving production to China.
“It worked for a while,” said Steve Metzger, co-founder and vice president of hardware development and operations. “Then we discovered a lot of hidden costs. First and foremost is travel – it costs five or six grand just to have someone visit a plant in China. The killers, though, were managing quality and the cost of doing business. You often have to pay the manufacturer when they ship, and then the product can be tied up on a boat for five or six months. As our volume increased, we had to tie up more and more cash up front, and so the paradox is, the more successful you become, the more cash poor you are.”
Metzger said that the key was automating as much of their manufacturing process as possible, minimizing the need for cheap unskilled labor while taking advantage of the US’s technological edge, employing fewer but more skilled manufacturing technicians here in the US instead.
“When you factor in transportation, duties, and the cost of fuel, then we’re pretty much in the same ballpark with roughly the same costs,” says Metzger.
Justin Rose, a principal in global management consultancy Boston Consulting Group, agrees that hidden costs and the unknown are big factors in deciding to bring operations back to the States.
“Quality is always a concern,” says Rose. “You never know what’s being sourced from local suppliers and if it’s up to quality standards.” Rose 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.
Rose is bullish on America’s manufacturing prowess and the country’s ability to rebound. “Conventional wisdom says that manufacturing is dead in the US,” says Rose, “but there is an extraordinarily large and robust manufacturing program here.” He sees the picture not so much as “us versus them” but as a more balanced supply chain, with risk being spread around to several global regions and companies benefiting from the unique advantages offered by each.
“Here in the U.S., we’re actually starting from a position of strength,” says Rose, “and we think things will improve significantly.
Source Article from http://www.masshightech.com/stories/2012/08/20/daily32-More-companies-bring-manufacturing-back-to-US.html
