Re-Shoring’s No Trend, But It’s Real, For Good Reasons – Procurement Leaders (blog)

My colleague Jonathan Webb, who, as head of strategy research at Procurement Leaders, has his finger on the pulse of the function, recently blogged about the supposed trend of re-shoring.

Despite the hype, there is no such trend, he writes. In fact, the trend may be in the other direction, his research shows, with an increasing number of companies opting to expand their offshoring activities. Much as I would like to, I can’t argue with his conclusions. He has solid research on his side. I have only anecdotes.

And yet, something about the whole issue gnaws at me. Maybe it’s how you define a trend. Or, maybe it’s the part of his headline that says “no-one is doing it”. Some companies are doing it, as he himself mentions further down in his text. Also, while anecdotes can’t compete with extensive research, they aren’t trivial. And the companies have good reasons for their re-shoring decisions.

Take, for example, the case of Stanley Black & Decker, one of the companies Jon cites as bringing some manufacturing back. CEO John Lundgren says the re-shoring move has, among other positive things, shortened the time between product design “and the customer’s shelf”.

That means the company benefits from sales of its new products sooner. He further says that the cost difference between China and the US used to be about 5%, but “now it’s parity”. And, he adds, customers seem to be happy with the “built-in-the-US-with-global-components” strategy. That’s no small matter.

Lundgren’s experience hints at the broader issue of re-shoring vs offshoring: the importance of total cost of ownership (TCO). It’s hardly a new concept. The late management guru W. Edwards Deming articulated it many years ago, advising managers to look beyond the price tag and instead minimize total cost. Harry Moser and Sandy Montalbano, of The Re-shoring Initiative, call it common sense, and have written about the waste that can come from offshoring, as well as logistics costs, time lost, potential loss of IP, and the missed opportunities for collaboration between design and manufacturing, where much innovation takes place. Are CPOs considering those factors?

Some are and are recognizing the importance of producing products closer to where most of their customers are, which can mean re-shoring, or, at least, near-shoring. Presumably, that’s why an increasing number of US businesses are slowing down their overseas plants and opening up manufacturing capacity at home.

Perhaps there are too few such companies to call it a trend. And no doubt, the potential for lower parts and labor costs dictate that some manufacturing will always be done offshore. But as Jon writes, things are subject to change. If the TCO argument is correct, if it’s better economically to produce closer to the customer, if that can mean re-shoring, and if, as Jon suggests, category managers “look at the whole picture…”, maybe eventually a trend toward re-shoring will emerge.

That’s a lot of “ifs”. Let’s keep checking the research.

This article is a piece of independent writing by a member of Procurement Leaders’ content team.