By Kevin Meyer
We've mentioned the reshoring phenomena several times lately. Many companies are finally waking up to the realities of total cost when dealing with outsourced or offshore operations. The mainstream media is finally starting to take notice, such as this article in USA Today.
Faced with rising costs, General Electric is moving production of its new energy-efficient water heater halfway around the world. The country it's leaving? China. The one it's bringing 400 jobs and a newly renovated factory? The United States.
A small but growing band of U.S. manufacturers — including giants such as General Electric (GE), NCR (NCR) and Caterpillar (CAT)— are turning the seemingly inexorable offshoring movement on its head, bringing some production to the U.S. from far-flung locations such as China. Others that were buying components overseas are switching to U.S. suppliers.
Ford Motor said Wednesday that it's bringing nearly 2,000 jobs to its U.S. plants by 2012 from suppliers, including those in Japan, Mexico and India.
Yes, even GE, which was once at the point where it barely had any U.S.-based manufacturing and was actively working to push everything to "low cost countries." They, like other companies, have realized that "low cost" is a bit of a misnomer when you consider total cost.
There are myriad reasons for the shifts, often called "onshoring" or
"reshoring." Chinese wages and shipping costs have risen sharply in the
past few years while U.S. salaries have stayed flat, or in some cases,
fallen in the recession. Meanwhile, U.S. manufacturers have been
frustrated by the sometimes poor quality of goods made by foreign
contractors, theft of their intellectual property and long
product-delivery cycles that make them less responsive to customer
demand.Several cite the drawbacks of tying up valuable
capital in huge overseas shipments, and want to bring assembly closer to
engineers, suppliers and customers, concerns that mounted as makers
slashed costs in the downturn. Others are simply weary of midnight phone
calls — and multiple annual trips — to Asia."A lot of companies who have gone there to take
advantage of cheap labor are starting to tell us that if you (calculate)
total … cost and don't just look at wages, it's actually not worth
it," says Jeremy Leonard, consultant for Manufacturers Alliance/MAPI, an
industry-funded research group.
Where have we heard that before? Yep, right here, beginning many years ago. It's sad that it took so long to figure out the practically obvious, but still we'll give them a hearty welcome home… and good luck. They may need it.
Joseph T. Dager says
Good article and I believe you are right on about the reasoning why off-shoring may not be working as well as in the past.
However, rather than companies reacting as you mentioned, I believe that they are being futuristic as they see the buying dynamics of their customers changing. Customization and shorter cycle times have paved a new way in supply chain management.
A supply chain expert told me the other day it is not a question of how much inventory anymore but WHERE. Pull is becoming a reality and manufacturing offshore can only be done with a push mentality.
Peter Klym says
In France, we are seeing a similar trend, with maybe a novel difference – the government is actually providing the finance for the companies to come back.
More details here http://intl-blog.leanbusiness.fr/?p=250
Mark Graban says
I saw that article and instantly thought of this blog. I’m glad to see companies like GE are seeing the light that long, slow supply chains don’t always lead to the lowest total cost or the best customer responsiveness.
I’ve highlighted a few smaller entrepeneurial companies that have been reshoring for years in these podcasts:
http://www.leanblog.org/79
http://www.leanblog.org/83
Big business has a lot to learn from these smaller companies that find a way to be profitable in the US.
Dino Morson says
Here is a thought:
Will they succeed without implementing Lean methods? Or are they following the crowd?
Jeff Smith says
Why not get the best of both worlds and establish production in Mexico? I understand that the press has been negative recently, however the business statistics show strong growth – especially along the border where you can have low cost labor and US distribution.
Kevin says
Jeff – you might want to check out my post this morning on Callaway Golf…
Murali Mariappan says
With the recovery in the US economy tanking and Asia growing, there is lot of talk about doubling US exports (especially by the President). Are we all going to get busy complaining (and remain consistent) about making things here and having to use a long supply chain for customers in Asia?
Lennard Kepp says
Q:
“Why not get the best of both worlds and establish production in Mexico?”
A:
Mexico is the world’s No. 1 country for
kidnappings with more than 8,000 abductions reported every year.
Also tripple the Murder rate of the US.