Top 7 Reasons to Follow the On-Shoring Trend

For decades, it was accepted as conventional wisdom that moving production to overseas factories was a surefire way to reduce manufacturing costs, and thus boost a company’s profits. Since production required lots of labor, the reasoning went, moving the production to places where wages were a mere fraction of those in the U.S., would result in massive labor savings. An assembler in Chicago is indistinguishable from one in Chengdu.

This logic is becoming increasingly outdated as companies realize that moving production overseas doesn’t always deliver the compelling value it may have in years past, especially when firms take a closer look at the total costs of moving overseas production. As this five year old article from the The Atlantic demonstrates, an “on-shoring” (bringing manufacturing back stateside) trend has been building for some time now, even among high-volume manufacturing titans like GE.

Before we delve into the many advantages of on-shoring, let’s take a minute to clarify that on-shoring is the opposite of off-shoring (relocating manufacturing to a foreign country). Just as critical is the distinction between off-shoring and outsourcing. Outsourcing refers moving some or all of a company’s operations (e.g. production, IT, customer service, HR, etc . . .) to an outside partner. That partner can be across the street or across the Pacific.

Off-shoring is one type of outsourcing, but not all outsourcing is off-shoring. As we’ve explained in other articles on this blog, outsourcing can deliver many advantages to an OEM—from lower prices and shorter lead times from vendors to cost-effective, on-demand production capacity. But off-shoring’s track record of delivering cost savings is mixed at best, especially in the last 20 years. The now obvious shortcomings of off-shoring are driving the recent on-shoring trend among OEMs of all sizes.

And here are the seven reasons you should join them.

Factory wages, especially in China, have been steadily increasing. The original business justification for off-shoring was the much lower wages of foreign workers in developing nations like China.  As their industrial economies grew, so have the once cheap wages. This has eroded much of the promised labor cost savings of off-shoring.

When given a choice, US consumers generally vote with their wallet and buy American. For many shoppers, a “Made in the USA” label on your product can nudge them into buying your product over a competitor’s. Americans have made it quite clear that they are willing to spend a little more to support American manufacturing.

On-shoring can save you from logistic logjams. Off-shoring increases the logistical complexity, cost, and inertia of your supply chain. When transit time from their factory floor to your warehouse door is measured in weeks due to container ship lead time, your company is far less nimble to adjust production volumes to reflect market demand.

Off-shoring increases logistics costs. International shipping, tariffs, and the necessary overhead to manage an international supply chain add up to significant costs for the OEM.

Shorter product lifecycles require much closer collaboration between production, engineering, and marketing, which makes maintaining a responsive improvement process less possible when time zone differences and language barriers are present.

Ensuring quality product is easier with domestic production. When it comes to overseas factories, inconsistent quality is the only consistency. Besides uneven adherence to quality standards and current good manufacturing practices (cGMP), the inability to efficiently resolve quality issues once they emerge (and they will), is another reason why your company should give on-shoring  serious consideration.

Automation. Today’s American factories are becoming more reliant on robotics, automated optical inspection equipment, and other automation technologies. With greater efficiency, these companies are able to be more cost-competitive with its overseas counterparts now that China’s labor rates are on the rise. Increasing throughput for an OEM allows for them to compete with higher product sales, which in turn leads to larger bottom-line margins.

IP Protection. Patent and other legal protections for intellectual property are not enforced in many of the popular outsourcing countries. This exposes your core business assets to outright IP theft or blatant counterfeiting stealing your customers and damaging your brand.

On-shoring can produce large volumes of high-quality products very cost-effectively for OEMs of all sizes. When deciding where to manufacture your next innovative product, take a look at U.S. based contract manufacturers like RiverStar, who can fulfill your requirements while avoiding off-shoring’s pitfalls.

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Top 7 Reasons to Follow the On-Shoring Trend
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Top 7 Reasons to Follow the On-Shoring Trend
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Companies are now realizing that moving production overseas doesn’t always deliver the compelling value it may have in years past, especially when firms take a closer look at the total costs of moving overseas production.
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RiverStar Inc.
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