In some industries, the US is now a low-cost country due to high transit costs, rising low-cost country labor costs, and high productivity when compared to certain low-cost and emerging economies. As a result, it is not only making sense to pull manufacturing back from China to Mexico for many North American operations, but to also pull manufacturing back to the US. Why is this? In a nutshell:
- Lower Freight Costs
With oil rices back to $100 a barrel and rising again, the cost of ocean freight is climbing again, transportation and logistics providers are slapping fuel surcharges on your invoices again, and air is out of the question for anything but high-value, high-density, short life-span goods (like laptops and smartphones).
- High Speed-to-Market Times
Insetad of waiting an averge of 3 weeks for the container ship to come in, you’re generally at most 3 days, by road, to get your product from your DC to your most remote store or customer location.
- Lower Inventory Times
No need to have product in intermediate warehouses waiting for enough product to fill a TEU or to carry a month (or more) worth of safety stock in the event that an ocean shipment is lost or a supplier misses a ship date.
- Time Zone Advantages
Follow-the-sun might be good for service operations, but it’s not good for managers who have to quote production in multiple time zones, work twelve hours a day, and never get enough sleep.
- Lower Labor Costs per Unit
A modern factory with a significant amount of automation and highly skilled workers can produce more units per worker hour than an off-shore factory that is only patially automated and run by poorly educated low-skilled workers. So even though the workes might be making 15 – 25 an hour compared to the 3 – 5 an hour, US, that you’d be paying a foreign worker, if they can crank out 5 – 10 times as many units per worker hour, it’s actually cheaper to produce at home. And in many US small towns hit hard by the recessions in recent years, labour really isn’t that expensive to begin with — and loyalty is higher than bustling India industrial centers where your workers leave as soon as a job across the street where they can get 5% more opens up.
- No Culture Clashes
If an organization has a low CQ (cultural quotient), working with offshore teams can be a challenge and overall efficiency can be low, and if the organization is not selling its products and services abroad, it’s sometimes not worth the effort to manuacture offshore.
- Low-Cost Factory Repair
If the product is complex or requires specialized machinery to repair, that is typically only available on a factory floor, and the factory is half a world away, chances are that a faulty product is just going to end up in the trash and increase overall costs. But if the product can be cheaply shipped back to the factory, chances are it will get repaired or refurbished, and losses will be minimized.