A Great Post on Home-Shoring on the Manufacturing Innovation Blog

The Manufacturing Innovation Blog recently published a great post on why you should be HomeShoring. And while they are choosing to use the less precise term of re-shoring, they are making the same point that SI has been trying to make for six years – for many of you, it’s probably time to bring manufacturing home (or at least back to North America as a starting point).

Asia is not the low-cast locale that it used to be. When you factor in:

  • steadily (and sometimes rapidly) increasing labour costs
    with senior managers in several emerging markets now earning compensation that matches or exceeds compensation for the same position in the Americas and Europe
  • the high costs related to supply disruptions
    as it can easily take 45 days to replace a lost shipment or correct a stock-out
  • quality and rework problems
    that are very expensive to fix when the defect isn’t noticed until the first shipment arrives in the Americas
  • intellectual property theft that is very common
    and the cheap copycats that sometimes hit the Asian market before your own product is ready
  • the costs of dealing with the bureaucracy and red tape associated with foreign (and even local) governments when off-shoring
  • steadily increasing transportation costs
    as the price of oil continues to rise, the price of insurance continues to rise as piracy increases, and carrier profit margins continue to rise as demand rises and supply stays steady
  • the cost of communication and management
    as regular travel and site visits are required, and airfare keeps going up
  • steadily rising utility costs
    as demand for energy is soaring in the developing world
  • the cost of non-patriotism
    and the inability to sell to governments and other agencies that have to “Buy American” (and frown on companies that produce all their wares overseas)
  • the other hidden costs that

the reality is that, when you do the Total Cost of Ownership equation, and also factor in the productivity you can get in a modern manufacturing plant with lean processes and a well educated workforce, it’s often cheaper to produce the product at home in America! Unless you’re talking Fortune 100 economies like scale, and are ordering millions of units like Apple does, you’re not getting Foxconn economies of scale and the 10% to 20% savings that lured you over there a decade ago just aren’t there anymore.

It’s time for North America to rebuild and strengthen its manufacturing role as the world’s manufacturing leader. The industrial revolution and the manufacturing era that followed is what allowed America to overtake Britain as the number one country in the world (in terms of GDP). I truly believe that if America does not immediately embark down the manufacturing path again, China will overtake America by the end of the decade. While it might be inevitable that someday China will overtake the United States of America as the number one producer of GDP with four times the population size and a mission to reclaim their former glory, there’s no reason that such a rise to prominence can’t be delayed for a couple of decades. But that will only happen if America focuses on what made it great, not pointless political agendas and filibustering in the Senate.