Category Archives: Manufacturing

The Sourcing Maniacs 2008 Vendor Tour Part V: Co-exprise

When we left the Sourcing Maniacs, they had just finished learning about BIQ (acquired by Opera Solutions, rebranded ElectrifAI) and the true meaning of spend analysis. We join them wandering the streets of Southborough, MA.

Yakko, Wakko, & Dot We’re the sourcing-maniacs
We’re zany to the max
We lost our pay-to-play contracts
Without a job we can’t relax
We’re sourcing-maniacs!
Wakko & Yakko Come join the ‘Riba Brothers
Dot And the ‘Riba Sister, Dot
Wakko, Yakko, & Dot Just for fun we ran around the corp’rate parking lot
They locked us in the boardroom whenever we got caught
But let us loose from the caboose
And now you know the plot!
Wakko So where are we going next, Yakko?
Yakko I don’t know, but I think we should move onto the C’s.
Dot Any cool C companies nearby?
Yakko None that I know of. I think they’re all in Pennsylvania, Illinois, or California.
Dot Well, we’re from California.
Wakko And I always thought Illinois was a railroad!
Yakko So Pennsylvania it is!
Wakko Pennsylvania is a railroad, too!
Dot So who’s in Pennsylvania?
Yakko If I recall correctly, CombineNet and Co-exprise.
Wakko CombineNet? I don’t think we’re smart enough to work for them. I still have problems with double-digit multiplication, I couldn’t do com-bin-a-tore-e-ul op-ti-my-za-shun!
Dot I guess it’s Co-exprise. What do they do?
Yakko Something called SLM.
Wakko Sea Level Measurement? In Pennsylvania? Cool! Do they have any yellow submarines?
Yakko I think it stands for Sourcing Lifecycle Management.
Wakko Oh. Well, maybe they have some baloney sandwiches. I’m hungry!
Dot You just ate two servings of Boston Baked Beans, drank enough tea for a party, and finished it off with an entire Boston Cream Pie!
Wakko I know … but I’m always hungry for baloney sandwiches.
Dot So which way to Pennsylvania?
Yakko Yakko licks his finger, sticks it in the air, and pauses.
This way!
Dot Let’s go!
  As per their nature, they start to sing.
Yakko, Wakko, & Dot We’re off to see Co-exprise
We’re gonna get our exercise
As it’s 600 miles away
But we’ll learn about SLM
And if it has a hidden gem
And how it can help you save
  The song goes on for a few hundred more versus which somehow manage to include references to roman aqueducts, visitors from Beetlegeuse Seven, South-going Zax, and something called PffT, which I always thought was the sound my cat made when she was cross. Including it herein would be almost as bad as subjecting you to Vogon poetry, so we’ll skip ahead to when the Sourcing Maniacs land in Wexford, PA.
Yakko, Wakko, & Dot We’re the sourcing-maniacs
…
Wakko Brooktree Road! I think we’re almost there!
Dot I see lots of office buildings!
Yakko This must be the place!
Dot Do you think they’ll talk to us?
Yakko Why wouldn’t they?
Dot They’ve been in stealth mode, hardly talking to anyone in the media besides the doctor and …
Wakko And?
Dot It looks like this place is access-controlled.
Yakko Well, rumor has it that a number of big companies that have DoD contracts are considering using Co-exprise’s solution. Companies that do military projects have to insure their suppliers have a basic level of data security in place, at least SAS 70!
Wakko Do you think anyone from the military could be in there now?
Yakko Relax, Wakko. I’m sure the military has forgotton all about that little incident where you mistakenly procured a real Tomahawk missile instead of the model rocket you were coveting.
Wakko But I almost blew up the valley!
Yakko But you can’t aim. It harmlessly exploded in the ocean. No harm done.
Wakko But the General said …
Yakko Look, someone’s coming out. Maybe we can talk to them out here. Would that be okay with you?
Wakko Ok …
Yakko Hi, I’m Yakko. Do you work for Co-exprise?
Man-in-Black Yes, I do. Yakko … Yakko … why do I know that name?
Dot I’m Dot.
Man-in-Black Dot. Hmmm. Wait a minute, you’re the Sourcing Maniacs!
Yakko & Dot That’s us!
Man-in-Black I heard you were let go from Ariba a while back. Sorry to hear.
Yakko & Dot Well, can you at least tell us about SLM and what you do?
Man-in-Black Man-in-Black pauses and thinks for a bit.
Well, we have been slowly spreading the SLM message, which we believe is the first major revolution to hit the direct sourcing space since one of our founders co-invented the reverse auction at GE, and we do want to get the Co-exprise message out when the time is right, so I’ll make you a deal. You promise to keep things under your hats for a couple of months, and I’ll tell you about the future of direct sourcing. Deal?
Yakko & Dot Deal.
Man-in-Black Wakko?
Wakko Wakko, who has somehow developed a fear of all men dressed in black, looks out from behind Yakko.
Yes, sir?
Man-in-Black Is it a deal?
Wakko Yes, sir!
Man-in-Black OK, follow me.
Dot Where are we going?
Man-in-Black The coffee shop on the corner. The most discreet place is a public place.
Man-in-Black So, do you know what Sourcing Lifecycle Management is all about?
Dot Managing the e-RFX and e-Auction process?
Man-in-Black Well, that’s what many people think, but it’s much more than that.

Many providers, particularly those that only service the indirect sourcing space, believe that sourcing starts with an e-RFX or auction for a commodity, results in a contract, and ends with order delivery. But things aren’t so simple in the direct space.

In the direct space, the lifecycle starts way back at new product design as you are sourcing not a pre-defined commodity part, but a custom-made part. You have to insure that the design is appropriate with respect to the capabilities of your potential supply base; you have to insure that the raw materials are available, in the requisite quantities, at the appropriate times, in the manufacturing regions; and you have to make sure that the projected cost does not exceed the maximum cost that would make the end product viable for sale in your target market. You also need to collaborate with your supply base in the design, as needed, to optimize the design for production.

Once you have the design, you need to go through a negotiation and collaboration intensive sourcing process to select one, maybe two, suppliers who will manufacture the part for you. This involves the sharing of confidential information, which needs to be done in a secure manner, as well as collaboration on forecasts and target delivery dates.

Once you have an award, you have to manage the procurement, which usually has to coincide with the procurement of other custom parts, which have to hit a single location at the same time for integration into the final end-product, which then has to be packaged and shipped to the end customer. This involves coordination between manufacturers, 3PLs, assemblers, and end retailers. Plus, you still have to insure prices are contract prices, charges are valid charges, and that the i’s are dotted and the t’s crossed, as you would in indirect procurement.

As you can see, whereas indirect sourcing can often be accomplished with just e-RFX, e-Auction, and Contract Management — with Spend Analysis and Decision Optimization for higher-value projects — direct sourcing requires extensive integrated project management capabilities, product lifecycle management, collaboration capabilities, Bill-of-Material management, and the ability to easily integrate with third party platforms.
Yakko, Wakko, & Dot We … we … never knew.
Dot We always thought it was just e-RFX, e-Auction, and good data management.
Yakko & Dot So how do you do all that?
Man-in-Black With a great code-base, of course! Although I have to be really careful with what I say now, especially until our next release hits beta later this year and hits full release late this year or early next year, I can tell you a few things that are already more-or-less public knowledge.

First of all, our platform is entirely new, built from the ground up to handle the direct sourcing process, which our senior management and developers are intimately familiar with. This allows us to do things that retrofitted indirect sourcing platforms can’t do.

Second, we have our own universal data model that underlies our application and it can integrate with data in over 1500 different formats.

Third, we have PLM built in at the core, and this allows us to enable direct sourcing professionals to track a project from beginning to end and always access the most recent data, regardless of which module they are in.

Fourth, we have fine-grained security that allows us to assign access permissions down at the data element level that indicates who can see the data, where (by IP), when, and how they can access it (read-only, view-only, etc.).

Fifth, we’ve integrated a compliance tracking module that allows companies to track regulatory requirements such as REACH, ITAR, etc. from product inception to product end-of-life, and insure that such requirements are met at every stage of the sourcing process.

Sixth, we’ve re-invented “spend analysis” for direct sourcing. Although I can’t say anything yet … we’re still finalizing the initial product offering and working on getting our first beta projects under way, I can say that our founders and developers have been involved with spend analysis since the days of FreeMarkets, and know why traditional “spend analysis”, developed in the indirect world, just doesn’t cut it in the direct world.
Dot Can we see it?
Man-in-Black Definitely not.
Yakko & Dot Can you tell us more about it?
Man-in-Black Not yet. But you’ll be able to read all about it soon enough.
Dot When?
Man-in-Black When the story hits the blogs. We’ll show the right people at the right time. Right now we’re totally focussed on getting the next release of the product out and pleasing our current customers, who include some of the bigger names in manufacturing, and getting beta projects underway at some of the biggest names in manufacturing.
Yakko & Dot Until then?
Man-in-Black You go on your merry way. Have a nice day.
The man in black gets up and walks away, leaving the Sourcing Maniacs speechless, again, as their view of the Sourcing World broadens with each vendor they talk to.

The Sourcing Maniacs 2008 Vendor Tour Part III: Apriori

At the end of Part I, the Sourcing Maniacs had just completed their Aravo visit, the first stop on their journey. After Aravo, they took a trip to Massachusetts to visit their old friends Pinky and the Brain, but were unsuccessful as their friends were under lockdown until the annual user conference. However, being in the Boston area, they decided to continue their vendor tour through the sourcing alphabet and decided to pay a visit to Apriori, home of the Wizard of Cost, before moving onto the B’s. We join them on their hearty jaunt up Baker Avenue in Concord, MA.

Yakko, Wakko, & Dot We’re off to see the Wizard, the Wonderful Wizard of Cost
We hope he is a Whiz of a Whiz if ever a Whiz there was
If ever, oh ever, a Wiz there was, we hope the Wizard of Cost is one because
because, because, because, because, because
of the wonderful things a cost wizard does
We’re off to see the wizard, the wonderful Wizard of Cost!
Yakko We’re here!
Dot Where?
Yakko At Apriori, of course!
Wakko Are you sure?
Yakko As sure as a Massachusetts black bear does his thing in the woods.
Wakko But where’s the big neon sign?
Dot And the big corporate headquarters?
Yakko Not all companies own their own buildings, Dot. And not all companies feel the need to throw up flashy 1950’s neon signs to advertise their business. After all, those signs cost money. And I think cost management is supposed to be about not spending money you don’t need to spend. But that’s what we’re here to find out, isn’t it.
Dot I sure hope the Wizard of Cost can see us!
Wakko And that we don’t get shut out again. I mean, we were wako’d by Ariba, but we were almost wak’d yesterday!
Yakko I don’t think we’ll be shut out here. the doctor tells me that Apriori are very friendly and open people.
Wakko But will they welcome us with open arms?
Yakko Well, I never really asked if they’d welcome us. But we’re solo now … and I don’t think they ever competed with Ariba anyway. I’m sure they’ll talk to us.
Dot After all, who can resist pretty lil me.
Dot strikes her cutest pose and starts fluttering her eyebrows shamelessly.
Yakko So who wants to knock on the door?
Wakko I do! I do!
Wakko takes out his mallet and waks on the door.
long pause … door opens
The Wizard of Cost Hello?
Wakko, Yakko, & Dot We’re the sourcing-maniacs
And we’re zany to the max
Dot I am cute …
Yakko  and I like to yak
Wakko while I pack away the snacks
Wakko, Yakko, & Dot We’re the sourcing-maniacs
Dot I’m Dot,
Wakko I’m Wakko,
Yakko  and I’m Yak…
The Wizard of Cost Yes, I know who you are. Can I help you?
Yakko We want to learn about enterprise cost management!
Wakko And beg for food!
Dot And find a job!
The Wizard of Cost Well, I can certainly help you with the first topic. I’ve made it my personal mission to spread the word of enterprise cost management and how it can help direct sourcing organizations, as well as manufacturers, save money in these troubling times.
Wakko, Yakko, & Dot That’s great!
The Wizard of Cost But you have to promise me something first.
Yakko What’s that.
The Wizard of Cost That you’ll sit down …
Wakko No problem!
Wakko plops down on the floor.
The Wizard of Cost listen …
Wakko We’re all ears! Wakko stretches his ears in his best Dumbo impersonation.
The Wizard of Cost and behave. You have a bit of a reputation, and we’re a no-nonsense operation here at Apriori.
Yakko We can behave!
The Wizard of Cost Promise?
Wakko, Yakko, & Dot We promise.
The Wizard of Cost Then take a seat and let’s begin.
The Wizard of Cost Let’s start with the basics. Every business is in business to make a profit. Profit is defined as the difference between revenue and cost, or, the difference between the money you take in from sales and the money you spend on supplies, overhead, and taxes. That says there are fundamentally two ways to increase profit – increase sales, which falls under the purview of Sales and Marketing, and reduce costs, which generally falls under the purview of supply & spend management. We focus on cost.

However, not all costs are equal. If we look at a balance sheet, we see there are three main types of costs: COGS (Cost of Goods Sold), SG&A (Selling, General, and Administrative Expenses), and D&A (Depreciation and Amortization), and that COGS usually represents 80% of the costs under enterprise control. So, unlike many e-Procurement firms that just try to reduce the cost of the transaction, which only serves to reduce SG&A expenses, we focus on reducing COGS, as every dollar reduction in COGS has five to six times the impact of a dollar reduction in SG&A.

To reduce COGS, we start with the understanding that COGS is a combination of raw material costs, labor costs, production overhead costs, and margin. All of these costs can be reduced with the right insight — and this is where we are different than a standard sourcing application that just tries to get you the lowest price per unit through a volume buy or leverage-based raw material buy. Then we help you identify the right product, produced by the right process, to meet your needs at the lowest possible cost.
Wakko How do you do that?
The Wizard of Cost We have software that implements a virtual production environment that not only allows us to model a part, but an entire production process. This allows us to calculate not only how much a modeled part should cost, but whether or not there are other processes that could be used to create that part. For example, if you have a door hinge, you have a bend, a cut, and some hole punches. And there’s more than one way you can order the steps.
Yakko But you still have to do the steps, so how does reordering save money?
The Wizard of Cost Well, reordering allows you to do three things. First of all, it allows you to plan your production so that you don’t have multiple production runs waiting on the same machine at the same time. This increases your production throughput, which lowers your cost of production per part as you produce more parts in a day. Secondly, if you punch before you cut, and you have a machine capable of doing multiple hole punches simultaneoulsy, you might be able to punch four or eight hinges on a sheet of metal simultaneously, which would increases your productivity eight-fold. Finally, it allows you to consider different machines given the partial state of completion the part is in at any one time. And this is where a lot of the power of the VPE comes into play. Maybe instead of a punch, you can use a laser drill that can drill 10 pieces simultaneously if they are stacked, but only if you have enough extra metal around the edges for the grips to hold the stack in place. If the laser drill costs you half as much to operate as the old punch, then you want to use it — which is something you can do if the hole creation step comes first, but not if the hole creation step comes last.
Dot That sounds really neat!
The Wizard of Cost It is, and it’s quite powerful.
Yakko But how does the buyer know what the costs are? And doesn’t this take the supplier, who’s supposedly an expert in part manufacturing, out of the picture?
The Wizard of Cost Good questions. Fortunatley, we have some good answers.

The platform plugs into market feeds and our database of standard pricing that we have built up for North America and China, and this gives us a first level estimate. Secondly, it allows the buyer to enter their costs, or their supplier’s quoted costs, for each variable and refine that cost model further. Finally, it allows them to use a supplier’s VPE to calculate precise cost or set up a VPE specific to their supplier if their supplier does not already have one.

In addition, we realize that the best results often come from collaboration and from taking advantage of expertise on both sides of the table, so we have been working hard on improving our supplier interface that allows buyers and suppliers to share designs and data back and forth, through a new CAD-independent viewer that’s coming out in our next release, so that both parties can work together. And, unlike some vendors, who shall go unnamed, that force suppliers to pay a registration fee to be listed in, or gain access to, their system, our basic viewer is totally free to the suppliers of any buyer who licenses our system. This keeps the supplier in the picture, in a non-cost prohibitive fashion, and helps the buyer find the best product at the best price, produced from the best production process, for their needs. In our view, that’s what enterprise cost management is all about.
Dot That’s a really cool take.
Yakko Not at all what we’re used to … coming from a sourcing world that has traditionally focussed on e-RFx, e-Auctions, contract management, and spend visibility to reduce cost.
The Wizard of Cost It is a bit different, and we think it plays very nicely with those traditional approaches. Whereas they primarily reduce SG&A, and in the case of contract management, insure that agreed upon costs are adhered to, we primarily reduce COGS. It’s a big sandbox, we can play nice, and when we do, we think everyone wins. What do you think?
Wakko I think I’d like to see more.
The Wizard of Cost All in good time. Our next release, v6*, is slated for next quarter.
Dot Then I guess it’s time to go!
The Wizard of Cost Thank you for stopping by. And by the way, when you recount this story to the doctor, which I’m sure you will do, try not to leave anything out. Enterprise Cost Management is about a whole, and if you leave out any parts, it doesn’t really make sense.
Wakko We’ll try.
The Wizard of Cost Promise?
Wakko, Yakko, & Dot We promise.
The Wizard of Cost Farewell and safe travels!
Yakko Well that was different!
Dot Not at all what I expected!
Wakko And they didn’t feed us baloney sandwiches. I like baloney sandwiches. I’m hungry!
Dot You’re always hungry!
Yakko Let’s go eat.
Wakko So where are we going next?
Yakko On to the B’s!
Dot Bearing Point?
Yakko They’re a consulting firm. We do products.
Wakko Bravo Solution and their VerticalNet suite?
Yakko We’d have to hike all the way to Pennslyvania, wouldn’t we? There are B companies locally. Let’s go visit BIQ! They’re just a few miles away in Southborough!
Wakko What do they do?
Yakko Spend Analysis.
Dot But we already did that at Ariba. That’s old news.
Yakko the doctor says BIQ is different, and that how we define “spend analysis” is not the right way to define spend analysis.
Wakko Why not?
Yakko I don’t know. Let’s go find out!
Wakko & Dot OK!
Yakko, Wakko, & Dot We’re off to BIQ
To see what they do for you
Wakko And maybe find a clue
Dot To dealing with data times two
Yakko, Wakko, & Dot We’re off to BIQ
…

Tomorrow we recount the Sourcing Maniacs’ tale of their visit with BIQ. Stay tuned!

*Editor’s note. Apriori released v6 in early October.

Identifying the Right Local Supplier for You

Not that long ago, in Local Suppliers, Your Opportunity is Now!, I echoed Tim Cummins’ sentiments when he stated that the current market should offer the perfect storm for local suppliers to make their case that, when everything is factored in, they are often the best choice for your business as they are often able to offer lead time reduction, quality, compliance, and innovation advantages that their offshore peers cannot. In other words, I noted that you, as a buyer, should be looking hard at local suppliers, who just might be the right choice for your business.

However, what I did not point out was that not all local suppliers are equal. Not all are able to offer all of the advantages listed, and each of the advantages offered by a specific supplier will differ in degree, if not in kind, with respect to the particular advantage offered. Thus, even though I believe many of your needs can be met locally, I don’t necessarily believe that any old local supplier will do — it has to be the right supplier for you.

This seems rather straight-forward, but it doesn’t provide an answer as to why some suppliers are more cost effective, why other suppliers are more innovative, and why yet other suppliers strive to straddle the middle. I’m not sure anyone has a good answer for this, but I have to say I do believe that it has to do with the relationship between the buyer and the supplier, the goals of the relationship, and, differentially, the trust between the buyer and supplier, or lack there of.

Why? In a recent post on Commitment Matters, Tim Cummins tackles the question of why buyers and suppliers must work together. In his post, he notes that a relationship can span the spectrum between a focus on cost and a focus on innovation. In the beginning, a buyer tends to focus narrowly on cost, at the expense of commitment and innovation, because that’s the issue that led to a shift in supply. However, the lack of innovation starts to hurt the buyer as competitors introduce better products into the marketplace, so the buyer switches to a long-term relationship based on trust in order to collaborate and inspire innovation. But after a while, the partnership becomes too comfortable, the buyer finds itself at a competitive disadvantage, and it reacts by switching back to a cost-focus in an effort to “right the ship”. In other-words, the relative trust determines the relative level of collaboration and the merits of the relationship in question.

Thus, depending on the current levels of trust between a supplier and its buyers, it is likely that it will either be tightly focused on cost, tightly focused on innovation, or somewhere in a comfortable middle.

So how can you tell where a supplier’s focus is? Tim gives us more insight when he tells us that buyers not in a position of power tend to seek out collaboration but those in a position of power tend to seek out cost reduction, because they don’t feel the need to collaborate. Thus, if you know the buyers that constitute the majority of a supplier’s business, and you know where their focus is, you can likely determine where a supplier’s focus is. And I hypothesize that this could go a long way to helping you find the right local supplier for you — the one with the right relative focus on cost, innovation, and quality to take your sourcing initiatives to the next level.

Local Suppliers, Your Opportunity is Now!

The media is full of stories about the failings and weaknesses of global supply chains. It seems we have suddenly discovered that China is far away (and not in fact a remote US state); that ’emerging’ markets do not share Western value systems; that business rules and practices are driven by culture and cannot simply be overridden or suppressed; and that historic economic muscle does not automatically translate to limitless power and control.

So now the body of experience is growing. The war stories are proliferating. And as costs rise, supply constraints kick in, quality failures become visible and threatening, [and] we find [ourselves in] an environment in which fundamental questions are being asked over supply strategies. Perhaps local sourcing makes sense. Maybe those old suppliers were not so bad after all.

So states Tim Cummins in the beginning of his blog post on how Buyer Misery Equals Supplier Opportunity where he essentially states that the current market should offer the perfect storm for local suppliers to make their case that, when everything is factored in, local suppliers are often the best choice for your business.

As Tim notes, in tough times, local suppliers can offer the following advantages:

  • lead time reduction
    You can get products next week, not next quarter. This reduces your costs and increases your profits in multiple ways:

    • reduced transportation costs
      It costs less to truck across a few states then to truck across a few provinces in China, ocean freight across the entire ocean, and then truck across multiple states through multiple regional distribution centers.
    • reduced inventory costs
      You only have to store a few weeks worth of inventory, not a few months. Considering 10% to 20% of total product cost at most companies is inventory cost, this is very significant.
    • fewer lost sales from stock-outs
      If your inventory depletes faster than you expect, you can often get more in days with expedited shipping (which is worth it if the product is a high profit margin).
  • quality improvement
    In addition to sharing the same values, a supplier in your local market is bound by the same laws, regulations, and liabilities that you are. Thus, the chances of them producing an inferior quality product are much lower. Note that this also reduces your costs as higher quality means fewer returns, and, most importantly, fewer lawsuits!
  • compliance
    Again, a local supplier is bound by the same laws and regulations that you are. Thus, they will be compliant from the start. This also reduces your cost as compliance monitoring can get very costly.
  • innovation
    Even though some foreign suppliers, desperate for business, may seem over eager to work with you, you have to remember that, in some cultures, you don’t say ‘no’ to the customer and that the supplier may not be as open to open collaboration as a local counterpart who speaks your native language natively as well. Plus, a supplier in a local market is more likely to be going through ups and downs at the same time you go through ups and downs and is, thus, more likely to be on the same wavelength.

So follow Tim’s advice and get out there and promote your services as a more reliable, ethical, environmentally-conscious, compliant, quality, innovative supplier who is ready and willing to work with your customers to find new and innovative ways to reduce costs and increase value across the board in a manner that will allow a consistent and predictable supply.

And for all of you suppliers who are saying “How do we do this?, my answer is to use the tools and services that are already available to you. Create a great web-site and have a search engine optimization firm optimize it for Google searches. Every day, more and more people turn to the web, and Google, to help them discover new sources of supply. Then, identify a marketplace (not a supply network that is limited to buyers who use a certain vendor’s software) where people are going to go to look for suppliers like you. If you’re in manufacturing, I recommend taking a good look at MFG.com. Yes, it is a pay-to-play marketplace (but then again, they’re all pay-to-play marketplaces), but at least they have an in-house team dedicated to helping manufacturers make the most of their opportunity, which includes assistance in getting set-up, finding new opportunities, and responding to RFPs. (This is because they make most of their revenue off of transactions, which don’t happen unless their manufacturers get business.)

The Return of U.S. Manufacturing?

In my recent piece on Is Your Supply Chain Reversible, I noted that the US is now a low cost country source for (Western) Europe and that those manufacturers ready to take advantage of the situation are going to lead the turnaround in US manufacturing. Shortly after, I found an article in Industry Week that wanted to “welcome back US manufacturing” on the basis that high fuel and energy prices along with rising labor costs in traditionally low-wage markets have some manufacturers rethinking how far they are willing to extend their supply chains. This article caught my attention as it pointed out that some mid-size companies are already bringing manufacturing back home, as they are unable to control shipping costs that are spiraling out of control.

The article mentions Desa LLC, a manufacturer of residential heaters based in Bowling Green, KY, as a case in point. Despite the low production costs in China, the high shipping costs, combined with the recent VAT reductions in China, give local manufacturing a lower TCO. Then there’s the relative price increases in some raw materials in China compared to the US, the falling dollar, and across-the-board energy costs. When everything is put together, the perceived advantages of China-based manufacturing for many (large, bulky) products disappear.

Of course, as the article notes, not all manufacturers are going to return to the US, since labor costs are higher than in other countries, but, as the article notes, many are likely to return to the continent and “near-shore” to Mexico (and, if the dollar rebounds, to Canada for complex products and services). But many are considering the US. A recent AMR survey of manufacturing executives found that 21% are planning to increase US-based manufacturing over the next year and Caterpillar Inc., for example, is investing 1 Billion in a multi-year capacity expansion plan for five Illinois plants.

But when you consider that the smart US manufacturers, like CEI who recently invested in an robotic palletizing system that automated a formerly manual stacking procedure, are investing in better technology that makes production more cost efficient, it’s going to make more and more sense for many manufacturers to return home. After all, it’s all about competitiveness, and those companies who invest money into new equipment, processes, and innovation are always going to have an edge. And considering that the US has been the center-point for innovation over the last few decades, there’s no reason that US manufacturers can’t bring jobs back if they put a bit of effort and investment into it.