Offshore Manufacturing: Is it time to rethink?

In recent years, many local and overseas manufacturers have outsourced manufacturing and some supply chain operations to low cost countries to improve competitiveness. Lo and behold, it looks as though the pendulum may be swinging. For those who have questioned the merits of such a strategy, it may be a bit premature to say “I told you so,” however evidence suggests that some manufacturers are rethinking this strategy.

It is becoming apparent that many companies who have taken decisions to manufacture offshore may not have considered all relevant factors.

For a start, in places where labour markets were previously thought to be in never ending supply, such as China and India, it is becoming increasingly difficult to find workers. And, with wages and energy costs rising, contract manufacturers are starting to feel the pinch.

Add to this, an increasingly demanding customer base, which now expects products to be supplied closer to the source – in other words, we don’t want to wait several days for our goods to arrive.

A recent survey conducted by Accenture in the US confirmed that over 60% of companies surveyed will make the shift, citing cycle/delivery time (higher inventories!), product quality, logistics and supplier/component prices as the factors influencing their decisions. These companies have discovered that managing supply operations that are separated far from where demand occurs has limited their overall operational planning, forecasting and general flexibility, in some cases also driving up costs through the need for complex network management.

According to the survey, companies who are considering shifting their manufacturing closer to their customers are also responding to a need to re-balance their supply footprint to improve flexibility and responsiveness to varying demand and unknown customer requests quickly, with high quality and faster delivery and optimised costs. Whilst this may not always be ‘lowest cost’ these companies recognise that other value drivers, such as the ability to supply customer specific sku’s or customised products quickly, is important.

And while market conditions of Australian manufacturers may differ slightly from their US counterparts, it will be interesting to see if this trend amongst US manufacturers takes hold locally.

Are you, or leaders at your company, considering shifting operations so they are closer to your customers? Are increased flexibility and customer responsiveness now more important now than low-cost production? Has the complexity of your network management begun to outweigh the reduced production costs off-shore?

As always, I’m interested in your comments. What you are noticing?

Kind regards

Richard