Manufacturing in Asia (China, India, Indonesia, etc.) is no longer a slam dunk for U.S. companies. In fact, according to an article by James R. Hagerty in the Wall Street Journal entitled Once Made in China: Jobs Trickle Back to U.S. Plants, “after a 35% decline in the number of manufacturing jobs between 1998 and 2010, the tally has risen by 489,000 or 4.3% to 11.9 million. In addition, . . . . . .IHS Global Insight, an economic research firm, forecasts that the number of manufacturing jobs will climb 3.2% this year compared with a 1.6% increase in all jobs.” At one time, moving manufacturing to China seemed like a no-brainer because the labor rate differential was so great but “Asian wages have surged over recent years and the wage gap between the U.S. and China has narrowed. In addition, as some of our most well-respected companies have stumbled due to the risk associated with manufacturing a half a world away, many U.S. companies are contemplating “reshoring”. Let’s face it, the drop in the U.S. dollar and sky rocketing oil prices have also made U.S. produced goods more competitive.
There are many factors to consider when deciding where to manufacture and the analysis required is not that easy. You need to look at everything from taxes, regulations and currencies to culture, fair labor practices and quality/safety standards to supplier networks, skilled labor, infrastructure and everything in between. Many global companies are still expanding production in Asia to specifically serve those fast-growing markets but are looking toward more regional strategies to serve North America. That means that there can be a significant opportunity to move production back to the U.S. A survey of 105 companies by David Simchi-Levi, an engineering professor and supply chain expert at MIT, found that 39% were considering moving some manufacturing back to the U.S. Those goods that are most likely to be “reshored” are heavy or bulky items where transportation costs are excessively high compared to the price or expensive items that require frequent changes (style, color, etc.) according to customer demand. Which group within your organization should be in the best position to do the analysis AND facilitate getting this type of decision made? This question is really a no-brainer for me – it is the Strategic Sourcing or Supply Chain function.
In one of my past blog posts titled Making America More Competitive Through our People, I explored the types of competencies required to make America more competitive. These are the very competencies that every Strategic Sourcing and Supply Chain organization needs to have to really be successful. While functional skills such as understanding the sourcing process, negotiating, contract development, etc. are important these are NOT the skills necessary to guide your company through this type of decision. Strong strategic competencies such as:
- problem solving
- data analysis
- collaboration
- managing / leading change
- project management
- decision making
- etc.
These are the skills that will allow your Sourcing / Supply Chain organization to play more of a leadership role in helping to determine whether can begin to “reshore” and return America to prosperity.
When I ran a Sourcing organization in a large financial institution a number of years ago I was determined to have a group that could be mistaken for the external consulting resources we had hired. What I QUICKLY realized was NOT that the consultants were smarter but that they had formal training in all the strategic competencies I noted above. Frankly, once that gap was closed (and we did close it) I had several people that eventually left to join some of the top consulting firms to help lead decisions such as “WHERE should products be manufactured?”
If you are looking to make your Sourcing / Supply Chain organization more valuable to your company and help drive critical decision making consider some of my comments…
3 Comments
Dear Anne,
I may not totally agree with you. Lot has happened from from 1998 to now in terms of Purchasing Power (you haven’t touched that subject). China, India… (BRICS countries) to-gather is a big place with opportunities. It is better to move manufacturing near to the market to avoid transportation cost and react to sublime changes needed for customer tastes to name the few.
I can say that USA and some European countries were able to maintain healthy inflation levels mainly because of outsourcing otherwise the world woul have faced double edged sword of inflation + recession over long periods or repeated periods.
Also, outsourcing has to some extent has controlled migration of people into developed world, if this has not happened many would gate crashed into USA, western Europe…
Transportation industry too has got some benifits.
I would like to say that Sourcing decision should be taken on the basis of Cost competitiveness and market reach.
I imagine a good future for companies who can adjust their operations based on market on a quarterly basis. That type of flexibility is important.
One point you are not seeing is loss in skill set due to outsourcing. Textile industry is an example, even if i want i cannot find trained labor in large scale to stitch say jean pant or a shirt at a reasonable price and also people willing to get trained.
I would not outsource at the following situations,
1. Loss of IP which can be counter productive in long run.
2. ROI is too long and has risks associated.
3. Government is not stable
4. Taxation laws aren’t clear and are too much for conducive business environ
5. Finally, safety of workmen cannot be ensured.
Surya:
Thank you for your comment. You make some excellent points but I am not sure why you think that we disagree.
I purposely did not cover all the elements of the outsourcing decision.
The point I was trying to drive home was that an “outsourcing” or “reshoring” decision is a complex one that requires the very skills that we should expect from Sourcing / Supply Chain professionals. I used an article about reshoring to illustrate my point and highlight that the Souricng / Supply Chain function has a unique opportunity to make a real difference in their organization by driving these types of decisions. I also tried to highlight the types of skills required to be able to faciliate those decisions.
It sounds to me that you really get it (which is great) and hopefully you are using your skills to drive the right decision making within your company.
Thanks again for commenting,
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