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U.S. Likely to See More 'Rightshoring' of Manufacturing

A conversation with Ron Tarter, senior vice president, Eastern Operations, for Flextronics.

U.S. Likely to See More 'Rightshoring' of Manufacturing

Contract manufacturer Flextronics International Ltd. offers design, manufacturing, distribution and aftermarket services to some of the biggest original equipment manufacturers to be found. Reportedly the second-largest global electronics manufacturing services company by revenue, it numbers Alcatel-Lucent, Microsoft, Cisco, Ericsson, Lenovo, Huawei Technologies, Ford Motor Co., and HP among its roster of famous client names. The Flextronics product line includes business telecommunications systems, computer peripherals, co-processors, routers, ink-jet printers, radio base stations, storage devices, even plug-in electric motorcycles and components.

Founded in 1969, the company has grown from its Silicon Valley base to encompass manufacturing operations around the world, employing some 200,000 people. In fact, Flextronics has almost 100 factories in more than 30 countries, but there is a great deal of excitement in the business world about the return of manufacturing to the United States. That enthusiasm is shared by Tarter., as this interview evinced. SupplyChainBrain caught up with him in December in Dallas, at the Supply Chain & Logistics Summit, where he was preparing to give a presentation called “Made in America: The Engine for High-Performance Supply Chains.”

Q: Give me a preview of your presentation, and tell me if this notion of U.S. manufacturing, however welcome, is overblown.

A: Tarter: I'm representing Flextronics to give a view about what we see in the marketplace and perhaps what the opportunity might be to consider reshoring, bringing some business back, repatriating some business, what we like to call right-shoring. That's the idea that a market or region can be serviced properly if you have the right mix.

So we try to talk about what's going on in the market and have some discussions around cost. We'll address some of the investment profiles we're thinking of doing and summarize how to move forward in the future.

Q: It sounds like you are definitely confident that things will move forward here. What are some of those market forces you see driving this move to have companies move back, at least in part, to the U.S. – or close to the U.S.?

A: Tarter: We see a number of things happening. It's not one size fits all. As we look at different clients, number one, customers are nervous about what's going on in Asia and the cost appreciation that's been occurring over the last several years. And they ask us, what's the outlook, what do you anticipate is going to happen, and how might that affect my supply chain?

I think the second dominating feature we're seeing is the U.S. consumer market and how demanding it's becoming. Perhaps the best way to put it is by using something we say inside Flextronics: it's the Amazon effect. We've all gotten used to how quickly you can order something, how quickly visible an order can be – you know when you're going to receive it. And more clients want us to provide that kind of service and flexibility.

Q: You mentioned cost appreciation, and we've seen labor costs are rising in certain parts of the world whereas before, being as low as they were, that was attractive to manufacturers to source there. Then there's the transportation component and its cost. And yet cost surely must still be a factor in the U.S. So where's the better deal?

A: Tarter:  If you ask our CEO, the comment he will make is something like, the labor cost in China maybe is approximately $3.50 an hour. In the U.S., let's say its $15 an hour. Still quite a discrepancy. Next year, in China it will be maybe $3.75 and the U.S. will still be $15 an hour. So the issue is there. But what we've been seeing in different supply chains is, if customers start looking at total cost of ownership, if they start looking at their landed cost and taking into consideration things beyond just a typical transaction, like material and labor costs, they might find they have a supply chain solution that can be more attractive than their customer's. It's not for every single marketplace today or every single business segment, but there are number of customers and clients who need sped, who need the ability to protect their intellectual property, to have a higher degree of quality, and those are the things that are driving and making them kind of rethink the cost element when it comes to Asia.

Q: So, if companies are thinking of coming back home, when they look at and analyze their landed costs, they will see the U.S. is in the ballpark, cost-wise. But, where should they start? What's the approach they need to take? Their starting point before they make that decision?

A: Tarter: When customers come to visit us, they normally start with a problem and that problem is the changing of their customer's needs. And as they begin to look at the supply chain they currently have employed, they are concerned because they want to be able to support their customer's needs today, or more importantly, in the future. So our recommendation to them early on is, you've got to truly understand the supply chain you already have. Can you understand what it truly costs, do you understand what it truly delivers, do you understand the inventory profile that might be in it? Do you understand all the lead times? And do you understand where your customer is going, and how are you going to be up front or even more competitive than the market so your customer will continue to choose you first? Then perhaps we can look at some alternatives, some alternative U.S.-oriented supply chains. And then it's just compare and contrast.

What we've seen is, when clients take a good, hard look at diverse supply chains, they get very surprised at what the U.S. can provide.

Q: Give us some specifics. What is Flextronics doing for some clients in this regard? What kind of verticals can you walk us through where you've helped a client with this issue?

A: Tarter: What we basically see in these customers is, how do I reduce my lead time? That's number one. And their perception is, if they can reduce their lead time, they can actually increase sales. So they come to us and we share with them that we're a supply chain solution provider with operations in 30 countries, about 90 factories, and we pretty much know every supply chain there is and have experience with it. We have a variety of tools at our disposal and inside our company. So we can model a supply chain and help clients evaluate and see if there is something they have in mind that can actually work. Once they put their issues in front of us, be it lead time, cost, intellectual property protection, be it inventory carrying costs, we then have way of providing them a potential solution.

Q: Let's return to “Made in America: The Engine for high-Performance Supply Chains,” the topic of your talk here at the summit. Are you and Flextronics excited about manufacturing in this country?

A: Tarter:  For a person like myself, who's been in the industry 30-plus years – I started in manufacturing when 15 percent of the workforce in the U.S. worked in manufacturing and basically watched it go to 7 percent, watched it drop off basically 50 percent over my tenure. So, to actually have a conversation like this, to be sitting in a chair talking to you about the potential of “Made in the USA”, it's a daunting thought to me.

I can't get more excited about watching, hopefully, another revolution. And knowing what American spirit is about, I'm extremely confident that the American mindset, the American drive and behavior, can pull this off.

To see the video of this interview, click here.

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