Executive Briefings

Returning Manufacturing to U.S. or Nearby Is Highly Complex Decision

In 2012, more and more analysts and pundits pronounced the return of manufacturing onshore to the U.S. or near-shore to Mexico (or the Caribbean). Is this real and lasting, what is causing it, and what does it mean for supply chain managers?

Starting in the 1990s and accelerating in the 2000s, there was a rush to outsource manufacturing to China and other low-cost countries. In part, it was driven by the lure of very low labor costs. But also by the promise of China and other emerging economies as markets with huge growth potential. There was a bit of gold rush mentality, underestimating the risks and costs. Over the past decade, a number of factors in the equation have changed, such as increased labor costs in China.

Relocation is a complex decision, requiring an understanding of the different factors, sensitivities, interactions and thresholds. Those involved in making these decisions should be prepared to apply some of the analytic tools that are available. It is also important to gain a global strategic view, learning as much as you can about these various drivers and where they are headed. And then, putting it all together, be able to articulate the reasoning simply and clearly to the CEO and her or his team.

As the standard of living and wages in China and other emerging economies rise, the global economy will slowly continue to rebalance itself. A shift of manufacturing back to the U.S. will certainly be welcome here. But it can't be just because "it would be nice." It has to make good business sense for each business that makes that decision.

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Keywords: 3PL, third party logistics, global logistics, logistics management, transportation management, re-shoring to U.S.

Starting in the 1990s and accelerating in the 2000s, there was a rush to outsource manufacturing to China and other low-cost countries. In part, it was driven by the lure of very low labor costs. But also by the promise of China and other emerging economies as markets with huge growth potential. There was a bit of gold rush mentality, underestimating the risks and costs. Over the past decade, a number of factors in the equation have changed, such as increased labor costs in China.

Relocation is a complex decision, requiring an understanding of the different factors, sensitivities, interactions and thresholds. Those involved in making these decisions should be prepared to apply some of the analytic tools that are available. It is also important to gain a global strategic view, learning as much as you can about these various drivers and where they are headed. And then, putting it all together, be able to articulate the reasoning simply and clearly to the CEO and her or his team.

As the standard of living and wages in China and other emerging economies rise, the global economy will slowly continue to rebalance itself. A shift of manufacturing back to the U.S. will certainly be welcome here. But it can't be just because "it would be nice." It has to make good business sense for each business that makes that decision.

Read Full Article


Keywords: 3PL, third party logistics, global logistics, logistics management, transportation management, re-shoring to U.S.