According to the latest survey by AlixPartners, LLP, the U.S. is already equal to Mexico in "attractiveness" as a place to make product that was previously sourced in China. In terms of hard numbers, it's on track to achieve cost parity with imports from China by 2015.

The comparison, of course, is based on more than just labor rates. Despite steeply rising wages, China still easily undercuts what most American factories pay. Add in elements such as transportation, duties, order lead time and the cost of buffer stock to prevent supply gaps, and the disparity between the two sourcing options narrows greatly.

Don't expect production for all sorts of goods to shift from China to the U.S. overnight. As AlixPartners points out, companies need to assess their manufacturing strategies on a case-by-case basis, considering such variables as product type and value, plant location and transportation network.

Now in its third year, AlixPartners' Manufacturing-Sourcing Outlook surveyed 137 C-level manufacturing executives. According to manager director Foster Finley, it was spurred in part by clients expressing interest in working with suppliers in Mexico. Since the survey's launch, in fact, Mexico has continued to be the preferred location for companies looking to open manufacturing facilities in North America.

On a broader scale, AlixPartners has been identifying the lowest-cost places for manufacturing for about six years. Its evaluations are based on seven quantifiable factors: local wage rates, local cost of direct materials, local cost of overhead, ocean transportation costs, inventory expense, exchange rates and Harmonized System codes for tariff assessment. Claims Finley: "We've left all sentiment out of the discussion."

Sentiment has nevertheless been a big part of the sourcing debate. U.S. businesses are under growing pressure to renounce the unfair labor practices that appear to be rampant in overseas factories. They're also being blamed, rightly or wrongly, for the nation's persistently high unemployment rate, especially in the manufacturing sector. Re-shoring is viewed by many as the solution to our economic malaise. Sentiment, it seems, is tough to put aside.

Finley concedes that China has done an excellent job of luring foreign manufacturers over the past two decades. Perhaps, though, a lot of those entities moved too hastily in shifting production to Guangdong Province and other booming industrial centers of southern China. The resulting higher transportation expense and greater supply risk were a problem from the start. But they became more evident when Chinese wage increases triggered a reevaluation of sourcing strategies.

"In the not-too-distant past," says Finley, "manufacturing was very distinct from supply chain and inventory management." Today, companies are more apt to view their supply lines from the perspective of total landed cost.

A recent spate of natural disasters has brought one particular issue to the fore: supply continuity. Companies are waking up to the implications of a tsunami, flood or erupting volcano. Drug-related violence in Mexico has them thinking twice about siting factories in certain parts of that country. And port labor disputes have made some U.S. importers nervous about sourcing from anywhere outside their borders.

The key number in the latest AlixPartners survey is 37. That's the percentage of manufacturing executives who name the U.S. as their preferred location for near-shoring production to serve American consumers. It's also the share that would prefer Mexico, but the gap between the two countries is narrowing. Last year, 49 percent named Mexico as their first choice, with 36 percent citing the U.S. The year before, the numbers were 63 percent and 19 percent.

Meanwhile, U.S. domestic production appears to be on the rise. According to the U.S. Census Bureau, 71.9 percent of the nation's manufactured goods was domestically sourced in 2011, versus 67.6 percent in 2005. Even with the economy slowly recovering, import volumes remain at a lower level than in 2005.

Finley can claim to have stripped the issue of sentiment, but there are still some "squishy" factors in play. Business decision-makers are displaying "a maniacal focus on the lowest cost of getting an item produced and available," he says. But they're also worried about corporate image. Call it the patriotism effect: Finley acknowledges that some companies have tipped the scale in favor of domestic sourcing "to be able to say this is a U.S. product made by a U.S. labor force."

Local development organizations are also influencing the sourcing decision. Many have manufacturing facilities that have sat empty since the rush to China. Preferable tax treatment and other incentives are convincing businesses to come home and serve local communities.

"It's a non-trivial factor that is tipping things in favor of the U.S.," says Finley.

Other options for low-cost manufacturing remain open, especially India and parts of Southeast Asia. What's more, not every kind of manufactured good is a suitable candidate for re-shoring to the West. In general, products with a relatively low labor component are the likeliest candidates. With certain key exceptions, apparel will continue to be made in Asia and other developing countries for the foreseeable future.

"We have a moderate view on this," cautions Finley. "We're not forecasting a swelling tide that says everything's going to be made in Mexico." All the same, the return of some production from China, triggered by a growing awareness of the risks that accompany offshoring, is clearly happening. And there's nothing sentimental about that.

Comment on This Article


Keywords: supply chain, supply chain management, manufacturing in Mexico, international trade, inventory control, global logistics, transportation management, logistics management, supply chain planning, re-shoring, retail supply chain, sourcing solutions, supply chain risk management