Goldilocks and the Future of US Manufacturing — "Just Right," Right Now?

Spend Matters is pleased to welcome a guest post from Archstone Consulting, a new regular contributor.

I'm not sure when I first heard the story of Goldilocks and the three bears. I suppose it was well before I decided to become a Supply Chain Consultant. Nonetheless, working in this space for the past 20+ years, I have had the opportunity to see significant change -- both real and imagined. Lack of US competitiveness, trending toward off-shoring, trending toward on-shoring, adoption of lean, .com supply chains, you get the idea. Now it appears that there is another trend upon us -- the re-emergence of manufacturing in the US. Is this true? If so, what does it mean?

While we may not know for a few years how sustainable this trend is, early indicators suggest that this shift is real. Consider these recent and sustained trends:

  • Reduced benefits of labor cost arbitrage
  • Shrinking product lifecycles
  • Increased volatility in consumer demand
  • Depreciation of the US dollar
  • Fluctuating oil prices
  • Proliferation of more complex products

In addition, companies producing in "low cost" countries continue to find challenges with product quality issues, reduced visibility, and threats to intellectual property.

Yes, Goldilocks -- the climate for US manufacturing appears to be "just right." A case in point is the shift in Total Landed Cost. While overseas labor costs remain a fraction of those in the US, all trends are moving to favor the US from a total landed cost perspective. Some examples include: labor cost escalation, transportation and oil, inventory carrying costs, cost of quality, currency, etc.

Assuming you've bought into the growth of manufacturing in the US, your next question should be "What steps should I take next to make sure we are best positioned?" We propose that your company should consider the following when constructing and refining the Supply Chain of the Future:

  1. Focus on Your Core: A supply chain with a clear definition of core capabilities that leverages strategic supplier relationships and a combination of in-sourced and outsourced manufacturing capabilities to achieve lowest total delivered cost globally
  2. Increase Your Flexibility: Product lifecycles have shortened and success is increasingly bi-modal. The ability for a supply chain to quickly scale up and down to accommodate more rapid change is critical
  3. Improve your Data Diet: As visibility and access to demand data expands, companies need to increase their investments not only in demand and supply planning systems, but in a wide range of analytical tools to evaluate data sets and enable better decisions
  4. Train for Speed: Product innovations, private labels, and alternate brands must be brought to market at lightning speed. Companies that can collaborate cross-functionally and cross-company will achieve greater success in new product introductions
  5. Customize: The one-size-fits-all supply chain is a relic of the past. Supply chains of the future will be based on an integrated collection of assets to achieve the appropriate mix of delivered cost, responsiveness, inventory investment, and speed to match customer needs.

Will the trend favoring US manufacturing continue? Perhaps. But quite frankly, it's tough to predict the future when it comes to economic conditions, natural disasters or oil price spikes. We can be certain that change will continue at an increasingly rapid pace. Following these steps to supply chain excellence will help your company be better prepared -- regardless of what changes lie ahead.

For more trends and a deeper discussion, check out our recent white paper, The Changing Landscape of US Manufacturing. If you have further questions, email me at cjacoby@archstoneconsulting .com.

- Cort Jacoby, Principal, Supply Chain Practice, Archstone Consulting

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