Re-shoring, Near-shoring, Best-shoring: Supply Chain Strategy

Spend Matters would like to thank Frank Russo, CEO of Fabricating.com, for sharing his thoughts and learnings from a recent MIT Forum on Supply Chain Innovation.

From the trade press to the cover of Time magazine, the focus on the state of American manufacturing is replete with stories about OEMs bringing production back from overseas. Examples from Apple and GE or Levono announcing it will make tablets in the US provide momentum to the resurgence of American Manufacturing. But is re-shoring (bolstered by recent government-led initiatives) a trend - or a bona-fide supply chain strategy?

In his keynote address at the MIT Forum for Supply Chain Innovation held in March, Mike Molnar, the Chief Manufacturing Officer for NIST, emphasized innovation as the key to our resurgence in manufacturing. He presented the Institutes for Manufacturing Innovation (IMI), supported by $1b from the current administration, to address “the missing middle”: that space where manufacturing innovation transfers from theory to practice. IMI’s are like “industrial commons” where ideation and collaboration among academics, government and the private sector leads to innovation in materials development, manufacturing processes, and business processes.

But is innovation alone powerful enough to drive the decision to re-shore manufacturing? Compelling presentations by Prof David Semchi-Levi, MIT Engineering Systems Division, and Prof Morris Cohen, The Wharton School, UPenn, focused on factors that provide the underlying rationale for re-shoring as a supply chain strategy. Here is a summary:

  • Landed cost/Cost of Ownership. There is a TCO calculator that's a good start, but every firms needs to build their own model with their own data
  • Long lead times and the resultant impact on customer satisfaction and inventory
  • Rising and shifting consumer expectations/time to market
  • Rising labor costs in emerging countries
  • Rising energy costs in emerging countries, decreasing energy costs in the US
  • Increase in logistics costs  (administrative, transportation and inventory)
  • Increase risk (natural disasters alone cost $300b in supply chain costs in 2012)
  • Importance of sustainability
  • Unprecedented volatility (in energy and material markets especially)
  • Government policies/regulation
  • IP Protection

The powerful economic forces driving these factors will continue to favor re-shoring and near-shoring as competitive supply chain strategies. But a recent article by a group of AT Kearny associates poses two key obstacles to resurgence in US manufacturing: aging assets and aging workers. They cite research showing that US manufacturers favored investing in overseas operations over investing in upkeep and upgrading their own machinery and equipment. And the same holds true in growing the base of skilled workers to operate those assets.

Our experience at Fabricating.com indicates that buyers – large and small – are making a strategic decision to re-shore at least some if not all of their production. While many buyers tell us that “Made In The USA” pride is their initial impetus to source in the US, just as often buyers tell us that their offshore supplier failed to meet the promised delivery date, shipped parts that did not pass quality inspection, and even that a supplier sent an unscheduled price increase.

We also see the movement toward flexible manufacturing and additive manufacturing is enabling re-shoring by removing obstacles such as sunk costs for tooling. Recently, a buyer, whose offshore supplier missed a delivery date, needed stamped metal parts quickly to keep his production line operating. He was able to source these parts to a laser cutting supplier, eliminating the need for a stamping die set. The parts were delivered in a week.

Re-shoring is not a panacea, but it’s certainly a key strategy to proactively and continually re-evaluate as conditions change with demand, supply, product innovation, and process innovation. This constant re-evaluation of your supply network is just good supply chain practice.

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