Apple bringing manufacturing to the USA

Spend Matters US featured a guest post last week from  David Simchi-Levi, MIT engineering Professor and consulting firm OPS Rules Chairman.

In it, he discusses Apple’s announcement of a plan to invest $100M in manufacturing a line of Mac Computers in the US. Whilst cynics may say the announcement of a mere 200 jobs is about PR as much as a serious strategic re-shoring move,  Sinchi-Levi believes it is significant and will bring benefits to the US.

He discusses similar moves by Ford and Caterpillar recently, and the four drivers that are making the previous compelling economics behind  off-shoring less attractive  - the oil price, labour costs, automation and  risk.

Ultimately, he says firms will look at re-shoring to get products to market faster and respond rapidly to customer orders; save money in terms of reduced transport and warehousing costs; and improve quality and protection of intellectual property. He also talks about a more regional offshoring strategy perhaps becoming the dominant approach -

“All of this of course does not imply that manufacturing will disappear from Asia, but rather that we see a move from a global manufacturing strategy to a more regional strategy. In such a strategy, China manufacturing may focus on emerging markets, Eastern Europe on European markets and the US or Mexico on the Americas (see my paper in Sloan Management Review)”.

So is this good news for Western Europe? Are we likely to see manufacturing returning to countries like the UK, France, Spain or Greece?

I’m not overly optimistic. Inflexibility of labour in some countries, and a generally high cost base, as well as issues such as high property prices and poor transport links for the UK (for example) all mean that we don’t see a queue of budding manufacturing entrepreneurs queuing up to build new factories in Preston, Patras or Pamplona.  But even if the trend just kicked in at the margins, that would be  useful boost for European economies. I guess also if Eastern Europe becomes more of a near-shoring option, and more jobs come to Poland, Romania and Bulgaria, it might also take the pressure off migration form those countries to the UK and other Western European countries.

Anyway, do read the full article from Sinchi-Levi here. And we’ll be keeping a close eye on the re-shoring trend through 2013.

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Voices (4)

  1. Ian Heptinstall:

    Lets hope that “on-shoring” is not just because the prices of transport and goods have increased. Buying from far afield and claiming unit price (and transport) savings in many organizations is short-sighted folly.

    As we have discussed elsewhere, procurement will never be a strategic part of a business if it maintains a blinkered focus on price savings. Some very successful businesses have ignored off-shoring, focusing instead on configuring the supply chain to best serve the needs of the business and customers, and thus making much more money

    If anyone wants an example that contrasts the fortunes of companies look at M&S. To quote the Telegraph in November 2012 “Marks & Spencer has reported a 10pc fall in profits after a slump in clothing sales and warned recent trading has been “volatile”.” Apparently shares rose because this was not as bad as expected!!!

    The comparison is Inditex (owner of the Zara brand). In December 2012 they reported a 27% increase in their 9 months profits, on 17% sales growth.

    Guess which one does not buy in bulk from the Far East, and then gets caught with either excess stock of something which doesn’t sell or runs out of popular items. A clue – they also buy 50% from Europe in small quantities, are Spanish, and their name ends in x.

    Their method is not even magic or unique to them. You can read how to do it in several books by Eli Goldratt some published over 20 years ago.

  2. GreatBites:

    The actual figures in terms of jobs created may be low, but the reshoring or onshoring of certain manufacturing processes to Europe and the USA, remains a cause for celebration in struggling Western economies. We recently wrote a post on how the balance is shifting and how some British businesses have already begun repatriating certain functions – – Mulberry and GlaxoSmithKline are two recent examples

    1. Final Furlong:

      Totally agree. My view was solely related to the US attempting to take a bigger bite out of Apple…

  3. Final Furlong:

    As you say Peter, it’s just “200 jobs”.

    In addition to the 63,000 staff that Apple employs, there are 700,000 people in Apple’s extended supply chain – not a single one of whom are based in the US.

    Let’s remind ourselves of the mountain (range) to climb…
    (And it’s worth reading some of the comments at the base of the article.)

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