Reshoring is a popular soundbite these days in America. “Let’s bring manufacturing back to the good old US of A. And in entertainment news, we… “
If only reshoring was as easy as kissing a baby.
Reshoring is tough for many reasons. Which is not to say that it cannot or shouldn’t be done, rather to say that doing it right, like most things in life and business, takes up front analysis, careful planning, and skilled execution. Some of the issues that need to be addressed up front include:
* Reshoring the supply chain: it does little good to bring back final assembly of a system whose entire supply chain in Asia. And its called a supply chain for a reason–it’s where the suppliers’ suppliers are located too. Which is not to say that domestic content needs to be 100%, rather that this needs to be carefully evaluated. Oftentimes it is best to continue to buy certain components or subsystems offshore while bringing back others. But this all needs to be looked at holistically
* Minimizing labor content: while offshoring is not all about labor rate differential, nor is reshoring, labor rates are a big part of the equation. So reshoring means getting aggressive about minimizing the labor content. Automation is relatively more important than for offshore production, as is line layout, industrial engineering, assembly optimization and training.
* Taking advantage of logistics benefits: in general reshoring provides a benefit in terms of logistics costs, in flexibility, and in quality control. Developing a game plan that plays to these strengths is essential. Making logistics work favorably can also mean co-loacting with key vendors or customers, gaining savings on packout and freight, and leveraging the cash flow advantages. Offering customers better terms for example could allow for more pricing leverage while still improving overall cash flow due to not having inventory on the water.
*Designing for manufacturability (DFM): related to the labor rate disparity is manufacturability. Designing a product that is easy to manufacture takes labor out, reduces scrap, and reduces expensive rework / repair and even eventually field returns. Close collaboration between design and supply chain is needed to make the right choices on build vs buy and selection of vendors who have secondary advantages like co-location.
* Pricing power: While trite, Made in the USA can command pricing power. But this only holds up if quality is not just perceived as better but is better. And this is total quality, including on time delivery, long term reliability, and user experience. Wrapping an inferior product in a flag won’t go very far.
* Select the right product lenes to reshore: Patriotism aside, not every product line is right for reshoring. Do the analysis and be selective. Make sure it makes business sense, not just a knee-jerk reaction. But do look at the long term and total cost of ownership.
Zebulon Solutions can help with the analysis, the planning and the execution of reshoring initiatives.