Is Offshoring Fad Fading?

There are signs that U.S. manufacturing companies might be reconsidering the amount of work they send offshore.

Granted some companies have had good reasons for creating divisions offshore like reaching emerging markets, but many have been moving work offshore as a pure cost cutting measure. It has been a mantra among supply chain managers for the last ten years.

A recent study by Archstone, shows that many are now reconsidering and looking closer at the numbers given the volatility of oil prices, transportation costs, global economies and currencies.

In addition, during these tough competitive times companies are not just looking to cut cost, they are also looking to improve market share by improving not just price but also company image through quality, customer service and innovation. 

The recent study revealed that in the last three years, manufacturers have seen a significant increase in costs related to off-shoring manufacturing including:

·         Ocean freight costs have increased 135%, highlighting risks and cost volatility.

·         The global commodity price index has risen by 27%.

·         The Chinese Yuan has gained 18% in value compared to the U.S. dollar.

·         Chinese manufacturing wages have risen by 44%.

In addition to the rising costs of conducting business on a global basis, the study found several soft cost issues, which affect the true cost of off-shoring, including:

·         Slower Cycle/Delivery Time (59% of respondents)

·         Reduced Supply Chain Flexibility and Responsiveness (56% of respondents)

·         Lost Visibility, Coordination and Control Over the Supply Chain including Quality (50% of respondents)

·         Bottlenecks in Logistics Networks (e.g., ports, transportation) (50% of respondents)

The study found that almost 90% of the companies surveyed are considering or have begun changing their manufacturing and supply strategy and are being more and more selective in making off-shoring decisions. U.S. manufacturers have become increasingly aware of the need for a more sophisticated total cost model that considers factors such as supplier price and terms, delivery costs, operations and quality costs, customer-centric supply capabilities and other situational costs that arise.

This return to basics for manufacturers is coming at a time when we need it most as part of the economic recovery. Perhaps we start seeing more U.S. brand products that are actually made in the United States.

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