SMITH BRAIN TRUST -- U.S. companies that moved overseas to save costs are now considering bringing production home again, a survey of U.S.-based manufacturing executives shows. Professor Thomas M. Corsi, co-director of the Supply Chain Management Center at the University of Maryland’s Robert H. Smith School of Business, explains five forces driving the reshoring movement.
1. Shorter is better. Long supply chains create transportation hassles and raise costs. The logistical challenges are increasing as China invests in production centers inland away from its major ports. Shipping costs also have increased as freighters have gotten larger and more expensive to operate.
2. Wages are leveling. Real wages in Asia increased 7 percent each year from 2000 to 2008. “The labor cost differential is shrinking,” Corsi says. “That reduces the advantages of outsourcing.”
3. Oversight is expensive. Even if companies outsource some or all of their production, they still must answer to their customers (and regulators) for the quality and safety of their goods. “You’re responsible for what your suppliers put out,” Corsi says. Mattel learned this lesson the hard when it got caught with lead-based paint on its toys in 2009. Corsi says companies have an easier time managing their supply chains when partners are closer to home.
4. Offshoring is risky. Political unrest, natural disasters and labor disputes can sink companies concentrated in one region. “Companies don’t want to have all of their production overseas in one location because that makes them vulnerable,” Corsi says. “They’re looking for backup suppliers and alternative locations.”
5. Agility is needed. Consumer trends and preferences change quickly, and Corsi says companies can respond better when they bring production closer to the markets they serve. “We live in an on-demand world,” Corsi says. “Supply chains that cover long distances are slower to adapt to market changes that occur rapidly.”
Employment will rebound a bit as companies make their moves, but Corsi says manufacturing cannot generate as many jobs as it did in the past due to improvements in robotics and automation. “The prospects for the United States are not as dim as they might have been 10 years ago,” Corsi says. “But recognize that we’re never going to have the number of manufacturing jobs that we had when the trend of globalization began 30 or 40 years ago.”