Half of large U.S. companies are bringing some of their manufacturing processes back onshore. But it’s not as simple as turning out the lights in one locale and setting up shop in another, says reshoring expert Rosemary Coates.
The upcoming Supply Chain Outlook Summit will feature 10 different speakers who have their fingers on the pulse of the most important changes impacting supply chain management over the next 2-3 years. At the event, Rosemary Coates will present "Reshoring and Rebalancing Global Supply Chains: How will you prepare?"
According to Coates, executive director of the Reshoring Institute, half of large U.S. companies are bringing some of their manufacturing processes back onshore, with a significant effect on global procurement, logistics, trade, and manufacturing strategies. But reshoring is not as simple as turning out the lights in one locale and setting up shop in another, Coates says. To the contrary there are at least three factors a company should consider before reshoring.
1) What’s the total cost of ownership?
Few of us are able to walk cleanly away from a former home or apartment. Repairs have to be made before a new owner will take over. You have to clean up. Utilities are turned off. The same is true for extracting your operations from certain geographies. In many countries, you have to apply for an exit. That’s to protect the citizenship of that country. In China, for instance, Coates advises that employees often work under one or two year employment agreements and you may have to buy out their contracts. Then, there are the investments in IP and equipment you’ve made in your foreign operations. “You’re never going to get your tools, dies, or molds out of China because equipment you’ve brought in is considered a gift unless you’ve identified the items by serial number in your contract,” Coates says. “If you have IP invested in those tools and dies, you have to expect that they are going to be used to manufacture your products but without your name on them.”
2) Are critical skills available in the new geography?
In 2014, the Wall Street Journal ran an article with the headline: “Otis Finds ‘Reshoring’ Manufacturing Is Not Easy.” The story detailed the problems the leading elevator manufacturer faced when it relocated a factory in Nogales, Mexico to South Carolina. One of the biggest problems: Finding the skilled labor necessary to keep up with production. “When you’re reshoring to North America, one of the critical factors to look at is the human level – the skills available in that area,” Coates says. “Otis Elevator lost millions because they didn’t have the skilled labor to fill orders.” Not only has manufacturing been off-shored, Coates says, but so have technical jobs like welders and machine tool operators. “We have to re-instill that at the community college level,” she says.
3) Are you ready to automate?
There is no question that the wage gap between the US and China has narrowed. But it hasn’t disappeared entirely. For that reason, “automation is really important if you’re going to extract low cost labor out of your production,” Coates says. ”You do that by automating your processes through 3D printing, robotics, and other automated technologies.” Her larger message: Reshoring will not bring back 100 percent of the jobs that left in the original wave of off-shoring. Nor is that a bad thing. “We don’t want to bring back 23 cent an hour t-shirt production,” Coates says. “We should aim for advanced manufacturing jobs that pay between $45,000 and $85,000 a job. They are the cross-over between manufacturing and engineering.”
"Automation is really important if you’re going to extract low cost labor out of your production," Coates says.
At the end of the day, she adds, it’s important to remember that we’re in the midst of a manufacturing evolution and not a revolution. “We’re not going to go back to what manufacturing looked like in the 1960’s,” Coates says. “But, we’re taking steps in the right direction.”
Rosemary Coates is the executive director of the Reshoring Institute and president of Blue Silk Consulting, Coates is an Amazon.com best-selling author of five books, including 42 Rules for Sourcing and Manufacturing in China and The Reshoring Guidebook. Over the last 25 years, Coates has helped over 80 global supply chain clients achieve their goals. She serves on the Board of Directors of the University of San Diego Supply Chain Management Institute and teaches Global Supply Chain Strategy at UC Berkeley. In her presentation at the Supply Chain Outlook Summit, Coates will discuss the essential nature of manufacturing in rebuilding the nation’s middle class and economy.