Kudos to the Reshoring Initiative @ReshoreNow and @harrymoser for recognition of their efforts to bolster American manufacturing. Though there are at times strategic benefits to outsourcing/off-shoring, I’ve seen this approach to cost savings too often put to premature use. Labor costs, as a growing number of manufacturers worldwide now understand, is just part of the equation.
The value of cost savings gained through lower labor rates must also be measured against outsourcing’s landed costs. This includes considering the additional transportation and fuel costs as well as import taxes and currency fluctuations of this scenario.
There are dozens of hidden costs triggered by this manufacturing strategy as well. Production and delivery costs can take a hit as quality issues arise and lead time related to transporting the product across borders increases. I’ve seen how trying to manage this can drive up inventory costs as companies stockpile product to avoid offshoring production related delays.
Offshoring can also impact insurance rates and bring with it more travel related to sourcing and managing vendors and overseeing production. At times it includes additional middlemen into the process and can involve an increase in overhead in the off shore facility. I won’t even get into the environmental or corporate responsibility ramifications
The point is, that when all of these factors are taken into consideration, offshoring isn’t the no-brainer it was originally made out to be. I’m my opinion, it never was.
But I don’t regret this episode in American manufacturing. We were forced to get off our laurels, rethink our position in the global marketplace and the impact of manufacturing on our economy.
As enthusiasm for off shoring dies down I’m hopeful. Not because I don’t expect that there is value in off site production, but because it means organizations are moving beyond the quick fix. Moving beyond short sighted cost savings stunts to instead focus on the hard but market rewarding work of creating and sustaining competitive advantage – in effect breathing new life into the ingenuity for which we are known.
