Re-shoring of manufacturing operations is the new trend making waves in the US economy today. US manufacturing firms are reversing on their off shore outsourcing strategy and relocating all or part of their manufacturing operations back to America. It is expected that this re-shoring trend will help manufacturing sector in US to outperform overall GDP growth this year.
According to latest reports from the US manufacturing industry, more and more companies are moving back the production activities to their home country from offshore destination especially China citing several reasons. Companies like GE, Hurst and Peerless-AV have already tasted the benefits of re-shoring some of their operation in terms of financial performance, market share and goodwill.
Why companies are turning to re-shoring?
According to a recent survey carried out by online manufacturing marketplace MFG.com it was revealed that more than 40% of the companies have got new manufacturing deals this year that was once outsourced to offshore destinations. The motivating factors that trigger companies to re-shore their manufacturing operations are:
- One of the primary reasons for re-shoring is the increasing labor cost in traditional offshore markets like China. The main attraction of China in its initial years was its low labor cost but according to Boston Consulting Group (BCG) the wages in China is expected to increase by 13% per year.
- Increasing oil prices have made shipping of the finished products from offshore destination costly.
- The hunt for supply chain efficiency is making it hard for the companies to keep their production overseas. Companies find that the savings they gained by offshoring operations are eaten away because of low inventory levels and in-appropriate delivery schedules. They are also not able to meet short-delivery demands of their customers.
- Changing customer demands and aspirations require constant innovation from firms in terms of products and delivery. Firms are finding it difficult to manage collaboration between engineering and marketing teams if it is outsourced to a remote destination.
- The companies are finding it hard to ensure the quality of the products manufactured overseas. The firms to their surprise found that they are spending big to cover the loss of their customers owing to the low quality of products.
- Demand for customized products is increasing and firms realize the fact that to stay relevant in the market it is better to keep their productions base near to them.
- Another issue was with regard to protecting their intellectual property.
According to the recent report by BCG about one-third of the US firms are planning to shift their production units back to home from China. It seems US firms are restructuring their business processes and what remains to be seen is how the new trend is going to impact US as well as traditional offshore economy.
You can find more details on re-shoring by following the link.