Manufacturers Moving Closer to Customers

April 1, 2011
Companies reviewing the 'total cost to serve'

A new survey recently released by Accenture found that 61% of manufacturing executives -- mostly with headquarters in North America -- said they are considering shifting their manufacturing footprint to be closer to centers of demand, and 59% said they intend to pursue new supply options.

Contributing to the potential global rebalance:

  • When deciding where to locate manufacturing operations and supply facilities, 67% of respondents cited "proximity to customers/markets" as a top factor.
  • 73% of respondents said that supplier materials and component prices increased between 2007 and 2010 and 57% noted the increased cost of logistics and transportation
  • Almost half of the mostly U.S.-based respondents said that cycle and delivery times (49%) and product quality (46%) are the most important issues they face from non-domestic manufacturing and supply facilities.

One reason for the shift is that many manufacturers have found that moving supply too far from demand has hurt their ability to meet their customer's increasing desire for specialization.

Manufacturers are also beginning to recognize that many of the factors they previously based their offshoring manufacturing and supply decisions on most heavily have dramatically increased
over the past couple years.

  • Supplier material/component price have by far had the greatest percentage price
    increase according to companies (73%) in cost for products over the last three
    years followed by logistics and transportation (57% of companies).
  • 36% of respondents responded likewise about overhead and other administrative costs.
  • 31% said exchange rate differentials had the greatest percentage increase.
  • Inventory, cost of quality, material handling and warehousing, packaging cost, country specific costs (e.g. VAT, customs, duties), product qualification, supplier terms, customer
    service cost, procurement staff costs and tooling were among the other leading areas where respondents said they had experienced the greatest percentage increase in costs for their products.

The study cites some recent example including BMW which recently invested $250 million to develop its headquarters in New Jersey and create two new regional distribution centers. Electrolux, a European appliance manufacturer, has announced plans to locate a new cooking products factory in Tennessee.

The survey also found that many manufacturers which migrated operations used to supply regional demand off-shore did so without a complete understanding of "total costs to serve." A robust total cost analysis that considers the customer's competitive environment, including the need for speedy delivery, short cycle times, and the flexibility to respond to uncertain demand and product customization requirements, was not adequately represented in most manufacturers' decisions. Those decisions are now being re-thought.

For a copy of the report click here.

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