Manufacturers Consider Migrating Back to U.S.

Feb. 12, 2009
In the last three years, manufacturers have seen a significant increase in costs related to off-shoring manufacturing for export purposes rather than in country demand.

A new study by Archstone Consulting shows that companies are contemplating the re-establishment of manufacturing domestically, amid rising costs and other strategic challenges within the off-shoring model. As companies reassess their manufacturing and supply chain strategies for todays global economic environment, the trend may create significant job opportunities in the U.S., according to the recent study.

"For years, the concept of off-shoring, or moving production and/or sourcing operations to a foreign country, has been the mantra of any supply chain manager looking to cut costs," said John Ferreira, Principal, Archstone Consulting. "Now, amid volatile oil prices and an uncertain global economic future, this analysis no longer is a certainty. Furthermore, companies that will commit to domestic manufacturing can spur much-needed improvements in customer service, innovation and job creation -- especially when servicing the large domestic market."

The study revealed that in the last three years, manufacturers have seen a significant increase in costs related to off-shoring manufacturing for export purposes rather than in country demand, which include:

  • Ocean freight costs have increased 135%, highlighting risks and cost volatility.
  • The global commodity price index has risen by 27%.
  • The Chinese Yuan has gained 18% in value compared to the U.S. dollar.
  • Chinese manufacturing wages have risen by 44%.

In addition to the rising costs of conducting business on a global basis, the study found several soft cost issues, which affect the true cost of off-shoring, including:

  • Slower Cycle/Delivery Time (59% of respondents)
  • Reduced Supply Chain Flexibility and Responsiveness (56% of respondents)
  • Lost Visibility, Coordination and Control Over the Supply Chain including Quality (50% of respondents)
  • Bottlenecks in Logistics Networks (e.g., ports, transportation) (50% of respondents)

The study found that almost 90% of the companies surveyed are considering changing -- or have begun changing -- their manufacturing and supply strategy and are being more and more selective in making off-shoring decisions. U.S. manufacturers have become increasingly aware of the need for a more sophisticated total cost model that considers factors such as supplier price and terms, delivery costs, operations and quality costs, customer-centric supply capabilities and other situational costs that arise.

"Manufacturers who approach sourcing decisions with a holistic perspective -- evaluating market and customer demands and competitive strategy against a comprehensive knowledge of total cost will likely increase revenue and lower costs, giving U.S. companies a powerful competitive advantage," concluded Ferreira.

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