Finding the Right Production Shore Is Tricky

While I ply the Internet for a bargain or two, I prefer to shop local. I value the familiarity, intimacy, and quality that come from local, independent businesses and their products. I buy meat and vegetables at farmers’ markets, enjoy the quaintness of plucking fish from the local fleet’s honor system freezer chest, frequent independent coffee shops, and I have a weakness for tailored suits.

Yet despite my affinity for the local, I am a staunch proponent of globalization. Udon noodles sit next to Connecticut honey in my pantry. My tailor lives in Singapore where he assembles my suits at half their cost in the US, based on instructions that I send to a friend via instant message. I am global. I am local. We’ll settle on just being "glocal."

Like me, high-technology companies look to balance global scope and local relevance. The same manufacturer may offer a basic, rugged mobile phone that sits at the center of a Grameen Bank microfinance project and a slim, fashionable smartphone that sits on the ear of a European financial services executive.

In designing and selling a variety of products like these, high-tech companies have successfully been global in the scope of their sales, while creating relevant, unique local identities. These companies are now moving the global/local conversation past sales, marketing, and design and on to manufacturing. Should manufacturing be local? Should it be global? Should it be both? Over the past decade, attitudes towards sourcing and locating manufacturing can pretty well be summarized with Steve Levy’s SportsCenter home-run call, “Get out of town -- and he means it!”

Developed economy manufacturers shifted operations to offshore original design and contract manufacturers (ODMs and CMs to their friends) in an effort to improve manufacturing cost, scale, and efficiency. The reasons for offshoring still hold. The (mostly) Asian manufacturing hubs that emerged have helped high-tech companies reduce cost, focus on innovation, and bring new solutions to the market. Yet with that concentration of manufacturing, we also lost contact and responsiveness between manufacturing and local markets.

To be sure, high-technology companies and their manufacturing partners have made significant, and often successful, investments in technology and processes to improve coordination with local markets. But customers and other stakeholders are looking for more. Retailers seek greater responsiveness and shorter order windows. Governments, major companies, and large institutions seek assurances that their high-tech products and associated embedded software are secure and tamper-free. Consumers seek differentiated products and solutions that mesh with their lifestyles.

Many of the high-tech companies that I work with are starting to apply some serious thinking to this dilemma. It’s no longer about offshoring for cost, but trying to find the “right shore” location for the right production. Some will be offshore, some near-shore, and some will be onshore. For example, General Electric Co. (NYSE: GE) and Whirlpool recently announced significant investments in domestic US production facilities. (See press statement and report: here and here).

For both manufacturers, the balance of cost, service, and customer connectedness made sense. For each manufacturer that comes to this decision point, the hard part will be the same; figuring out the combination of right location/right production/right customer segment/right cost. But just like inventory mix, creating the right mix of manufacturing locations can have significant impact on cost, service levels, and revenues. Finding the right mix of “right” shores is tricky business.

How is your business addressing this challenge?