The Dollars & Sense of Onshoring

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Rich Krajewski
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Re: The Reshoring Trend
Rich Krajewski   4/19/2014 8:24:13 PM
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Now, there's another report referenced by this blog, and it is at

http://www.bcg.com/documents/file84471.pdf


THAT one has some more usable figures, with sources, such as its Exhibit 1. In that exhibit, the report shows that Chinese labor costs were 3% of US labor costs (on average) in 2000, and are "projected" to be 17% by 2015. So, the previous poster's point about Chinese labor being pretty small in any case sounds like a good one, no?

Good blog, by the way, with good references. Okay, one of the references is not so good, but this second one is okay. And, hey, it was free.

Rich Krajewski
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Re: The Reshoring Trend
Rich Krajewski   4/19/2014 8:16:49 PM
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Well, maybe it lacks sufficient quant info. The report it references at

http://www.thehackettgroup.com/research/2012/reshoring-global-manufacturing/hckt2012-reshoring-global-manufacturing.pdf

has a lot of assumptions and percentages, which are insufficient alone for decision making.

I did see what I thought were some absolute figures in the report, though, but they were for an apparently made-up scenario. That is, the report said the Chinese labor component of an iPad "is estimated" to be $10. Estimated by whom, and based on what? Maybe the source of the information is somewhere in there, but it's not where it's supposed to be, by the estimate. Then it goes on to say it "assumes" US labor costs would be triple that. Sounds plausible, but so does the idea of a flying elephant when you're six years old and watching a movie.

Then again, this report is free, and you had to pay to see the movie, so maybe we should expect the report in the link to be less plausible than the movie.

 

harpat949
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Re: The Reshoring Trend
harpat949   4/19/2014 6:53:39 PM
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The article  lacks quantitative information such as current labor rate comparison and examples with quantitative cost analysis. Obviously if the labor content in a product manufacturing is insignificant, it will not make sense to offshore. But it is doubtful that return to onshoring has much to do with rising labor rates because Chinese labor rates are still insignificant. The real reason may be difficulty of managing offshore operation and splurging on travel expenses by top management. 5 star hotels are quite expensive all over the world and so are business class and first class air fares and typically the people who would travel would have the least knowledge of manufacturing. A quantitative analysis can be very revealing.

Hailey Lynne McKeefry
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Re: The Reshoring Trend
Hailey Lynne McKeefry   4/18/2014 12:16:40 AM
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@jleoaita, thanks for weighing in. Do you think that the way that OEMs are thinking about where to shore manufacturing is getting more sophisticated? If not, what do you think needs to happen to make OEMs smarter about these decisions?

jleoaita
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Re: The Reshoring Trend
jleoaita   4/17/2014 12:54:36 PM
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Stay or reshore depends on what was the key factor behind the decision. Companies that went offshore for only labor costs advantages will for sure migrate back or move to the next low labor cost "shore" once the costs gap no longer justifies the decision.Those that offshored to take also advantages of local market demand or other key resources are unlikely to reshore.  

Hailey Lynne McKeefry
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Re: Attract manufacturers
Hailey Lynne McKeefry   4/16/2014 8:08:29 PM
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The key takeaway to me is that there is no one size fits all answer when it comes to deciding where to manufacture. Organizations need to be thinking more strategically about these questions rather than looking at simple cost calculations.

Hailey Lynne McKeefry
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Re: The Reshoring Trend
Hailey Lynne McKeefry   4/16/2014 8:07:13 PM
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@Reshore Now, thanks for the figures and the link. I am hopeful that this manufacturing location conversation will begin to be more about "cost to serve the customer" than a simple addition of cost of labor and cost of logistics. Opportunity cost can be very very high when the OEM is far from the customer. You said that 60 percent made miscalculations. Is this, do you think, a simple math error or more a matter of counting the wrong elements?

WaqasAltaf
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Attract manufacturers
WaqasAltaf   4/16/2014 4:17:39 PM
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As China is a developing country which might attract manufacturers to invest but onshoring is good for some reasons, charges of transportation will be less, better interaction with customers, increase in productivity. This will in turn ameliorate the domestic market.

Jacob
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China or US, which one is better
Jacob   4/16/2014 1:45:31 AM
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Frank, good analysis. At the end you mentioned that still it's better to have a production facility in China when company with similar thing in US. Did Chinese government taken any initiatives to stop this migration or controlling the rising cost factors?

Reshore Now
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The Reshoring Trend
Reshore Now   4/15/2014 12:21:58 PM
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Yes, I think the Reshoring trend is here to stay and it is gaining momentum.

 According to Harry Moser, founder/president of the Reshoring Initiative, we have already stopped the economic bleeding caused by offshoring.

 Since 2003, new offshoring is DOWN by 70% to 80% and new reshoring is UP by 1500%.

New reshoring is now balancing new offshoring at about 40,000 manufacturing jobs per year, resulting in the first net neutral year of offshoring job loss and reshoring job gain in the last 20.

Companies are reshoring because they are finding that having manufacturing near customers gives them better flexibility to respond to customers changing needs, eliminates higher shipping expense, minimize supply chain disruptions and eliminates the larger production runs and inventories associated with long distance offshoring.

Companies are also finding that when manufacturing is moved next to engineering, they can improve design, eliminate waste, improve quality and increase productivity.

In the past, as many as 60% of companies made the decision to offshore based on miscalculations, never taking into consideration the total cost of ownership (TCO) including all of the hidden costs and risks of offshoring.

Current research shows many companies can reshore about 25% of what they have offshored and improve their profitability simply by using TCO instead of price to make their decision. 25% is equal to 1 million jobs!

In order to help companies decide objectively to reshore or offshore manufacturing back to the U.S., the not-for-profit Reshoring Initiative's freeTotal Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm

 

 



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