‘Reshoring’ has become a bit of a buzz word lately. 2013 has seen several big name corporations pledging to bring manufacturing back to the states combined with political promises claiming to make it easier for them to do so. Heck, even Apple got in the reshoring business this year and is toting plans for a “Made in America” iMac. My skepticism shelved this reshoring ‘buzz’ (both from industry and government) as, well, a public relations gig.
In fact, I wouldn’t be paying attention to reshoring unless I had real examples of OEMs wanting to move their manufacturing production back to the U.S. that would specifically apply to our business. Like, literally in my office saying “Yoou whooo… Yes, I’m interested in moving my production of 30,000 circuit card assemblies from Taiwan to MD in less than 6 months”. I mean come on, if it were that easy I would say “Yes please!” and be making sure my business model was aligned to meet this need.
But here’s the thing… in reality, I actually have had OEM executives sit in my office and tell me “I want to move away from our off-shore manufacturers…how quickly can you ramp up production?” We have developed a business model to aid OEM reshoring efforts because there is a demand for it. The reasons vary from company to company, but in general they are not seeing the benefits that once applied to off-shore manufacturing. And in some cases, they are seeing higher risk and can’t get out fast enough. Here’s just a snapshot of these reasons:
Customer A: We’re looking to bring manufacturing back to a domestic supplier because it’s too painful to deal with our overseas vendor. We are having too many quality issues, some of which I fear we don’t even know about yet.
Customer B: I’m worried about my intellectual property.
Customer C: Sending people back and forth is growing tiresome and expensive. My guys are getting burned out.
Customer D: It’s painful to make one ECN change – I literally have to get on a plane if I want to change a resistor!
Customer E: It just doesn’t make sense to build our volumes of circuit card assemblies overseas anymore. We need to stop looking at piece price and look at the other costs involved.
For folks involved in off-shore manufacturing these comments may be all too familiar and you may too be in agreement that working with a domestic contract manufacturing partner would be much easier, safer and reliable. But unfortunately domestic contract manufacturing firms just can’t compete on price… or can we?
I defer to Customer E above and with perhaps too much enthusiasm I say “YES WE CAN!” In fact, I have personally been involved in pricing comparisons and the results always surprise me. Is our piece pricing generally higher? Yes. Of course it is. But not as high as you might think. And when you factor in the ‘soft costs’ associated with off-shore manufacturing (which some reports suggest add 20%-30% of costs to the bottom line) the justifications for using off-shore contract manufacturers, in some cases, just don’t apply anymore.
Look, I’m not saying that reshoring is feasible for every product. There are many factors to consider, costs to analyze and in the end the choice has to be made by the OEM on whether or not reshoring is the right fit for the organization. I do believe that the benefits of off-shore manufacturing are starting to blur, the ‘cost gap’ is closing for some product mixes, and that building volume electronic products in the U.S. should not be quickly written off as impossible. And, should you choose to pursue reshoring, make sure you choose a contract manufacturing partner who has experience with this business model. Reshoring comes with many challenges that are best managed by an expert.
By the way, for some help in identifying all the costs associated with off-shore manufacturing check out this website http://www.reshorenow.org/ . It has an interactive worksheet you can use to get cost information based on real data from your company and your product.