Tuesday, February 12, 2013
Offshoring vs. Reshoring
When reading the articles this week regarding the increasing prices in China and the costs of offshoring, it was interesting to see both perspective on why companies should or should not outsource. While China and Malaysia provide quickly expanding local markets and lower wages as the Time to Rethink Offshoring? article explained, other important variables exist and should be considered. Such factors include local wage inflation, higher fuel costs, long lead times, etc.
In reference to some of these factors, companies and manufacturers are now looking to turn from offshoring, to a new strategy termed “reshoring”. For American companies this includes moving their operations to the United States, to closer shores such as Mexico or to cheaper, lower cost locations such as Indonesia, Cambodia and Vietnam. Decisions to “reshore” are impacted by the reduction to total costs, improvement to product quality, reducing the instabilities of offshore markets, etc. However the decision to change a supply chain strategy does not come easily. Many companies have had long-term relationships with China, Malaysia and other areas that have produced quality and dependable work for years. Also, reshoring to countries such as Cambodia and Vietnam comes with their own issues as productivity and skill levels of the labor force are nowhere near that of China’s. These workers are also demanding better rights and pay and will therefore also produce increased costs. Finally, another consideration is how easily a company can change its supply chain structure. While it may be easy for larger, more successful companies to change, this may be more of a struggle for smaller, less successful or less established organizations. These factors therefore lead to much uncertainty for companies and if they should alter their supply chain strategies.
What factors should go into the decision on whether to offshore or reshore products? Should cost be the main issue that is considered?
How difficult or risky is it to change from offshoring to reshoring-for both small and large companies?