PRODUCTION IS A KEY TO
INNOVATION – KEEP RE-SHORING or RIGHT-SHORING
Since the beginning of twenty-first century production sector
in the United States has seen a decline owing to a fast paced increase in
off-shore manufacturing and outsourcing. Between years 2000 and 2004 manufacturing jobs were lost for
a stunning 43 consecutive months and there was a reduction in the number of
manufacturing plants by 12.5 percent from 1998 to 2008 – seriously effecting
the middle class workers who had always been the backbone of the country’s economy.[1]
Various studies have identified the following primary reasons
due to which major manufacturing concerns were forced to look for more
efficient and cost effective solutions outside the country:[2]
·
Cheap
Labor
·
Less
Capital Intensive
·
Inexpensive
energy
·
Speed
to transform Ideas into Reality
·
Almost
zero Legal Obligations
As it is believed that one who can jump from invention to production
in the shortest possible time is the winner, all of the above stated
factors had all the attraction for the leading manufacturing concerns to get
that winning spot.
This winning race was good for some time but now a serious
realization of losing hold on innovation is raising serious concerns for the
leading businesses of the United States. With manufacturing they have also
started to lose the power to innovate and implement new ideas, and it is now
the host countries that are making use of this creativity.
Maybe this is one of the major reasons for the start of
reshoring activity by the major industrial players. This change started in 2012
and is gaining momentum with time.[3]
Trade and Industry Developoment’s article - http://www.tradeandindustrydev.com/industry/reshoring-momentum-continues-build-7854
provide very interesting information on the current spree of reshoring with six
very informative charts. I would like to share one here:
This shows Freight Cost, Delivery, Travel Cost and Inventory
as major factors that are convincing companies to reshore, bringing our
attention to the importance of supply chain management and the costs associated
with it.
The question at hand is if the companies will keep bringing
manufacturing back to the United States, is it financially viable to do so,
what other factors might hinder this return? A very well thought-out strategy
suggests to “right-shore” instead of
“off-shore” or “re-shore”. To right-shore means to “optimize locations to take advantage of cost, market, and resources
for the best overall margin performance and customer satisfaction.” [4]
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