"We have surveyed the manufacturing landscape and identified five strategies that companies are using to remain competitive. Here we profile each strategy and present case studies illustrating how real companies are putting those strategies to use ."
Strategy 1: Prepare for Re-shoring Production
More manufacturers are bringing production back to North America. We think the three main drivers of this trend are:
● Increases in the cost of ocean freight transportation, which has increased by as much as 150% since the 2008 lows;
● Longer product delivery cycles that make domestic manufacturers less responsive to consumer demand; and,
● Poor production quality standards that have resulted in the delivery of defective goods.
In addition to these drawbacks, the rising cost of Chinese labor is prompting domestic manufacturers to reconsider their off-shoring habits. Last year, Chinese inflation rose to 5.1% – its highest level ever. Sure, Chinese manufacturing remains far less expensive, but a trend toward higher costs is clear.
These factors, including consumers’ growing environmental and patriotic concerns, are motivating US manufacturers to move their production facilities back to North America. An October survey of nearly 1,400 US manufacturers found that 19% brought production into or closer to North America in the last three months. Domestic labor costs may be more expensive, but manufacturers are finding ample motivation to re-shore. At the same time, these manufacturers are identifying innovative ways to reduce costs.
For example, Vaniman Manufacturing, a maker of dental parts, was initially drawn to China by the allure of labor costs 50% lower than domestic labor. However, Vaniman’s labor savings were quickly eaten up by shipping and storage costs. This prompted Vaniman to leave China and locate their production in San Diego. After the move, Vaniman realized cost savings from reduced transport and storage needs. Ultimately, Vaniman’s costs are still 5% higher than the cost of doing business in China, but the manufacturer feels the premium is well worth it.