On-Shore Manufacturing

Changing Attitudes Toward Offshoring Favor Quality and Flexibility

Recent news stories highlight a trend among manufacturers who are slowly reducing their production operations in foreign countries in favor of bringing those jobs back to the Unites States.  This process is being called “onshoring” or “reshoring” and is quickly changing the way companies do business on a global level.

As Midlake customers already know, the benefits to producing and manufacturing goods in the United States are extensive.   And, as the trend toward “reshoring” illustrates, other companies are now starting to agree that having a greater degree of quality control, increased manufacturing flexibility and tangible cost savings are powerful factors in today’s competitive market.

Here’s a look at why this is happening.

What is Reshoring?

Over the past few decades, factories, and the manufacturing jobs that go with them, have been moving abroad to countries in Asia, Latin America, and Africa where labor and materials were cheaper. However, over the past decade, there has been a reversal in this trend as companies are building factories in the United States or updating and reopening existing factories. The movement out of this country was called “off-shoring,” which is the basis for the names “reshoring” and “onshoring” for the current phenomenon.

Did You Know?
A small but growing band of U.S. manufacturers are turning the seemingly inexorable offshoring movement on its head, bringing some production to the U.S. back from overseas operations.

• General Electric
• NCR
• Caterpillar
• Ford

Source:USA Today

Why are companies reshoring?

When American companies began to produce goods abroad, they did so because the costs of materials and labor were lower, allowing companies to produce goods for less money and leaving more room for competitive prices and profits. However, the reality of the situation has changed due to changes in the global marketplace, unforeseen issues, and the difficulties of doing business from a great distance. Some of the reasons that companies have chosen to re-shore include increased costs, inconveniences associated with distance, and financial incentives.

Increased costs of offshore production

As the economic climate has changed over the past decades, it has become more expensive to produce goods abroad than it was when companies first decided to do so.

Prices have increased in almost every regard, including:

• Increased prices of raw materials. Foreign countries used lower prices to encourage established international companies to set up facilities, but once the companies built those facilities, the prices for those materials steadily increased.
• Increased labor costs. Workers, such as those in China, have demanded higher wages, adding costs to production abroad.
• Increased shipping costs. As shippers saw greater potential for profits, they have increased their prices. Additionally, the costs of fuel have made this process more expensive.

Long-distance complications

Another issue that plagues foreign production is the difficulty of doing business with a facility that is so far away. For local companies producing components abroad, the obstacles are numerous:

• Time differences that make communication challenging
• International trips to meet with producers
• Issues with intellectual property protection which can be harder to enforce abroad
• Delayed product delivery

Financial incentives

Despite the rising costs and complications of conducting business with a partner half-way around the globe, businesses might still choose to produce their goods abroad if there were not additional financial incentives for producing goods here. These incentives can be direct, such as those offered by the government in the form of tax breaks for companies that do business in the United States.

The benefits can also be indirect. Companies who struggle with inconsistent quality between shipments from the same manufacturer may pay a lower cost per unit but if they have to throw the inferior products away, that price rises overall. If they sell the inferior products, the brand’s image might suffer, costing the company money.

Also, a great deal of capital is tied up each time a company places a large order abroad, and they are unable to change that order or to use the money for other opportunities that arise. This makes it harder to respond to market demands or shifts.

Midlake understands these benefits

Midlake has been producing metal parts in America for years because we value the ability to offer our customers the best possible service and consistent, high-quality goods. Our customers know that when they purchase from Midlake, they will get exactly what they ordered, on-schedule and as promised. While other companies try to play catch-up by moving production back to the United States, you can rely on Midlake – the company that never left.

Sources:

Small and Midsized Manufacturers Project Strong Revenues for 2013

Learn more about the trends and business practices discussed in these articles:

Revisiting Reshoring – Accelerating, But Gradually / Mojo – the MFG.com Blog

Some manufacturing heads back to USA

Some businesses learning value of bringing factories back to the U.S.