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Or is it?
Onshoring (or reshoring) is occurring, according to Wade McDaniel, vice president for solutions development for global distributor Avnet Inc., but so is offshoring and nearshoring. Reshoring is just part of a larger trend in which manufacturers are rationalizing their production locales as part of a dual- or multi-sourcing strategy. “Nobody is chasing low-cost regions anymore,” McDaniel said. “If manufacturing is moving, it’s because companies are looking at customer demand and the cost of serving that demand. China is now manufacturing the products its consumers buy for themselves. These [former low-cost] regions are becoming end markets and manufacturers are going to serve those end markets.”
Changes in the global economic landscape are enabling manufacturers to be more flexible when it comes to putting down factory roots. Labor costs have become less of a factor as wages have increased not just in China, but in other low-cost regions. According to The Economist Intelligence Unit, hourly wages in China will approach $6 by 2016. Countries such as India, Ukraine, Mexico and Thailand will see wages increase by as much as 15 percent over the next two years. As wages begin to equalize, cost of labor is less of a factor in manufacturing decisions, McDaniel said. “Ten years ago China’s wages were still a $1 an hour and even if there was little labor associated with your product, there were still savings to be had. That has changed quite a bit.”
Other key considerations for manufacturers – such as fuel costs and transportation capacity – have become less volatile in recent years. Fuel prices have stabilized, and ocean and air freight capacity is plentiful. In spite of the current unrest in Russia and the Ukraine, it’s unlikely that global fuel prices will be negatively affected by a changing political landscape. The U.S. is prepared to increase its oil production if necessary, McDaniel said, which provides an additional level of supply and energy security for the U.S.
In the technology sector, products continue to become smaller, lighter and include more capability. Supply chain challenges – including transit – aren’t directly related to the product, per se. “Some of the challenges we see have to do with the retail packaging – there are regulations regarding plastics, for example,” McDaniel said. Tech products are becoming easier to move, and less cost-intensive to serve the end market. There's also a segment of the industry that never really moved offshore: large and bulky items such as automobiles, appliances and industrial equipment. While its true that certain subassemblies moved offshore, some manufacturing never really left, McDaniel said.
Manufacturers now have the opportunity to use a wide range of tools to plan and manage their supply chains. “There are tools to design products, tools to assist in network design, inventory optimization tools, and a lot more data companies can look at. Manufacturers can make better, faster decisions,” said McDaniel. Implementing these programs lead to better efficiency in the manufacturing process which in turn can lower costs.
Compared with the manufacturing consensus in 2008, McDaniel said – in which wages, prices, components and transit costs all were lower in Asia – the current thinking is:
- The re-shoring wave was a bit of a ripple
- Companies are using more sophisticated and in depth analytical tools
- Big data provides new opportunities
- Cost of labor is no longer a driving factor
- Cost of transportation is in a predictable range
- Transportation capacity is abundant
- Fuel prices have moved into a predictable band
- Emerging markets are driving their own demand for goods
- Supply chain talent is now a challenge
China will still be the primary site for manufacturing capacity expansion in the next year or so, according to SCM World. Manufacturers also plan to add capacity in the U.S., India, Brazil and Mexico. “If you think about technology products in particular, the decision is not so much about labor and material costs, it's total cost of ownership and cost to serve,” said McDaniel.
The current environment should make decision-making for manufacturers easier when it comes to expanding their reach. Stability in fuel costs, transit capacity and a plethora of planning tools give a clearer line of sight, McDaniel said. “Manufacturers have more visibility on where to make their products and markets in general are more open now. I’d say there are more opportunities for companies that want to enter new end markets. Even if your company is already global, this creates the flexibility to bring new product lines to market. And there’s always an opportunity to sell more of something or to manufacture it for less.
That’s why reshoring, nearshoring and offshoring all are alive and well,” McDaniel concludes.