Improvement Insights Blog
Insourcing Manufacturing
The March 2011 Wired magazine article identifies a new trend in manufacturing: insourcing. An MFG.com survey found that 19% of companies had brought all or part of their manufacturing back to North America. US manufacturing added 136,000 jobs in 2010, the first increase since 1997.
While many small to medium sized businesses moved their manufacturing to China in the early part of the last decade, many are finding benefits from moving production back to the USA:
- Rising labor costs in China are making the USA more cost competitive. China wages more than doubled between 2002-2008.
- Sheer distance “remains an intractable problem.” The distance between R&D and manufacturing creates problems easily solved by colocating the two.
- Shipping costs and delays (3-6 months)
- Quality problems because Chinese manufacturers cater to large customers and outsource smaller jobs. “Long-awaited shipments…are too flawed to sell.” One company had to scrap an entire shipment due to quality problems nearly capsizing their business. 7% of survey respondents said that offshoring had actually harmed their business.
- Intellectual property theft results in cheap knockoffs.
- Costs of capital to order a larger quantity of goods that take 3-6 months to deliver. Lean manufacturing in the USA reduces batch quantities required, increases quality and minimizes costs.
Conclusion: “China can end up being surprisingly expensive.” A recent study by McKinsey found that savings from offshoring have turned negative.
The tide is turning. Fast, affordable, flawless manufacturing in the USA is a viable alternative to slow, flawed offshoring.
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