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How Reshoring Drives Profitability
How Reshoring Drives Profitability
For many years, manufacturing has sought to increase competitiveness by moving off-shore to countries with lower labour costs. In this paper, the authors expose the real costs of off-shore manufacturing, and put labor cost differentials into perspective.
Supply Chain

Authored By:
Michael Ford
Mentor Graphics Corporation
Longmont, Colorado
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For many years, manufacturing has sought to increase competitiveness by moving off-shore to countries with lower labour costs. Electronic manufacturing services (EMS) companies provided an essential element to make off-shore transfer happen more quickly, offering further cost reduction opportunities from load balancing.

Fierce arguments were put forward to protect the loss of local jobs, although the result was, in almost all cases, inevitable. Today, however, the whole market of PCB-based electronics products has changed significantly. The "pros" of off-shoring are no longer what they once were, and the "cons" are becoming more significant because off-shore manufacturing can no longer satisfy the needs of the market.

Is reshoring really commercially viable, or are government incentives trying to push water uphill? Market demand patterns continue to change and evolve. As technology-based products become fashionable, the demand from customers becomes more volatile, and they are more heavily influenced by endorsements and trends. Getting the latest products into the market ahead of competitors, with a range of options to match people's individual tastes, is essential. The trend of direct shipping of products, driven by Internet shopping and direct B2B ordering, brings these variations in demand directly to the factory door. The key for success in today's market is being able to provide flexibility and agility without losing productivity.

Off-shore manufacturing has inescapable issues of delivery time and cost, as well as price depreciation and long response times while carrying some significant risks. Whereas, in theory, reshoring allows rapid time to market, the opportunity to meet customer needs, and eliminates many hidden costs of doing business.

In this paper, we expose the real costs of off-shore manufacturing, and put labour cost differentials into perspective. We demonstrate how practically, using existing technologies, re-shored manufacturing can yield better business return, either for an OEM, or through EMS providers.
This change in the way that SMT optimization is done may seem like a fairly insignificant change, not really something grand enough to trigger a change in the way that the manufacturing market works. This solution, however, brings the ability to model and optimize the SMT factory based on live customer needs, It is the solution to the case where factories are required to work without long distribution chains.

The saving of costs from the distribution chain in a way that allows the factory to remain efficient dramatically exceeds in most cases the incremental costs of labour when comparing on and off-shore locations. This is the compelling factor to encourage manufacturing to come back on-shore. Whether OEM companies take this initiative, or once again, competitive EMS companies provide the opportunity, we can at least start now to consider a new paradigm of on-shore manufacturing.

The whole industry could be re-born and can become a very attractive place to work again. There is a great deal of labour now coming from the distribution side of the industry that has already been waning. With government incentives on offer to help, it seems as though now we are beginning to see the "perfect storm" for on-shoring.
Initially Published in the IPC Proceedings
Reader Comment

Christopher, while that sounds, our country does the same. The US government demands and gets the keys to every crypto chip in the US and Europe. China just wants the same evil capabilities that we expect for ourselves.
As for on-shoring: only for low-to-mid volume, high mix. High volume isn't likely to be on-shored soon.

Philip Hedges, PDS, USA
Reader Comment

I'm amazed that this article makes no mention of how off-shoring production continues to place intellectual property at risk even as it increases the opportunity for knockoff imitations.

This all the more pertinent now that China is demanding sensitive source code and "back-doors" on some hardware.

From the NY Times:

HONG KONG - The Chinese government has adopted new regulations requiring companies that sell computer equipment to Chinese banks to turn over secret source code, submit to invasive audits and build so-called back doors into hardware and software, according to a copy of the rules obtained by foreign technology companies that do billions of dollars' worth of business in China.

Christopher Stanton, Research & Design, USA
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