Sourcing Suppliers Close to Home Provides Several Competitive Benefits

GettyImages-516895224-compressorWhen GE reshored manufacturing of the GeoSpring water heater from China to Kentucky, material costs fell, the number of labor hours required went down and quality and time-to-market improved. The collaboration was so successful, in fact, that GE sells the product for 20 percent less, even though the labor costs per hour were nearly five times higher than they were in China.

Apple is another company that has initiated more insourcing in recent years. noted that Apple has been so pleased with its decision to produce glass and some iPhone components in the U.S. that it has committed to making one of its Mac computers domestically.

Nike also announced this past summer that it was entering a partnership with Apollo Global Management to acquire apparel suppliers and textile firms in North America to build new manufacturing facilities. The company had made a number of changes in recent years to address logistics issues and move manufacturing closer to home. In 2015, the company opened a 2.8-million-square-foot distribution center in Memphis to better serve its biggest market in the United States.

“Corporate executives are adopting a “carefully considered production flow strategy” which helps them think more about total costs.

Becoming neighbors with your supply chain
Are these examples piquing your interest? Well, wait, there’s more.

From apparel to electronics to the auto industry, more manufacturers are sourcing materials closer to their assembly plants and consumer markets. Experts say moving sourcing—and in many cases manufacturing—closer to home can improve quality, reduce costs and boost time to market.

The apparel industry is perhaps the farthest along in this regard. In addition to the above benefits, a report from the International Textile and Apparel Association found that making products in the U.S. also can improve brand perception, while reducing corporate social responsibility risk in the supply chain. In fact, nearly 40 percent of apparel companies surveyed said their sourcing value from the United States would increase in the next two years.

Morris Cohen, professor of manufacturing and logistics at the University of Pennsylvania’s Wharton School, said corporate executives are adopting a “carefully considered production flow strategy” which helps them think more about total costs that can include strategic assessments about supply chain risk, logistics, customer proximity, quality and other factors.

Harry Moser, founder of the Reshoring Initiative agrees. He said manufacturers are using total cost of ownership analysis and taking into account everything from transportation costs and travel expenses to IP loss and impact on product innovation. The savings from low offshore wages and purchase prices, he said, are being increasingly offset by dozens of hidden costs. “Using TCO will help your company more accurately assess the total microeconomic impact of offshoring or reshoring decisions,” said Moser.