Bringing Operations Back Home? What to Consider When Reshoring
Getting Back in the Water
I am back in the pool after years-long hiatus. And it is hard—harder than I expected. I play tennis three to four times a week and regularly hit the gym or trails—I thought I was in fairly good shape, better than average. But, a few laps and my heart rate was in a zone that I believe medical professionals and trainers refer to as “danger.” I had to stop and rest. Breathing while swimming is a challenge at any time, but when you've been out of the water awhile, you can be an ultra distance runner and still suck wind.
My efforts to re-engage with swimming sum up a truism that well applies to the organizational challenge of bringing some of the business back close: it is familiar, but not easy.
Nearshoring. Reshoring. Backshoring. Manufacturing Renaissance. Made in America.
Almost everyone in any discrete product industry has heard these terms in the past three years as reports grow of companies bringing operations back to the United States or at least closer to a particular market region. And the reassessment does not stop at manufacturing nor only American companies. Companies in North America and Europe are evaluating many operational activities, including engineering, manufacturing and service for the best location and situation (internal or outsourced). Changes in global economics, visibility of total costs of production, demand locations and customer preferences are most often cited as the drivers of this pendulum swing. And, size or industry does not seem to be an indicator with companies from Apple, Nike, Whirlpool and Ford to retail product company Cinda b and IT service provider Computacenter. Indeed, we have seen a new set of companies like American Giant focusing solely on local sourcing and partnerships, selling the “made in...” as an integral part of the brand from design through marketing. American Giant has received a fair amount of hype from the fashion industry. However, the company has also garnered more serious consideration due to the exacting design process that is reflected all from sourcing through to manufacturing to create “the greatest hoodie ever made.”
Once the decision has been made to move or launch operations closer to home, the work begins. And, while it might be tempting to think that it will all be easy with gains of similar culture, common languages and shorter time zone gaps, the same business discipline, planning and process adherence is needed. And, there will be an adjustment phase—a training up period—much like when you jump back into the pool for the first time in a decade.
Where do you start? You need the same discipline and focus that made offshoring successful for you: communication, dedicated resources, planning and clearly defined processes enforced by the critical business applications you already use or have identified as necessary. While you will be cutting costs in such areas as logistics charges, lower energy costs, volume commitments and improved quality (less scrap/rework), you will most likely have higher labor costs and potentially higher material costs. You will need to re-think some areas of the business. You might:
- Consider product re-design for reduction in manufacturing process (see Inc.'s article on Cinda b).
- Investigate supplier options, ability to design with less materials or lower cost options or new technologies/efforts to reuse and reduce scrap or byproducts.
- Determine if automation opportunities exist as part of the transition.
- For certain industries, the limited vertical ecosystem or supply chain, particularly in areas of tooling, may not only offset some of the cost savings, but continue the needs to support global process management across time zones and work cultures (for more discussion on this topic and many considerations on whether or not to reshore, see PWC's “Going Beyond Reshoring to Right-Shoring” white paper).
Don't assume that the benefits of bringing operations back home make the work any less challenging. Most of us have done this before – before business left the four walls or geographic boundaries. Your processes still need definition, application support and adherence. Communication, whether across the street or multiple time zones away, is still critical. Don't discard the discipline that made your offshoring successful. It is familiar, but still not easy.
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