Back on Shore
A new study suggests that offshoring jobs is not the best way to cut costs
According to a recent study conducted by Archstone Consulting, 90 percent of the manufacturing companies surveyed are contemplating – or have already begun – moving offshore operations back to the United States.
“For years, the concept of offshoring, or moving production and/or sourcing operations to a foreign country, has been the mantra of any supply chain manager looking to cut costs,” said John Ferreira, Archstone’s principal and global manufacturing industry practice leader, in a February 2009 press release. “Now, amid volatile oil prices and an uncertain global economic future, this analysis no longer is a certainty.”
Kirsten Morrell, communications director for the Department of Employment and Economic Development, has observed a similar trend in Minnesota’s manufacturing community. “We don’t have any data, but we have heard some anecdotal information that some manufacturers [who produce domestically] do have an advantage over [competitors] who have operations offshore,” she says. “Increased transportation costs are erasing some of the [prior] advantages of offshoring.”
In addition to rising transportation costs—the cost of freight from China increased 135 percent during the last year—the Archstone study cites the weakening dollar and rising wages around the world as significant factors in bringing production back within the U.S. borders. The savings associated with offshoring are all but gone, and manufacturers are left wondering if the “offshoring-equals-savings” mantra is accurate.
“Too much of the outsourcing took place by the purchasing agent, and they weren’t thinking about the cost outside of the cost of the product,” says Enterprise Minnesota president and CEO Bob Kill. “They weren’t thinking about the shipping, [and] they weren’t thinking about the problem solving on the other side of the world. The whole supply chain is getting smarter about the total cost of a product, and we’re seeing some reevaluation about how you outsource.”
What does this mean for manufacturing in the United States? According to the Archstone study, it could mean new job opportunities nationwide and cost reduction for manufacturers who choose to bring production back home.
“Companies that will commit to domestic manufacturing can spur much-needed improvements in customer service, innovation and job creation—especially when servicing the large domestic market,” Ferreira says. “Manufacturers who approach sourcing decisions with a holistic perspective—evaluating market and customer demands and competitive strategy against a comprehensive knowledge of total cost—will likely increase revenue and lower costs, giving U.S. companies a powerful competitive advantage.”
-ANDREA LAHOUZE