Simultaneously, there has been a rise in other costs, shipping, for example, has increased to such an extent, that it is safe to say that manufacturing locally would be much cheaper.
Of the world’s 25 leading industrialized nations, the U.S. ranks No. 8 in overall productivity
Moser was recently invited to participate in Obama’s insourcing initiative, where he explained: the expense of taking manufacturing abroad has been uncontrollably disparaged, and more and more American firms are now starting to understand that the aggregate cost of taking manufacturing overseas doesn’t justify offshoring in any case. Although offshoring is still growing, it’s started to grow at a much slower rate. In the meantime, the rate of reshoring is grabbing pace.
In an Accenture study of 287 manufacturing executives from various industries, - researchers distinguished that there has been a critical underestimation of overseas manufacturing costs. The real problem goes like this: many times supply chain executives, who are incentivized to uncover least expensive approach to production, utilize a method called price variance, which is a standard bookkeeping metric that bares the cost-effectiveness of production. A major setback at using price variance is that a lot of considerable auxiliary expenses and variables such as overhead and corporate strategy development are often missed due to impetus inclinations to exploit price variance mechanism.
Another reason to trigger reshoring, according to Bill Waddell, a manufacturing expert, is the existence of currency manipulation in China. Chinese banks falsely reduce conversion rates from Yuan to American dollars, to make it seem less expensive for American firms to produce abroad, giving Chinese manufacturers a wider window at competing. The issue affects US companies quite differently. The pressure on local manufacturers increases, while large publicly traded companies are at an advantage from the falsely lowered Yuan, for having invested profoundly in Chinese manufacturing units. The currency manipulation has led to complicated battles, which have been to a great extent stalled in Congress.
Offshoring a matter of miscalculation
The United States witnessed a 35% ghastly decline in the number of manufacturing jobs between 1998 and 2010. Most of it attributes to economic recovery being given a priority rather than reshoring efforts. However, HIS Global Insight, an economic research firm, predicts that the number of manufacturing jobs will rise by 3.2% in 2014 and by 1.6% increase in all jobs. Moser estimates a far greater number of companies will be willing to reshore some of their manufacturing jobs, thanks to the rise in the recalculation of costs of producing overseas. To have a deeper understanding of the total cost of manufacturing overseas, Moser and his team decided to design Total Cost of Ownership software, which is basically, a matrix of 36 diverse expense components. Organizations input various factors and the matrix provides data on where it would be less expensive, manufacturing domestically or overseas.
From Moser’s data gathers from 10 recent examples of firms having taken used the tool to calculate the total costs, it came out that in 60 percent of cases, the total costs of ownership is in fact quite lower, averaging at 22 percent less compared to overseas such as China and Mexico. Another reason is the growing sense amongst consumers for making a difference, for supporting their communities. Recently, Wal-Mart held a ‘Made in USA’ event for suppliers, which was attended by 500 manufacturers. “With changes in energy and automation processes overseas, it is increasingly cost-effective and efficient to manufacture closest to the point of consumption. We can better respond to trends and consumer demands while providing great products at affordable prices” says Michelle Gleoeckler, Wal-Mart’s executive vice president of consumables and US manufacturing. Wal-Mart will be spending 250 billion US dollars on products to support domestic manufacturing and creating American jobs.
A survey of 105 companies conducted in January and February 2014 by David Simchi-Levi, an engineering professor and supply-chain expert at MIT, revealed that 39% of companies were considering moving some of their manufacturing back home. The numbers are only likely to increase if the coming generation of entrepreneurs and supply chain executives are not as much inclined towards offshore.