Tag Archives: reshoring manufacturing

Does risk management require supplier development?

In the past few weeks, I’ve talked with three companies with a key objective to look at on-shoring components that have been sourced in low-cost countries for several years. The directive is coming from both the executive management and a Board of Directors concerned with risk management. The difficulty in resourcing some of these components is that it’s difficult to find suppliers with the capacity, scale and know-how to support the demands of large customers, because much of the industry has moved to low-cost labor countries. In some cases, whole industries were outsourced, like the tooling and electronics industries. Each industry has its own problems returning to domestic production.

The tooling industry saw many of its skilled tradespeople leave the industry, retire and they’ve failed to drive automation and capital expenditures in the absence of customers. Tooling has been sourced in Asia for more than two decades. To reshore, sourcing professionals must locate suppliers, help them gain skilled workers or encourage automation and scale up the capacity and capability to meet their demands. This is not a simple sourcing program and will take resources, time and capital to accomplish.

The electronics industry made significant investment in Asia, developed the supply chain and workforce in Asia. It, too, will take a skilled labor force, capital investment and supplier development to return sourcing to US factories. While these are just two examples of the difficulties in reshoring, many companies are now sounding the alarm to their purchasing and supply chain teams to build risk mitigation plans based on a new reality and changing environment.

As part of any market analysis, category managers must keep refreshing the Porter’s 5 Forces and STEEP/PESTLE (social, technological, environmental, economic, legal and political factors) market analysis to stay ahead of the rapidly changing dynamics. If you haven’t looked at reshoring, let the tariff imposed on Canadian softwood lumber be a warning that on critical components you may need a new strategy to locate domestic suppliers and understand what development must be done to make them capable should the need arise.

Are you prepared to develop a supplier?

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Made in the USA vs. Free Trade – it’s complicated

shipyard

While watching the news this week, my wife Linda asked me “Are you a true believer in free trade?” As I thought of a response, I was reminded of why manufacturers began to leave the USA. Yes, many were chasing low labor, but the reality is that many companies were chasing quarterly earnings while operating out of post-World War II factories with limited investment. Abroad, the companies were investing in new plants with updated capital, automation and driving low manufacturing cost as well as having low labor costs compared to the US.

In my corporate procurement and supply chain career, I’ve worked for organizations that had short term focus, lack of (or misdirected) investment and poor strategy. Unfortunately, some no longer exist. The point is that tariffs and duties on imported goods alone will not save US manufacturing. Being the low-cost producer involves investing in the future and developing sound business strategies; that is the key to surviving and thriving.

Free Trade will drive buyers to the low cost, efficient suppliers wherever they are. The high cost, inefficient suppliers can be propped up by protection, but are not likely to survive in the long term. Some supply chains, like the electronic industry, have made the long-term investments elsewhere and have already achieved technology advances, low cost and may never return to the US. The automated factories that return will require different employee skillsets than the industries that left the US and we may not have a ready labor force if manufacturing is reshored.

As procurement and supply chain professionals, we need to develop all suppliers to be efficient, operate at the lowest cost and invest in innovation and automation. I believe that sound strategies, investment and a commitment to the future will lead to the most competitive suppliers, wherever they are located.

It’s a complicated question:

Do you believe in Free Trade?