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Favoring the on-shore over the off-shore?

Seems like, the US manufacturing giants certainly reflect this sentiment. If the current market indices are anything to go by, we are probably moving away from the term ‘Made in China’ and seeing a paradigm shift in the strategic choice of the site of production.

The Markit’s Flash Manufacturing Purchasing Managers’ Index shows readings above 50 and indicates an almost four-year high for the months Jan, Feb and Mar, for 2014. The economists note this as a clear sign of expansion in the US manufacturing, a welcome change after a four-year long sustained dip.  This reminds me of an ISM article from 2013 which pre-observed this phenomenon over six months back. The article talked in detail about the scientific explanations of the off-shore production decisions by companies; citing tradability as a critical feature for any given commodity, a key influencer in the decision to produce off-shore.  Commodities that can be easily manufactured and transported, with minimum loss of time, preservation costs, energy costs and co-ordination costs are more tradable and hence favored for being outsourced off-shore.

An expansion in U.S. manufacturing indicates a decreased tradability for commodities.  Some of the many important factors driving this change are: increased on-shore energy resources, higher off-shore labor costs and changes in governmental policies and, not to be ignored, the huge co-ordination costs with suppliers or factory sites. The fact that co-ordination is a critical factor affecting the tradability of commodities highlights the importance and need for smooth, reliable and flexible channels of communication especially in design sensitive categories where the factories would be preferred nearer the R&D units.  On the whole, how do you think these paradigm changes are affecting your procurement strategies? And how easy and flexible is it for you as a manufacturer to respond to these indicators and shift your production bases on-shore? What are the costs related with executing such a decision? And is this a trend here to stay?

Are we well-prepared to predict what will be our most optimal production site, in the years to come? Certainly, there are interesting times ahead for sourcing teams and supplier managers who have looked beyond the sea in their quest to get the biggest bang for the buck.

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