Reshoring: Should The 500-Pound Gorilla Gets Its Due?

For a number of decades, the political and moral game of ‘ping pong’ has been waged as to whether or not a U.S.-based manufacturer should move production offshore to take advantage of low cost economies (either real or perceived).

Once executed, that issue usually does not hit the radar until tooling/production have been moved to Vietnam, China or India and the new decision du jour is made to ‘call the troops home’.  It is usually only at that time when the early adopter of offshoring discovers all of the hidden and non-amortized costs not accounted for before the move offshore was completed.  However, that is a topic for another day…

Ready, Fire, Aim?

So, as a business entity, the decision was made to make the move.  Now comes artist Kenny Rogers ‘…know when to hold ‘em, know when to fold ‘em…’ analogy.  So, what is the trigger for even considering bringing production back home?  As with many management situations, the trigger is seldom a single event, but rather, a pernicious buildup of little indicators.  At some point, the gnawing doubt becomes palpable, and the proverbial 500-pound gorilla is let out of the safety of his cage.  Then, everyone from the CFO to the inventory managers dust of the ‘woulda, shoulda, coulda lists from the bowels of their desk drawers and the reshoring becomes immediately urgent.  In preparation for that white-knuckled moment, for which kinds of considerations should you be on the lookout? 

In the Ellram, Tate and Petersen article Offshoring and Reshoring: An Update on the Manufacturing Location Decision published in the Journal of Supply Chain Management in April 2013, some of the salient points are mentioned:

• The rising cost of fuel and associated transportation costs (Behar & Venables, 2010; Fishman, 2012).
• The rising cost of labor in low-cost countries (Anon, 2012; Fishman, 2012).
• The slowing of the global supply chain due to the shipping industry adoption of slow steaming (Hull, 2005).
• The improving ratio of U.S. labor output/productivity per labor dollar (Anon, 2012; Fishman, 2012).
• The growing concern toward environmental issues (Mueller et al., 2011).
• Real and anticipated volatility in currency valuation (Culp, 2012).
• Increasing theft of intellectual property when dealing in global regions (Clarke, 2012; Riley & Vance, 2012).
• The fast response time and leaner supply chain associated with locating manufacturing closer to the end customer/consumer (Williamson, 2012).
• Perception of quicker recovery in the case of supply chain disruption (Fishman, 2012; Williamson, 2012).

 
Fact-Based Decisions

As a caveat, be sure that the negative indices are market-wide, and not example of a breakdown in your own management control structure (remember common cause variation vs. special cause variation?).  Make the right call for the right reason.

For example, receiving an entire shipment of children’s goods containing lead paint could indicate a lack or breakdown in contractual controls on the engineering/supply chain side of the business, not an indicator of improving labor output per payroll dollar spent.  A reshoring decision based solely on a faux pas like that is most likely not indicated.  After all, the decision is potentially costly, can risk the integrity of the tooling and possibly result in unanticipated supply chain interruptions.

One Step at a Time

A great example of the due diligence to be performed is the case of Hedstrom Plastics.  Their story of offshoring production on their rotationally molded play ball product line in Plastics News in July of 2014 exemplifies the thought processes indicated in a critical decision like this.

Excerpted from a Society of Plastics Engineers Topcon interview,

“…A decade ago, Hedstrom Plastics moved its play ball rotational molding operations to China. But rising costs there are making company officials rethink that strategy — and one future option could be reshoring ball production to North America…”.  Further, “…China faces expensive land, buildings and labor costs. Hedstrom has looked at moving play ball molding to northern China, but that area also is getting more expensive, he said.  The company also sources other products, such as toy shovels, from China, he said.

Hedstrom officials also have considered moving the balls to Vietnam and Indonesia.  …the company also is looking at Mexico as a ball production site.

If Hedstrom does end up bringing the work back, it would be run on fully automated rotational molding equipment…”

In other words, Hedstrom Plastics has taken a more global view of the overall, highly price-sensitive process, looking at:

• Alternative offshoring options
• Near shoring options
• The most cost-effective reshoring options

Most critically, nothing is locked in as a final solution-yet.  Multiple alternatives are on the table, along with their related cost/benefit analyses for execution.

Can You Coexist with that Gorilla?

The Gorilla can be a valuable resource to you.  Taking a smart, business-oriented approach to both implementation and withdrawal (…and frankly, most other business processes as well…) will ensure the best possible return on your decision. 

Neither a knee-jerk reaction into or out of a condition will serve you well in all cases.  Frankly, would you want your direct reports functioning that way?