We have written a lot lately about moving your manufacturing operations to a new location (reshore, nearshore, onshore, offshore, de-shore, Pauly Shore, etc.) and the kind of situations whereby it would make the most sense to start this move. While each situation is different, we have found that there are 5 signs that it might be time to move.
While experiencing one or two of these signs might show that it is time to move, if you experience all 5, it is definitely time to go.
1. Rising Costs
Many clients of ours become interested in moving as costs raise in the current area of production. Rising costs were the driving force moving manufacturers out of North America to China in the first place. Now, costs of products produced in China are rising (due to raising wages, supply chain difficulties, tariffs, etc.) and clients are looking for new options.
We have extensively covered other manufacturing areas in previous blogs, however, it is worth noting again that there are many other costs beyond just the labor rate. Productivity, supply chain availability and tariffs are just as important to understanding total costs.
2. Persistent Quality Issues
Cheaper offshored manufacturing often entailed a certain level of poor quality that the buyer either dealt with directly with the supplier (sending back poor quality, increased quality inspections, etc.) or with the consumer (easy returns, refunds, etc.). This arrangement is becoming untenable as costs and consumer expectations rise. Refunds are expensive and supply chain shortages can cause unacceptable waiting times between new product arrivals.
In this case, we are not speaking about occasional quality issues or the difficulty of new product introductions. Instead, persistent quality issues are problems that continue for years despite numerous efforts to fix them. At a certain point, it is time to look for other suppliers or take responsibility for manufacturing yourself.
3. The Need for Greater Flexibility
Offshoring production to cheaper foreign locations can be great for any company: management and product costs are lower, and you can usually move to a new supplier if needed. That said, there is a loss of flexibility that many companies are finding difficult now. Reshoring or nearshoring can add considerable flexibility to any operation. A good example of this is Zara. Rather than rely on low-cost labor in Asia, Zara nearshored its production to be closer to its markets so that it could move from inspiration to retail in less than 3 weeks. Doing so does mean higher costs but it also means that Zara can quickly adapt to new market trends. Other clothing companies rely on low costs and high volumes. They take calculated risks that the trend they are producing will sell well. If it does not, they drastically cut prices to shed the excess inventory.
If you need to be flexible and more reactive to your market, this can be a good sign to reshore or nearshore.
4. Instability
The world is an inherently unstable place and business does not occur in a vacuum. Trade disputes between nations can lead to tariffs and trade barriers that hurt even the largest manufacturers. Wars and rumors of wars can disrupt trade and raise prices. Political instability can put projects at risk.
We recently had a company interested in a new manufacturing facility in Sri Lanka pull out at the last minute after political violence erupted there. Companies moving to Ukraine had a rude awaking after Russia invaded that country.
While it is not possible to predict every possible occurrence, it is worth engaging in risk analysis on a regular basis to understand the situation and see if you should move.
5. Difficult Suppliers
This may be the “squishiest” (as in there is no clear way to measure it) of the 5 signs but it is worth considering. Some suppliers are difficult to work with. Difficult in this case can mean unresponsive, unreliable, underhanded, etc. If you dread working with your suppliers and find that you cannot trust them and/or they might be doing something that damages your business (like selling your product to another buyer, stealing IP, etc.) they are a difficult supplier. Supplier relations are best and most productive when they are cooperative rather than combative.
Finding another supplier might help but occasionally the situation is so poor that reshoring is the best option.
The Bottom Line: Follow The Signs
Note that these are all signs that it may be time to move. It does not mean that you should do so right away. If you have seen any of these signs, it is time to explore and weigh your options against the cost and benefits of reshoring. Too many companies see these signs as just a price for doing business. It isn’t.
Do your research, understand where you want to go, and follow the signs.
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