The trend towards outsourcing has increased supply chain dependencies and created an extended enterprise; offshoring requires a higher level of management involvement and challenge.
Since most costs lie in the upstream supply chain, it can be a source of competitive advantage. Volatility is expected to continue, meaning frequent changes in demand, variety and product. These require shorter supply pipelines and timeframes, which can cause chaos in supply chains (sales promotions, discounts etc).
This is leading to a shift away from a forecast driven mentality to executing against demand, whilst forecasting for capacity.
Offshoring sometimes reduces costs to the purchaser and manufacturer, but it results in longer lead times and supply chains, and thus reduced agility. There are thus benefits to bringing manufacturing closer to the marketplace and demand.
Companies need to look at the total cost of ownership. This includes transportation, inventory finance, uncertainty of supply (and thus potential for disruption), loss of quality control, increased security risks, and longer development cycles for new products. Longer supply chains, involving multiple companies, put the supplier at risk (the ‘bullwhip effect’).
There are number of reasons to consider ‘reshoring’:
Reducing the total cost of ownership
Improving the quality and consistency of inputs
Reducing pipeline and surge inventory in just-in-time operations
Clustering manufacturing and new R&D facilities to enhance innovation
Reducing intellectual property and regulatory compliance risk
Eliminating the waste and instability caused by off-shoring
Strengthening the company’s ability to respond quickly to customers’ demands