8-Advantages of “Onshoring” for engineering intensive manufacturers
Many engineering intensive manufacturing tasks, such as the production of semiconductors, software, vehicles and pharmaceuticals, can now be performed almost anywhere in the world. “Offshoring” – the outsourcing of work from North America to labor markets in China, India and other parts of the world – has become commonplace in many industries.
However, there is ongoing debate about the motivation, scope, and outcomes of offshoring among manufacturers. Some experts still view a continued rise in offshoring as an unavoidable result of globalization and basic economic forces: that is, outsourcing is fundamentally cheaper because of disparities in labor rates, plus in some cases special subsidies, relaxed environmental regulations, and so on.
Offshoring undoubtedly saves money and makes business sense for some manufacturers, such as those in commodity markets. Yet it is also true that, in the current economic climate, labor rates in the US are becoming closer to those in the developing world. Rising fuel and transportation costs are another major factor that is reducing the cost savings associated with offshoring for many North American businesses.
Regarding engineering intensive manufacturing in particular, another critical factor is reject rates and quality of service. Here, offshore competitors continue to lag well behind “onshore” (North American) contract manufacturers. Onshore partners can also deliver faster speed-to-market due to shorter shipping times – which has an impact not just when shipping final product, but at every stage of design and development.
For engineering intensive manufacturers, quality, speed to market and end customer satisfaction are often important competitive differentiators. Turning to an onshore partner for contract manufacturing can not only deliver the lowest total manufacturing cost, but also deliver a wide spectrum of quality, agility and service advantages, including:
- Accelerated innovation
- Reduced cycle times
- Inventory optimization
- Improved product quality
- Reduced product variability
- Greatly reduced management effort and hassles
- Greatly reduced “red tape” around doing business
- Significantly less regulatory compliance risk and complexity
While it can be difficult to quantify, each of the above factors also has a cost/profitability component. For example, the ability to accelerate innovation and get new products to market faster means increased sales, enhanced brand image and higher income. Improved product quality can lead to greater customer satisfaction and more repeat business with less marketing and advertising expenditures. Reduced management effort can enable small to midsized manufacturers to avoid hiring consultants and other specialists, and can reduce the risk associated with business growth.
Are you considering “onshoring” (onshore outsourcing) for your business? And if so, what are the drivers for the choice? We welcome your comments and opinions.