February 25, 2012

For years, we’ve been talking about the trend of offshoring – companies sending operations to other countries to take advantage of lower labor costs. But there are signs that trend may be reversing. More manufacturers want to source product closer to home. This article looks at current conditions, challenges to offshoring and expectations for sourcing going forward.

For years, a core element of cutting costs for many major manufacturers was moving operations to countries with cheaper labor. The belief was that labor savings would more than offset the transportation costs associated with reimporting the finished products. As a result, manufacturers set up shop in places such as China and India and prepared to increase their profits.

But a problem developed: “China’s labor isn’t so cheap anymore,” says Barry Lawrence, director of the global supply chain laboratory at Texas A&M University. And transportation capacity has also become an issue.

As a result, a shift appears to be taking place in the market. While it is currently known by many terms – near-sourcing, insourcing, onshoring, etc. – it all means one thing: Manufacturers are looking for ways to bring production closer to the consumers of their products.

In its 2011 Global Manufacturing Outlook, global accounting and consulting firm KPMG reported that the U.S. was second as a destination for new sourcing in the next 12 to 24 months; only China registered higher.

Increased volatility in the global market has led ...