So you are thinking about moving your production offshore, but you aren’t entirely convinced that the benefits outweigh the risks. According to global strategy and management consultant A.T. Kearney’s 2014 Reshoring Index®, offshore manufacturing by U.S. corporations surpassed “reshoring” efforts in 2014. Here are some key benefits of taking your manufacturing offshore that could explain Kearney’s finding:
- Cost Savings – The main motivating factor for companies to move their production offshore is to save a buck. By outsourcing assemblies and other expensive manufacturing processes, you can dramatically cut the costs of your products and pass those savings on to your customers, which is sure to make them happy! Start with the end in mind – the ultimate goal is to help your customers remain extremely competitive. Your competitors may not have facilities overseas and thus may have higher costs. While they are likely able to offer shorter lead times to domestic customers, they may lack the skilled labor and supplier and sourcing options that you have at your fingertips by manufacturing offshore.
- Skilled labor – A new study published by Deloitte and The Manufacturing Institute shows that American manufacturers will encounter a substantial skill gap over the next 10 years. Per the study, “Over the next decade nearly 3.5 million manufacturing jobs will likely be needed and 2 million are expected to go unfilled due to the skill gap.” Contributing factors include baby boomer retirement and a shortage of millennials (who will account for 50% of the US workforce by 2018) showing interest in turning manufacturing into a long-term career. (Why would they, when they can become longshoremen on the US west coast and make upwards of $150,000 annually with fully paid health benefits and an $88,000 pension?) Moving production offshore affords you a vast, skilled labor pool with significantly lower wages than the US.
- Specialized suppliers – Due to the sheer volume of manufacturing facilities in Asia, you are likely to find highly specialized suppliers that that may not exist domestically. In 2011, China beat out the US to become the world’s largest producer of manufactured goods (presumably including an abundance of Hello Kitty merchandise). Vietnam has also established itself as a key player in manufacturing with lower-cost options than China. The right supplier will have the proper equipment, experience, work force and other resources to produce high-quality products at decreased costs.
That wraps up part one of “6 Benefits of Offshore Manufacturing: Part 1” – stay tuned for round TWO next week! In the meantime, check out our blog posts “6 Biggest Mistakes of Selecting a Contract Manufacturer: Part 1” and “6 Biggest Mistakes of Selecting a Contract Manufacturer: Part 2” to learn more about making wise decisions when selecting suppliers offshore.