Welcome, Guest  |  Login    Register

Is Next-Shoring A More Realistic View of Global Manufacturing?

Posted By Paul Tate, February 25, 2014 at 6:54 AM, in Category: Redefining the Supply Chain

World_Map.jpgFor some time now, we have been tracking a fundamental shift in the way global manufacturers redefine their supply chains and rethink their production footprints around the world to be more effective and secure.

There are many reasons for this. Perhaps most significantly, the financial dynamics of once-economically attractive off-shoring locations in the Far East and South East Asia have changed. This is partly due to recent rapid wage increases among emerging economies making low-wage remote production comparatively less cost-attractive. 

There are also other factors: the rise in transportation costs when moving goods from production sites to key markets, the difficulties and expense of effective quality management at great distances, the risks of supply chain disruption with geographically-extended supply chains, demands from major clients for faster time to market for increasingly customized products, and IP concerns in less-regulated industrial clusters.

Some argue that the primary result of this latest strategic shift in production strategies is all about ‘reshoring’, ostensibly bringing production back to home markets and re-invigorating the industries of the more advanced nations of the world. There is certainly some evidence for this inflow of activity, from GE and Apple in the U.S., to model-maker Hornby and century-old spinning company Laxton’s in the U.K.. All have relocated some or all of their production out of remote locations and closer to their home markets.

But perhaps this so-called reshoring trend is actually just one sub-set of a much broader global production shift in the industry, and not the end result. What seems to be happening today is a far more important restructuring of global production around the world, based on operational efficiency, market proximity and responsiveness, and the power of innovation.

Some call it ‘right-shoring’, maintaining the right balance between the activities that need to be outsourced overseas and the ones that should be kept domestic. The underlying motivation is, in fact, about the best place to manufacture, where decisions are enabled by increasing digital opportunity and driven by global business efficacy, rather than any sense of jingoistic fervor.

The authors of a recent report called The Future of Manufacturing, published by the U.K. government's Office for Science and co-led by Professor Steve Evans at the University of Cambridge’s Institute for Manufacturing (IfM), predict the ‘continued global fragmentation of the value chain’ in the years ahead. We published an early analysis of some of the underlying trends behind the report's predictions in a recent article in the Manufacturing Leadership Journal, called “Redefining 21st Century Supply Chains”. The IfM has also released further analysis in a new report called Capturing Value From Global Networks.

A recent article by Mckinsey and Co. has now introduced the idea of Next-Shoring. “A next-shoring perspective emphasizes proximity to demand and proximity to innovation”, say the authors. “Both are crucial in a world where evolving demand from new markets places a premium on the ability to adapt products to different regions and where emerging technologies that could disrupt costs and processes are making new supply ecosystems a differentiator. 

“Next-shoring strategies encompass elements such as a diverse and agile set of production locations, a rich network of innovation-oriented partnerships, and a strong focus on technical skills.”

The Mckinsey analysts identify a number of key factors in this assessment:

-       Local demands: more than two-thirds of global manufacturing activity takes place in industries that tend to locate close to demand, says McKinsey. As customers increasingly demand more localized products, close production locality becomes ever more important, both in understanding local market needs and responding with swift delivery.

-       Low labor-costs: wages may well be rising in China and other emerging markets, but global companies will still choose to locate plants in these regions in order to serve the expanding regional customer base.

-       Low energy costs: there may be benefits to cheaper natural gas in the U.S. right now, but McKinsey also argues that other nations are now focused on developing new low-cost energy sources. The report suggests that, “As advances continue over time, more and more companies may become able to ask themselves where they would place major strategic bets if the availability and price of energy were lesser concerns. That too will probably lead back to a focus on local demand patterns.”

-     Technology disruption: technologies such as advanced robotics, 3D printing, crowdsourcing, and the increasing digitization of production facilities allowing increased remote management and control look set to transform many manufacturing operations in the future. “The implication is that we are approaching a day when manufacturers will have unprecedented global visibility into who makes what, where, and how well,” says the report, and this will alter fundamental assumptions about manufacturing costs and footprints where access to hubs of innovation, capable suppliers and skilled workers will be critical. 

‘Next-shoring,” conclude the authors, “isn’t about the shift of manufacturing from one place to another but about adapting to, and preparing for, the changing nature of manufacturing everywhere.”

And while each region of the world may have its own market, innovation or skills advantages, “In the world we’re entering, “ adds the report, “the question won’t be whether to produce in one market for another, but how to tailor product strategies for each, and how to match local needs with the latest veins of manufacturing know-how and digital expertise.”

So for all the current bluster we now hear about reshoring and “bringing manufacturing home”, perhaps this much-publicized trend is temporary at best. The bigger picture, in which localization, proximity, innovation, skills, and digital technologies dominate global production decisions, looks set to paint a far richer tapestry for the future of global manufacturing. 

Written by Paul Tate

Paul Tate is Research Director and Executive Editor with Frost & Sullivan's Manufacturing Leadership Council. He also directs the Manufacturing Leadership Council's Board of Governors, the Council's annual Critical Issues Agenda, and the Manufacturing Leadership Research Panel. Follow us on Twitter: @MfgExecutive

Add Pingback


You must be logged in to leave a reply. Login »