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"Backshoring" A Mixed Bag

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A few weeks back, Booz & Company and Strategy + Business presented a paper titled "The Case for Backshoring (registration required)" (hat tip: Evolving Excellence).

Like MacArthur's return to the Phillippines, "backshoring" of work to the US will likely take time.

Like MacArthur's return to the Philippines, any significant "backshoring" of work to the US will likely take time.

This article's been done to death on the blogosphere, but there are a couple of takes that deserve to be pointed out for small- and medium-sized manufacturers (SMMs).

First, NCR (the prime subject of the article) has made the decision to "backshore" the manufacture of its "most sophisticated" products to the U.S., after moving it to Asia in decades past.

"But recently, NCR has rejected this strategy — at least to a degree. In 2009, the company decided to move its most sophisticated lines of ATMs from its plants in China and India, and from a Flextronics facility in South Carolina, and instead manufacture the machines in Columbus, Ga., not far from the NCR innovation center, where its new technology is on display. The reason: The company was concerned that outsourcing distanced its designers, engineers, IT experts, and customers from the manufacturing of the equipment, creating a set of silos that potentially hindered the company’s ability to turn out new models with new features fast enough to satisfy its client banks. 'I think you’ll see more of this occurring,' says Peter Dorsman, NCR’s senior vice president in charge of global operations, who says he has been contacted by dozens of U.S. companies studying whether they should make similar moves. 'You’ll see a lot more people returning manufacturing to America.'"

Suppliers and SMMs should understand that companies will likely retain manufacturing bases in low-cost countries for their lower-technology, looser tolerance products. But the greater the need for high quality, tighter tolerances and innovative product development, the greater the liklihood that "backshoring" will be considered by an OEM looking to gain or maintain market leadership. While there are recent examples of mass produced products being "backshored" (like Sauder, for example), SMMs would do well to target OEMs and prospects with higher-functioning products to ensure greater chances of success.

Put simply, companies are realizing that to sustain product superiority and innovation velocity, manufacturing must be close to the heart and brain of the business: its CUSTOMERS and DESIGN INTELLIGENCE.

The second point - and arguably the most important from the article - is that there will not be a magic button pushed, resulting in a flood of work "backshored" overnight.

"Despite backshoring's growing appeal, it’s hard to call it a trend yet. Indeed, most Western CEOs remain convinced that offshoring and outsourcing are still the least expensive approach for manufacturing products — and notwithstanding recent anecdotal evidence to the contrary, their position is rigid. For example, Boeing CEO James McNerney Jr. still clings to a radically outsourced supplier model for the company’s wildly ambitious 787 Dreamliner aircraft even though the plane is more than two years late and is facing numerous customer cancellations because of supplier glitches in distant factories. Of course, CEOs are also attracted to offshore destinations because the manufacturing tax breaks offered by governments in many developing countries are more generous than those granted by the United States."

SMMs should use this and other similar market intelligence to drive them toward speaking to and engaging the right propects: those that are most dependant on product quality and dependabilty, and that have made moves to low-cost countries based on a primary motive of price rather than Total Landed Costs.

"Backshoring" is likely to continue, but in waves rather than a full-blown tsunami.

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