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Offshoring Advice Can Offer Strong Arguments for 'Backshoring'

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A recent article that advises Buyers and sourcing professional on the challenges of offshoring without the proper due diligence can also help suppliers and small- and mid-sized manufacturers (SMMs) construct a strong case for "backshoring" work nearer to a Buyer's core.

tankerIn "India and China May Not Be the Answer" (from Strategy+Business, Booz & Company) Kevin D. Stringer strongly recommends that any OEM manufacturer considering offshoring first assess the total cost, risk and reward propositions before sending production too far from the mother ship. Take training, for example.

"... (Companies) that failed to conduct disciplined analyses ... are sacrificing more and more as they follow the offshoring fashion. For one thing, cost savings are transitory. Wages keep rising in China and India, by as much as 20 percent a year for some jobs. And personnel turnover is at abnormally high levels — at call centers in China and India, as much as 80 percent of the workers have to be replaced each year; as a result, training is anything but a negligible expense."

Mr. Stringer surmises that because of rising labor and less-obvious costs, that better solutions may exist in "smaller, more developed countries" like Singapore or Estonia. But that's irrelevant to you as an SMM looking to convince a prospect of your value, regardless of where you are.

As the article progresses, he offers up strong arguments for discrete parts and contract manufacturers to justify their value over foreign sources to Buyers and prospects. For example, labor costs as a justification for offshoring aren't as clear-cut as some might think.

"In offshoring location studies, a large population has often been considered a positive factor, since it implies a reservoir of available, low-cost talent. Further analysis, however, reveals that the number of people in a country — or even the annual number of college graduates — says little about the quality of the workforce. For example, China’s population is 16 times larger than that of the Philippines, but its pool of suitable, young, English-speaking engineers is only three times as big. The situation is similar in India. There the number of recent graduates exceeds, in gross terms, that of China and the United States combined. With approximately 230 state-accredited universities and 458 engineering colleges, India mass-produces 2.5 million graduates for the labor market each year. Yet only about 2 to 5 percent of India’s existing workforce has basic vocational skills, compared with 96 percent in South Korea, 75 percent in Germany, and 68 percent in the U.S., according to Indian government reports."

There are more details about resources, sustainability and production - but the killer line for indigenous manufacturing supplier comes at the very end.

"The new criteria for knowledge-driven offshoring will be skills, talent availability, productivity, and sustainable working environments rather than labor cost advantages and massive worker pools. A more refined and sophisticated use of broader metrics will be necessary for companies to reach informed offshoring location decisions focused on sustainability. In a world of choice, this approach will surely make smaller, high-quality countries more attractive destinations."

As more and more Buyers are reassessing their original offshoring decisions, it is imperative for you to construct your message - through your Web site, collateral/sales materials and messaging and outposts where your business is represented online (like MFG.com) - to assert that value.

Not every OEM is bring production back, closer to its core, R&D, and customers. But some are - and more are reconsidering it. Now's the time to be sure that message is found and understood.

Often, closer to home is less expensive in the long-run.

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