‘Smart-Shoring’ Creating a Competitive Advantage in Manufacturing

With escalating wages overseas and the push for job creation in North America business should be conducted where it makes the most sense.

Over the past five years, VirTex has witnessed the drive for re-shoring/on-shoring initiatives, but until now, they did not investigate the true reasons why.  Why are businesses bringing some of, or all their manufacturing production back from lower-cost regions?

Time and The Need for Speed
Offshore manufacturing can lead to a slower time-to-market with less time-in-the-market, this has a direct impact on profit.
 
The Need for a Skilled Workforce
As consumer desire for higher levels of customization increases and manufacturers see a shift towards more demanding and complex system assembly, a higher level of skill is required.   The U.S. is already equipped with a skilled workforce, quality and productivity are three times higher than the yield rates from the lower-cost labor countries.
 
From Transactional to Transformation
The world has entered the era of disruption.  The Original Equipment Manufacturers (OEM)  are faced with innovation challenges such as; product commercialization, access to state of the art technology, limited resources, and supply chain risk, all in an accelerated time-to-market cycle.
 
The Spirit of Innovation
Innovation is no longer limited to R&D labs.  Technology advancements in; automation, industry 4.0, operational effectiveness, Lean, Six Sigma, software and new technologies, including 3D printing, have taken some of the costs out of production, enabling what was classified as “higher cost regions” to be more competitive.
 
These are only some of the reasons that manufacturers are moving from lower-cost regions, but the real reason is, the lower cost regions are no longer yielding the same returns as they once were.

This is the case for all electronic production, but is true for lower volume/highly complex electronics products.  If you look at the market trend data, you will see a strong push in the market back to U.S. based manufacturers for this production fit.

For all of the reasons highlighted above, plus other important contributing factors e.g.; protecting intellectual property, simplifying the supply chain, quality and keeping close to the end-market, the U.S is not only very competitive but is also a very practical choice.  As a biproduct of this shift in the macro climate, the reshoring initiative is creating more jobs for the US.

To be clear though, VirTex is not witnessing a complete manufacturing turnaround.  They are not stating that all current production built in lower-cost regions is homeward bound, but from their experience, they believe that more companies are making a more educated decision.  The result is to operate their supply chain to a blended solution.  This means that they are quite simply doing business where it makes the most sense.  “They are following a ‘hybrid’ approach,” Mr. Rick Polansky of VirTex comments, “they are Smart-Shoring.’
 
Rick Polansky, SVP of Business Development at VirTex, a U.S. based Electronics Manufacturing Service Provider (EMS), recognizes that there is not ‘one’ outsourcing model, nor is there ‘one’ on-shoring model that fits all OEMs.  VirTex works with their customers to assess the correct solution to meet their needs and project requirements and VirTex help them to find the perfect place to do business, a solution that VirTex calls “Smart-Shoring”.
 
Rick: “Smart-shoring” is a driving force for Electronics Manufacturing Solution Providers (EMS) and Original Equipment Makers (OEMs) to maintain their competitive positions in the U.S.  Put simply, smart-shoring is: sourcing and doing the work where it makes sense.
 
Q: How do you assess the best balance between off-shoring and on-shoring and how do you come to the final conclusion that you should “Smart-Source”?
 
Rick:  VirTex assesses Smart-Shoring decisions against a set of criteria that benchmarks against; time, cost, flexibility, and risk.  VirTex works with every customer on a unique basis to determine, what is best for them and their individual requirements.  As a result of this process, VirTex offer a tailored or hybrid solution.  All of this drives a consideration of Total Cost.
 
Time: For example, if a customer in Austin requires speed-to-market, waiting six weeks while their product is on the ocean from Asia eats into their time-to-market, time-in-the-market, customer response and time-to-profit, which ultimately, comes at a cost to their business.
 
Cost:  If you look at the labor rates, Mexico compared to China, it’s close to 19 pesos to the dollar, which is a large reduction in the labor rate.  So, as China goes up, Mexico is coming down.  Through time, you get to a point where it makes financial sense for some of the production to be done locally.
 
For example, our VirTex total landed cost assessment, calculated for large form factor system build, production is more competitive with a hybrid model of U.S. and Mexico, compared to standalone production in Asia.
 
Experience has taught VirTex that, if a hybrid solution can be provided of; automation, throughput, and logistics to be within 3 – 5% of the price for Asia, OEMs will choose to manufacture locally.  If it’s within 10 – 20%, they will research lower cost.  So, if local production makes sense for all parties, VirTex will do what they can to source smartly, to achieve that 3 – 5% mark.  And again, it is the total cost when all of these factors are considered
 
Flexibility: OEMs need their manufacturing partner to scale up and down in much shorter windows and that is a flexibility that they lose if they go offshore.   The time-to-react when production is in Asia, or shipping from Asia, is challenging.  Add to that the time differences, the language barriers and the cultural approaches, OEM’s see this as an added-value, which helps to remove the pain point of inaccurate or fluctuating forecasting, lead times and supply chain variances.  VirTex works with all supply chain teams to achieve productivity gains and yield.
 
Risk:  VirTex is continuously assessing the fast-paced and developing world that we live in and understand that supply chains have become increasingly complex with numerous touchpoints.  OEMs want to reduce or spread this risk by simplifying their supply chain and mitigating their production risks. The solution is to build in a regional ecosystem  But is the full scope of this it may still utilize high volume modules from Asia, complex labor-intensive systems from Mexico all supporting a quick response factory in the US.
 
To conclude, smart-sourcing adds additional protections for U.S. skilled workforce, OEMs intellectual property, and the U.S. economy. Smart-sourcing allows; high-level customization, speed, and local support. Smart-sourcing considers; the total landed cost of ownership, supply chain simplicity, and quality.
 
VirTex will host a webinar in the coming weeks dedicated to smart-sourcing.  To find out more and to express an interest to attend, please visit, www.viretexassembly.com.

• Prev
• Next