Coming Home from China: Answering the Question of Reshoring
Cost changes in the logistics chain with overseas manufacturers, primarily China, have led to a good deal of speculation regarding bringing manufacturing back to the U.S.
Rising labor costs overseas are closing the cost of goods gap, while unexpected fluctuations in sales, coupled with the long logistics chain from Asia to the United States and European Union, have led recently to “PC Mountains” of units excess to demand.
With China already contemplating the need to use robots for assembly of components and units, a number of people, including myself, have questioned the sense of placing that investment in China. Given that the cost of supporting robots won’t change materially between the U.S. and China, this is not the easiest question to answer. Obviously, political considerations are important. For China, owning the West’s electronics is a major power play, while the foreign exchange flow may be important. It’s also clear that the Chinese government coordinates efforts across the economy much more that we do in the West.
Still, the reduction of inventory holding from 16 weeks in transit for a PC from Asia, versus a few days in a U.S. or E.U. factory operating an on-demand type system makes a huge difference to inventory obsolescence and mix error problems, while preventing demand issues. Combining unit assembly with configure-to-order capability (currently done by fulfillment companies in the U.S.) will speed delivery to the end customer and save further costs.