Donal Reddington on mass customization, crowdsourcing and digital manufacturing

Profits without offshoring

Dan Gilmore, Editor-in-Chief of Supply Chain Digest, has provided some interesting views on the question of off-shoring manufacturing from the United States to low-wage economies. His article is a commentary on a Wall Street Journal piece called “Still Made in the USA”.

He notes that “many companies that just have not achieved the level of expected savings from offshoring initiatives”. While Gilmore’s article refers to mass customization in passing, that isn’t the reason I’m writing about it.

Gilmore gives as examples of U.S.-based manufacturing companies that have achieved high levels of profitability in their chosen markets despite keeping their manufacturing in the U.S. One of these, Zimmer of Warsaw, IN, is a medical devices company. Warsaw has become a base for many medical device companies. Zimmer has benefited from a supportive ecosystem of suppliers, that has developed around the area, often for non-commodity goods like clean room style packaging.

Another company, Bobcat (a division of Ingersoll Rand) supplies small loading equipment, mostly from factories in North Dakota. The article states:

It thrives in part by supplying repair parts very rapidly, which it believes would be difficult to do given the number of such parts with a long, offshore supply chain…Bobcat does have a factory in Eastern Europe for that market, and a developing joint venture with a Chinese manufacturer.

Viking is a producer of high end kitchen ranges and other appliances, operating out of factories in the Mississippi Delta. The company uses a complete make-to-order model, “which reduces many supply chain costs, and also allow it to meet very niche or customer specific needs, such as a kitchen range in an unusual colour”.

The interesting thing is that these companies business models are very much in line with the recommendations set out by David M. Anderson in his 2002 book “Build to Order and Mass Customization”.  Anderson argued strongly against outsourcing, suggesting that it is primarily used as a short-term cost cutting measure at the expense of long-term profitability.  Anderson proposes that a company using build-to-order should have stable long-term business relationships with a core of suppliers that are geographically close.  This in turn allows shorter lead times for components and may enable the company to have minimal or zero inventory levels, as components can be quickly replensished by ‘pull signals’.

It is probably only in certain sectors that this concept is true at the moment.  The complexity of the components and the cost of transport will be a significant factor in deciding if offshoring is un-economic.  For now, however, the vast supply of low-cost labour in East Asia suggests that, in most cases, there will not be any major turnaround in the offshoring trend for some time yet.

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One Response to “Profits without offshoring”

  1. pick!t Says:

    Built-to-order vs. Offshoring –

    “The interesting thing is that these companies business models are very much in line with the recommendations set out by David M. Anderson in his 2002 book “Build to Order and Mass Customization”. Anderson argued strongly against outsourcing, sugges

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