Executives have realized that being closer to customers is better, causing a continuing shift in global manufacturing.
North American companies with manufacturing operations have increasingly grappled with new and changing challenges over recent decades. They have streamlined production lines, embraced cost-cutting measures, and implemented automation alternatives in the interest of meeting growing demand and a changing global economy. Because of keen competition in consumer and other markets, many of them have also shifted significant production to labor pools located far afield from their products’ end users in China and other emerging Asian nations. That was the shift in global manufacturing then. But now there is a new shift on the horizon.
In 2010, the Accenture Innovation Center for Manufacturing conducted a research study among two hundred and eighty-seven C-level executives representing a variety of manufacturing industries from across North America, Europe, and Asia. Half of the companies surveyed had revenues of at least $1 billion. What they learned was that, nearly two decades since the exodus had begun in search of low costs began, many companies were reporting mixed, or, even, negative results.
Many executives expressed concerns about their company’s ability to meet customers’ expectations across a wide spectrum of areas, from meeting rapidly increasing customer desires for unique products to maintaining low inventories and competitive total costs. Many of them reported that managing supply operations far removed from where demand occurs has compromised operational planning, forecasting, and flexibility overall. Nearly half reported concerns about quality control and delivery time due to offshoring from distant locations. In some cases, these factors even impacted growth and profitability adversely.
A New Way
It’s becoming more obvious to these companies that a shift in global manufacturing has occurred, and that the physical location of supply and manufacturing operations is of utmost importance to ensuring overall and sustained competitiveness and profitability. The results of this study have revealed a new trend among manufacturing companies to nearshore or relocate manufacturing and supply operations to closer proximity to the source of demand. For companies making product for end use in North America, a manufacturing location in Mexico is the obviously the appropriate site selection response. Respondents acknowledged that moving closer to their customers meant improved flexibility to respond to uncertain demand and unknown customer requests, to implement faster delivery times without cutting quality or increasing costs.
Overall, the trend is shifting to include a comprehensive, new approach to dealing with a shift in global manufacturing that entails five basic aspects:
1. Customer priorities: products will be more tailored to customer needs and integrated with a compelling customer experience.
2. Globally local operations: as just noted, regional demand will be balanced with regional supply, and the network footprint designed according to total “landed” value chain costs and customer service. Again, in the case of manufacturers whose product is destined for North American consumption, Mexico is the unchallenged low-cost manufacturing venue.
3. Supply network flexibility: models and processes will support increasingly diverse customer needs and market changes.
4. Agility: The right mix of skills and resources must be determined with a focus on advanced analytic abilities and highly configurable tools and equipment that are capable of meeting the challenges presented by a shift in global manufacturing.
5. Sustainability and partnering: Partnerships will be cultivated with governments/regulators in control of materials/commodities and with customers for increased transparency in the product life