For years, off-shore manufacturing was all the rage. By outsourcing manufacturing to countries such as China and Malaysia, companies were able to slash their labor costs. This may not be the case in coming years, however. According to a study done by Boston Consulting Group (BCG), Asia’s wage and benefits are on the rise for laborers. The lower labor costs that companies took advantage of years ago are dropping.
BCG predicts that, with consistent wage increases of around 15 to 20 percent annually, the labor-cost advantage associated with outsource manufacturing to Asia will drop from 55 percent to 39 percent. Rising fuel prices are another concern for off-shoring since cargo fuel costs have nearly tripled in the last decade. Now, factor in the cost of transporting goods, the cost of adding security to protect products and intellectual property, the time wasted going through customs, increasing taxations on imports, and the cost of paying a workforce to manage all of this. Suddenly the benefits of cheaper labor may not yield the benefits planned for.
So, what does this mean for American on-shore manufacturing? With natural gas production on the rise in the U.S., on-shore manufacturers are fueling plants with less expensive energy resources. Between this, and the boom in green technologies and sustainable energy , many American manufacturers are reducing production costs dramatically. With a focus on streamlining efficiency business-wide, American manufacturers are bringing ideal cost-savings to the board, especially in regards to products that are being designed and sold within the country. These new cost savings are making on-shore manufacturing models more appealing.
Improved product quality is also a draw for many companies considering on-shore manufacturing. The automation that more efficient manufacturing systems bring to the table allows for faster innovation cycles, meaning that companies can correct production errors quickly, and even get new products on the market that much faster.
Offshoring is losing ground when you take into account to the speed, agility, and interoperability needed to make efficient business decisions and remain competitive in todays marketplace. A business profits, after all, no longer solely rely on how cheap the final product can be made. There are other global factors that now affect business growth, such as the ability to visualize your entire enterprises performance, from internal business function to third party distributers. Added visibility into client needs is also possible.
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