Onshoring – the practice of bringing business activities back from overseas and doing them domestically – is getting a lot of attention these days. Onshoring can apply to activities ranging from manufacturing to call centers to accounts payable and more. Companies as well known as Apple and Walmart have recently made headlines with their onshoring plans. But smart companies of every sort are recognizing the potential advantages of the practice while also realizing the crucial role that state-of-the-art supply chain management and e-procurement systems play in the process.
Manufacturing is a particularly promising activity to bring back onshore. Overseas wages and production costs are rising. Concerns about loss of intellectual property are intensifying. Worries about natural disasters and disruption to supply chain management around the world are increasing. U.S. energy and transportation costs are falling. And in general, companies are gaining greater appreciation of the benefits of maintaining as much control as possible over crucial business activities.
But moving manufacturing onshore is not as clear-cut a choice as moving it offshore once was. Indeed, astute companies aren’t trying to bring back all the jobs swept overseas in the offshoring tsunami of recent decades. Rather, they’re carefully considering when, how and where such changes might make sense. These companies are calculating both the costs and the benefits of their possible choices. Then they are bringing back the manufacturing of products only where there is a clear business and financial payoff.
Smart companies looking to bring manufacturing back from overseas also are realizing that well-planned execution is the key to success. Making onshore manufacturing work requires taking advantage of every possible competitive edge available. In particular, it requires maximizing all possible efficiencies in business processes. Sometimes these efficiencies will represent the difference between onshoring success and failure. And supply chain management and e-procurement are key sources of these efficiencies.
The supply chain and e-procurement processes are particularly important because of the length and strength of the offshoring trend. Over the years, powerful ecosystems have grown up in overseas manufacturing zones. As a result, it wasn’t just the low cost and efficiencies of the main factories that provided the zones’ advantage. It was also a complex interlocking set of equally cheap and efficient suppliers. Having all of these companies in the same place brought numerous benefits, including cheap, quick and simple shipping, and ease of procurement.
Onshoring manufacturing doesn’t mean onshoring this entire ecosystem. Domestic manufacturers will still depend on many suppliers in these overseas manufacturing zones for components. That gives the manufacturers a new concern to deal with. Not only will their supply chains stretch thousands of miles, there will be a lot of them. And coordinating these chains will be a lot more complex.
The main issue that companies planning to manufacture at home face is that they will no longer be procuring and shipping just a finished product from overseas. Instead, they will be procuring and shipping most if not all of the components that go into that finished product. That means a significant increase in the number of suppliers they will be procuring from. It also means a similar increase in the number of parallel supply chains these will have to manage. Outdated procurement and supply chain management systems won’t be up to the task.