Bob Trebilcock

Will offshoring give way to near-shoring?
July 1, 2008

Will $5 a gallon diesel make offshoring obsolete?

It’s not an idle question. Yesterday’s Wall Street Journal featured a front-page story on the slow down in manufacturing activity in China. The country’s base of low-cost labor has sought hire wages at the same time as global energy prices have gone through the roof.

Now, the Journal wasn’t predicting the demise of the Chinese manufacturing base. Indeed, some of the disruption in China may simply be the result of a shake-out of weak businesses as the industry matures. But, it pointed out that global manufacturers and retailers are slowly shifting production to new low-wage countries like Viet Nam.

Here’s another thought, however. Will the high cost of transportation, coupled with longer lead times associated with a 12,000-mile supply chain, create an opportunity to bring manufacturing back to the US? Or at least to North America?

That was a question raised during an interview last week with Jeff Karrenbauer. He is president of Insight Inc., a supply chain network design firm that works with large firms attempting to optimize their supply chains. 

“When I hear people complain that everything is made overseas, I have long argued that that debate was over, and consumers voted with their feet by shopping at Wal-Mart,” says Karrenbauer. “But, the debate is becoming unsettled again because of the economics and vulnerability associated with a 12,000 mile supply chain.”

Karrenbauer says the level of activity by his clients has not yet risen to the level of a trend, but that he is more frequently being asked to model a supply chain with manufacturing in the Americas. “There is no question that some of our clients are looking at places other than China and India for manufacturing,” says Karrenbauer. “A professor friend of mine at Ohio State is calling this deglobalization.” 

In fact, the day we spoke, Karrenbauer had gotten a call from a long-term manufacturing client who is looking at North America to locate its next plant. That, however, is creating a new problem. “They have to completely rethink their inbound logistics strategy because even if they locate their manufacturing plant here, all of their component suppliers are overseas,” says Karrenbauer.

By all accounts the trend to create a manufacturing base back in this side of the world, what some call near-sourcing, is still emerging. But, I think it’s going to be a fascinating one to watch as energy and transportation costs continue to rise and we get closer to an election.

Let me know where your company is looking to locate its manufacturing base by posting below, or sending an e-mail to Robert.Trebilcock@verizon.net.

Posted by Bob Trebilcock on July 1, 2008 | Comments (0)