These New Trends In Sourcing Could Be Saving You Big

In the first part of the nineties manufacturing companies, in a bid to lower costs, began to use outsourcing or offshoring. They did so in order to bring their products to the market under budget. The process of outsourcing to Asia allowed them to gain a slight competitive edge. Products that were manufactured in Asia typically cost less for both raw materials and manufacturing. This was not a painless process as many companies saw their products boycotted by American buyers who felt that the outsourcing had taken jobs away from the U.S. worker.

For the most part, the tasks were outsourced to Asian companies, Philippines, Hong Kong and Japan being the most common areas for outsourcing. The goods were manufactured there and sent back to the United States. Company bottom lines grew because manufacturing costs were greatly lowered. Likewise the cost of shipping was quite low, allowing companies to make a better profit if they outsourced the work.

Outsourcing was considered to to be a real bane to the economy here at home, while others argued that it was necessary to bring a quality product to market in a way that kept it profitable. Today, fortunately that necessity as well as the conflict it engendered is largely gone.

The process of outsourcing today has come full circle. While many companies still outsource, they do so here at home. Companies who were moving as quickly as they could to Asian companies are today scrambling to come back toward the U.S in a process known as nearshoring or reshoring. There are some huge changes in the climate in Asia. Laws are changing, the cost of shipping has risen dramatically and the speed with which you can obtain goods from Asian sources has slowed fairly dramatically. A combination of these things makes doing business in foreign countries or offshoring more onerous for American businesses today. It has, in fact, caused a cost rise, where prior to now, outsourcing could save money.

Companies who want that competitive edge in pricing, as well as the usually higher quality that American manufacturing can offer are steering toward reshoring, bringing their products back to the United States or to areas closer to the U.S, such as Mexico to have them create.

Much lower labor costs still prevail in many countries. The lower cost of labor is undercut by the need to ship and to inspect as well as to process good so that the labor savings are largely eaten up in other ways.

While nearshoring or reshoring doesn't always bring the manufacturing process back to the United States, it does bring them marginally closer and using Latin American companies means that the shipping costs are lower, which lowers the price of goods in the United States and that reflects well on the companies to the American consumer.

 

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Photo: Fortune