Industrial manufacturers are finding the need to shift their manufacturing operations closer to customers to compete more effectively and grow in an increasingly demanding global market. But, succeeding will require overcoming several obstacles and developing new capabilities.
According to a recent Accenture survey of executives at 287 manufacturing companies (most with headquarters in North America) 61 percent of respondents said they were considering more closely matching supply locations with demand locations by onshoring or nearshoring manufacturing and supply.
Over the past decade, companies have relocated their manufacturing and supply operations to low-cost sources globally, or imported goods to meet regional demand. But, many have found that moving supply too far from demand has hindered their ability to meet growing customer expectations for specialized products, as well as maintain rapid delivery and response times, and keep quality high, inventories low and costs down.
The survey also found that many manufacturers that moved operations to supply regional demand offshore likely did so without fully understanding the total costs to serve. This includes considering the customer’s competitive environment, requiring speedy deliveries, short cycle times, and the flexibility to respond to uncertain demand in an agile way. Although offshoring will continue to play a role in the rebalancing strategy, it will be largely done in the context of placing supply closer to demand.
Despite the desire to rebalance, companies recognize that such an undertaking will not be without obstacles and challenges; it will require extensive planning and new capabilities that will take time to execute.
For nearly half of the respondents, workforce availability, production skills and transportation costs were cited as the main obstacles to their ability to rebalance production. Other major hurdles include access to the appropriate supply base, access to capital to restructure the network, and government policies regarding considerations such as taxes, incentives, employment law, legal protection and content requirements.
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In terms of addressing these challenges, a large majority of respondents (61 percent) said the ability to conduct a total cost analysis properly is one of the leading capabilities most needed to rebalance their manufacturing and supply network. A comprehensive rebalancing strategy; skilled and knowledgeable staff; changing internal mindsets to a longer-term total cost view; and a better understanding of local-market capabilities also were considered to be much-needed.
These capabilities will be critical to success, particularly as challenges are likely to intensify in the next 15 years. There are five important areas that manufacturing companies can cultivate to support their rebalancing effort and enhance their capability to move closer to high performance.
Customer priorities—Customize products and services to serve customers’ unique, specific needs and priorities, both spoken and implicit, and differentiate by integrating the product with a compelling customer experience.
Globally local operations—Design the network based on total value chain costs and customer service needs. Balance regional demand and supply and migrate operation modular components to the next new low-cost, appropriate-quality country or countries. And, ensure that the global network has high visibility and service levels.
Supply network flexibility—Adopt differentiated models and processes to support increasingly diverse channel and customer needs, and shift fixed costs to variable costs to accommodate market changes.
Shop floor agility and beyond—Use reliable, efficient equipment that is configurable and easily transportable. Also, leverage advanced analytical capabilities to build predictive business knowledge, and secure the right skills mix and resources.
Sustainability and partnering for scarce resources—Share with customers the complete product life cycle, from design through disposal. Also, negotiate and partner with governments and regulators in nations that control key materials and commodities.
James Robbins, firstname.lastname@example.org, is a senior executive for Accenture, a global management consulting, technology services and outsourcing company.