Reshoring Trends – Going Local
Advantages of sourcing plastic parts and products from closer manufacturers may help close the price gap and broaden the reasons for spending closer to the assembly location.
China’s historical advantage of low labor costs is shrinking as millions of Chinese workers enter the middle class and demand access to more consumer products which they can see on the Internet. Using labor as the cost driver will require more automation in China and demand large capital outlays.
Because labor is not a large cost component in most plastic products, the labor advantage is less than one might expect. This trend will be influenced by several other overarching trends:
1. Transportation costs: It is rather obvious that products from factories that are closer will not have to be shipped as far. But other larger trends are lowering shipping costs too. The distribution disruption that is being driven by Amazon-like companies utilize software technology and artificial intelligence (AI) to drive efficiencies in transportation and warehousing logistics.
The software takes advantage of existing resources that are available but not used, to find open warehousing and quickly rent and store inventory closer to customers. A new company, Stored, has developed software for warehouses similar to Uber, but for matching inventory with available warehouse space.i Started to compete with Amazon the two 20-year-old founders, have already built an impressive list of warehouses willing to share space, receive and ship for a fee. The software manages all the processes. A future may look more like warehouses that rent space by the day based on its location and price.
Near-futurists talk of self-driving tractor trailers that go over-the-road with out a driver. Overall these two developments will drive down costs, and quicken deliveries.
2. Labor trends: China’s labor increases as U.S. automates. China’s labor costs have advanced dramatically in the last few years. Minimum wages were up 8% last year and between 11% and 12.3% for eight years prior to that. While still much lower than developed country wages, this huge increase lowers the labor advantage gap between China and the U.S.ii
More processes are being automated where previously they were manual. The general trend of labor costs will decline as a percentage of total manufacturing costs. As more and more advanced manufacturing processes replace older machinery, labor will drop for what used to be “factory” work. Direct labor costs can be driven down to near zero. This trend alone means that the labor advantage of China and other countries begins to become much less of a difference.
3. Artificial Intelligence: Already in use on robots and automated machinery, artificial intelligence will find its way into many other applications and improve business processes faster than some may think. While good sales people interfacing with buyers will not go away anytime soon, AI is already being used in many transactions. The most obvious is Alexa, a responsive voice activated machine that can query the Internet and find information. It can also order merchandise. “Alexa will you reorder toilet paper for me please?” Yes Joe, what kind would you like?” “The same as my last order please.” “Ok Joe would you like to order that from Amazon or another store?” Done! And this is not next year, it is right now. How different is it to say, “Alexa, please order 300,000 bottle caps from XYZ company?” Not much. But your company better be plugged into the system to enjoy the benefits. Yes, quantity discounts, colors, spec changes and transportation calculations must be made: but this is all possible to automate, with the right software.
4. Marketing: Marketing is already one of the most automated industries. This may be a surprise to most manufacturers, but because marketing drives communications, the Internet has taken much of the labor out of what used to be large sales salaries, and traveling costs. While many sales managers, especially in manufacturing, see the value of meeting face to face, as a revenue driver, the trend is the other way. More face-to-face meetings happen online, email and online programs assist the ordering process, and literally almost any information is available online for research in most industries.
One of the most dramatic reasons marketing is more automated than other industries is due to the concept of “inbound.” Inbound is a method of providing the content for prospects that will assist them in making preliminary decisions about products and companies. Consumers, and to a lesser degree B to B buyers, have completely different approaches to how they make buying decisions. Inbound seeks to provide exactly the information needed right down to SKU if necessary. Then in-house sales/service people are there to complete the buy.
Routines can be set up to automatically email replies with specific messages based on specific behaviors actions on the website or response from emails. This may not close the big deal, but it serves the customer when your team can’t, allowing your sales team to work on the larger or more difficult closes.
5. Rapid Response: As automation continues to develop, the customers expectation for custom goods continues to grow. Turn-around time has little advantage when shipping across the Pacific. Products that can not be air freighted economically may have some immunity, unless customization or rapid design changes are necessary to maintain customer satisfaction. Mass customization is certainly not a new concept, but it is now getting closer with automation and AI. Being close to the customer is an advantage in these markets.
Taken together, these trends will slowly benefit a US sourcing advantage. Faster, better, cheaper will become the overall goal, and US manufacturing is in a position to cater to the largest domestic market in the world.
Microdyne Plastics is right in the middle of the huge Southern California market. We are also on the crossroads of the main highways to LA, Orange County, and San Diego as well as rail transportation to the whole country. Receiving resin, manufacturing and shipping in this region makes sense now, and will continue to be cost effective.
Consider us as your supplier to the Southern California market, or to the rest of America.
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