Be Robust by being Local
Pete ConradJul 13, 2020
The US Department of Commerce's GDP analysis of manufacturing estimates the industry represents ~11% of the economy and has 1.4x multiplier effect for every dollar spent. Those figures are already quite significant; however, this article outlines research from the MAPI showing that the US manufacturing sector’s economic contribution is actually 32% and has a multiplier effect of 3.6x for every dollar created. Suffice to say, US manufacturing creates significant economic contribution to our national economy as a whole, as well as local economies across the country.
The discrepancy highlighted above can be partially attributed to allocation error embedded in the NAICS codes, but it also arises from the DOC's failure to recognize the immense impact on local economies that localizing manufacturing in the US has. As we argued in one of our previous blogs, the time is right to bring manufacturing back to the US: this shift creates competitive advantage by moving the customization stage as close to the end-consumer as possible and significantly reducing shipping times to drive down lead time for customers. Localizing production and distribution is a key part of delighting the customer by giving them what they want as quickly as possible.
The Alliance for American Manufacturing podcast on TIDAL flip flops underscores the impact that local manufacturing generates and elaborates on how to make local manufacturing a keystone of company strategy. The effort to localize manufacturing is not easy as simply relocating manufacturing back to US shores, as it requires a focused approach grounded in lean principles to competitively manufacture and distribute. Capturing the rewards of such a project are discussed in further depth here, along with the focused efforts necessary to make it happen.
An intangible, yet key, piece of the localization puzzle is having meaningful supplier relationships, which is hard to cultivate across time zones and oceans. The local suppliers are dedicated partners who look out for your business and are critical pieces of manufacturing success. These local suppliers are the ones who respond to cover delays or out-of-spec issues associated with low-cost country sourcing anyway so that these problems do not translate to your customer issues.
Furthermore, a local supplier has a vested interest in your success and will come to the table to support product development, address customer issues, and deliver a better overall customer experience. To localize jobs back to America, a critical piece is attacking the assumption that materials and components must be sourced internationally due to price.
Often overlooked in the sourcing decision is the total landed cost or total cost to serve, particularly when low-cost country sourcing is an option. Performing the total cost analysis will expose airfreight costs or expediting costs to move materials and goods to the production facility to keep consistent operations. The current environment has exposed the risks of dependence on global supply chains and their inherent vulnerabilities to distant issues or to geo-political risks - ones that turn freight flows on their head and cause cancelled sailings.
The solution is re-thinking the production and distribution model. By localizing production back to the US, the economy will be invigorated – 3.6x multiplier effect for every dollar, and your business will become more robust. Local partners will be able to scale up and support your business in a time of need in a matter of days, not months.
The operational labor to scale appropriately can be cultivated through the Veryable platform. A business can develop and deploy a skilled, flexible, external workforce to manage daily production volatility to consistently deliver on customer expectations.