Five Ways Reshoring Benefits Manufacturers' Bottom Lines

Offshore manufacturing might not be the overwhelmingly attractive option you think it is.

(AP Photo)
(AP Photo)
Patrick TonksPatrick Tonks

Getting your manufacturing process right is essential if you want to get the most out of your products and services. There are a number of factors that contribute to the overall cost of manufacturing, and where your company manufactures its products makes a big difference. It’s common knowledge that a lot of companies have moved their manufacturing offshore to countries that are seen as cheaper options. But I want to suggest several reasons why it could actually be a good, cost-effective move for these companies to reshore their manufacturing processes; offshore manufacturing might not be the overwhelmingly attractive option you think it is.

1. Stay Close to Customers and Staff

One of the biggest areas that you could save in by reshoring your manufacturing is the cost of travel and shipping across the globe. Not only will your products no longer need to make long journeys over land and sea to reach you, but you also won’t have to be continually paying for your employees to fly out to the countries where you manufacture. Every part of the process can be kept within easy reach, allowing you to have far more control as well.

It is easy to look at the cost of labor and materials in less economically developed countries and make a snap judgment that it must be cheaper to manufacture there as well. However, the reality is that there are more costs associated with manufacturing than these obvious ones. Reshoring your manufacturing will, by its nature, cut these extra costs to a fraction of their price with no extra input needed from you to make it happen.

2. Benefit From a Highly Skilled Workforce

With a large part of the manufacturing process now being automated, your company can benefit from a locally based, smaller and more highly skilled team that is able to directly oversee the manufacturing process, as well as being ideally positioned to innovate and transform your company going forward. Although this factor will not have an immediate impact on your bottom line, it is something that cannot be ignored in the long term. Your company will be in a far better position to solve problems and stay at the cutting-edge of your industry if you have a local team working on a local manufacturing process. This also means that if the customer should have any problems with the product they receive you will have all the tools in place to fix that problem as quickly as possible.

(AP Photo)(AP Photo)

3. Improved Quality of Products

This point links to the highly skilled workforce argument from above but with more of a focus on the product that you are selling. With a more skilled workforce and closer supervision, the quality of your products is very likely to increase. There are two ways that this could benefit your bottom line.

The first benefit is the potential to increase the unit price of your products. This might not be something that you can do immediately, but it’s something to consider further down the line as customers become aware of the higher quality that you are producing.

The second benefit, which links to the first, is that higher quality products will increase customer satisfaction and trust in your company. This means that you might be able to increase the price without taking a hit in sales, or it could simply mean that your sales will increase with your reputation, thus creating a greater potential for customer acquisition and retention to grow. Either way, your income stands to increase. It’s worth noting that in a 2014 survey of businesses that had reshored, 60 percent noted an increase in profits and employment.

4. Speed of Manufacture and Delivery

This is another factor that needs to be viewed in the long term, as its strength comes from building up a good reputation and in the ability to offer customers a higher quality service. We are able to use our speed of manufacture and delivery as a selling point, promising customers bespoke products that can be delivered in a very short space of time. It is worth bearing in mind that as part of this, we have none of those extra costs that arise from needing to ship products from halfway across the globe.

5. Increasing Cost of Offshore Labor

The cost of labor overseas is rising. A good example to look at is China. After hitting a high point in 2013, the cost of labor in China had been falling, but the situation has changed again with a rise in cost in the past few months. A rise in the cost of labor elsewhere could be the final factor in convincing you to move manufacturing back.

The Big Picture

When thinking about manufacturing domestically, it is critical that you consider the long term. The reality is that there are higher costs associated with reshoring, particularly the higher wages that need to be paid. However, those costs should not form the whole picture. Therew is so much potential for increasing the quality of your products and services, which over time could place your company in a fantastic financial position. If you are looking to plan for the future health of your company, reshoring could be a very smart move.

About The Author: Patrick Tonks is creative director at Great Bean Bags, the U.K.'s largest online bean bag retailer.

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