Many industry analysts have high hopes that shale gas extraction in the U.S. will make a huge supply of cheap energy available to manufacturers, giving them a reason to bring operations that they relocated to cheaper countries back to the U.S. PwC predicts there could be $11.6 billion in energy cost savings by 2025, based on high shale gas recovery scenarios resulting in increased consumption of cheaper natural gas.
Supply chain costs are another reason companies are starting to “reshore,” as U.S. consumers ramp up demand for certain products. Yet another reason is that many companies realized they miscalculated the savings they’d realize by offshoring in the first place. Harry Moser, president of the Reshoring Initiative, a group he founded in 2010 in an effort to bring jobs back to the U.S., told MH&L’s sister publication IndustryWeek recently that most companies make sourcing decisions based on price alone, resulting in a 20% to 30% miscalculation of actual offshoring costs.
"Companies looked mostly at labor costs when deciding whether to move offshore," he said. "They weren’t focused on other costs such as intellectual property, import/export costs and potential shortages against demand because of unpredictable variables like shipping."
If your company is in the same situation and is realizing there’s no place like home, it’s important not to make another miscalculation when it comes to supply chain costs. Some of these costs are less tangible than others and therefore harder to quantify. For example, how many of your U.S.-based suppliers followed you offshore? If you’re reshoring will they be coming back too? If not, how long will it take to rebuild your supplier base in the States? And what about labor? Will you be able to recall the U.S. workers you laid off? Will your suppliers?
These are factors I gleaned from Patrick Van den Bossche, partner and practice leader of A.T. Kearney’s Americas Operations Practice. I asked him to comment on a recent report that Walmart has committed to sourcing $50 billion worth of goods in the U.S. over the next ten years. This got us into a back-and-forth about those hidden supply chain costs I mentioned.
“In the short term, we may actually see companies returning their own manufacturing operations but still having to rely on suppliers from oversees, at least until the economics for the supplier also drive them to return to the U.S.,” he said.
And if you have to hire new employees in the U.S., who will train them and how long will that training take? Jim Shephard, president of Shephard’s Industrial Training Systems, told me U.S. employers have to become better stewards of their workforce, especially where safety training is concerned. He’s seen too many companies spend too many resources on preparing incident reports after a workplace accident rather than providing better comprehensive training to forestall accidents.
“Ignoring training will always come back to haunt you in some fashion,” he said, “whether through waste, repairs, downtime, incidents, quality, on-time shipments, etc, etc, or in the worst case a fatality.”
Any of those things can send shock waves up and down a supply chain, no matter where you’re located. The consequences of ignoring details will always find you.