How Will You Know When to Exit China?

By Rosemary Coates, President of Blue Silk Consulting
December 10, 2013 - SCMR Editorial

A few years ago, we were fretting over how quickly we could move production to China in order to stay competitive in the marketplace.  I helped many companies move production or start sourcing in China, in the early 2000s. Over the past few years, I helped the same companies address quality and contractual problems with their Chinese suppliers.  But the business environment has changed and now we should be considering bringing some of that production back. 

Reshoring is important for rebuilding the US economy and has become appropriate for making products here that will be sold here.  Some products have customers only in the US or Western Europe, so why not produce here?  This is not a roll-back to the 1960s when manufacturing was King in the US.  It is about moving forward to rebalance your global supply chains.

Reshoring is a very popular idea (we have over 1100 “likes” on our Reshoring page on Facebook). The problem is, how will you know what products and when to bring back production from China?  It’s not as simple as exiting China and not looking back.

There are many variables to consider in determining the costs and feasibility of reshoring some of your production.  Take Apple for example; while they have returned some assembly of products to Silicon Valley, they have done so through their contract manufacturer, Foxconn.  They have not reopened their 1980s production sites in Cupertino.  But the preponderance of Apple’s manufacturing remains in China, the largest future target market for Apple’s products.  It is also where Apple’s supply base is located.

GE, on the other hand, innovated and automated the production of tankless water heaters, a product that is sold primarily in the US.  GE was able to reopen a manufacturing site in Kentucky where this new product is made for sale domestically. But it wasn’t easy.  Manufacturing these tankless heaters required extensive product innovation and factory automation.
Perhaps in our rush to take advantage of low cost manufacturing in China, we overlooked some of the costs.  And perhaps there were hidden costs such as travel, quality and rising freight costs that now need to be considered.  To make a true, new evaluation of production costs in China vs. in the US, all costs must be considered.  In addition to costs, you must consider the following:

- Innovation – what product innovation is needed for the US market?
- Automation – can you automate to reduce labor costs through new technologies such as 3D printing, and robots?
- Localization – could basic products be manufactured in China and then have final assembly for the US market accomplished here?
- Supply base – is your supply base all in China?  If so, what work needs to be done to reestablish your supply base in the US?
- Incentives - what tax and other incentives are being offered by local, state and federal governments?
- Skills - what skills will be needed for US production and where will you get those skilled workers?

To determine when to leave China, you have to do some heavy analysis.  We are finding that most companies can bring back 15-20% of their production and be competitive in the US market.  The rest of production should probably be left in China for now.



About the Author

image
Rosemary Coates
President of Blue Silk Consulting
Ms. Coates is the President of Blue Silk Consulting, a Global Supply Chain consulting firm and the author of: 42 Rules for Sourcing and Manufacturing in China. (an amazon.com Top Seller) and 42 Rules for Superior Field Service. Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.

Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Company says the Cloud offering allows customers to respond more quickly to new business opportunities, without significant upfront cost and implementation times.

As e-commerce continues to take a bigger piece of the holiday package delivery pie, it stands to reason that companies need to be proactive and prepared in order to deliver premium service during the busiest time of year, which is rapidly approaching. And that is exactly what transportation giants UPS and FedEx are doing this year. How are they doing it exactly? The primary step they are taking is to up their numbers of seasonal staffers.

A recent hearing of the Subcommittee on Coast Guard and Maritime Transportation suggests that the U.S. Merchant Marine industry may be poised for a major comeback.

Spot market freight volumes for the month of August remained elevated compared to seasonal norms, according to data issued this week Portland, Oregon-based freight marketplace platform and information provider DAT.

Factors such as rising freight rates, shrinking capacity, an increased desire for global supply chain visibility, have all worked together to drive the need for instituting a culture of continuous improvement in logistics operations and transportation management systems (TMS). To meet today's complex logistics challenges, managers are stepping into a more streamlined, automated approach to transportation management in order to function at optimal levels both domestically and internationally. Read the latest special report.

Article Topics

Blogs · Global · Supply Chain · China · All topics

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review. Patrick covers international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. Contact Patrick Burnson

Comments

Post a comment
Commenting is not available in this channel entry.