'Look before You Leap' into Today's Reshoring/Nearshoring Craze, Says AlixPartners Study

Even though China's costs have risen and the U.S. has now surpassed Mexico as the preferred locale for relocating offshored manufacturing, advantages can be fleeting and the challenges great

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| Source: AlixPartners

NEW YORK, March 7, 2014 (GLOBE NEWSWIRE) -- Amid all the fanfare (and understandable patriotism) of today's "American-manufacturing-is-back" enthusiasm, it pays for companies to separate the hype from the actual harvest when it comes to any manufacturing-sourcing decisions they may be contemplating today, as some of today's advantages may be short-lived, the challenges of resourcing manufacturing are always great and, above all else, the real value of what to source where will always depend on a thorough examination of the company's individual circumstances. That's according to a new study, including a survey of senior-level executives from manufacturing and distribution businesses in 13 U.S. industries, by AlixPartners, the global business-advisory firm.

The AlixPartners survey finds that, for the first time in the four-year history of the annual survey, the United States has surpassed Mexico as the preferred location for either the reshoring or nearshoring of previously-offshored manufacturing for U.S. consumption. In this year's survey, 42 percent of manufacturing executives said they would choose the U.S. as their preferred location, up from 37 percent in last year's survey, while those who said they would choose Mexico (among various countries and regions in the Americas) dropped to 28 percent this year, from 37 percent in last year's survey and from 49 percent in AlixPartners' 2012 survey. However, while America's comparative attractiveness has certainly increased, the study also points to several challenges that can make resourcing, to anywhere, difficult. For instance, when the executives were asked the biggest challenges they have faced or expect to face with reshoring or nearshoring their operations, among the leading challenges cited were availability of skilled labor, quality of work, local-government regulations and labor-law issues.
 
"Companies should look before they leap into reshoring or nearshoring," said Foster Finley, managing director at AlixPartners and leader of the firm's Supply Chain Practice in the Americas. "It's a great thing that America is more competitive today, fuelled in part by recent shale-gas breakthroughs. However, the decision as to where to source manufacturing should always be a clear-headed one, taking into account long-term considerations such as type of individual products, capability of the local workforce, capability and flexibility of suppliers, whether current open capacities might quickly close, whether any current government subsidies will be long-lasting and a myriad of other issues."
 
When asked how important reshoring or nearshoring decisions are to their companies, 81 percent in this year's survey said somewhat or very important, about even with last year's 84 percent. Meanwhile, virtually all (99 percent) of the executives surveyed by AlixPartners this year said the importance to their company of making reshoring or nearshoring decisions is either as important or more important than it was a year ago, down just a hair from the 100 percent who said that in last year's survey.
 
Other findings in the study include:

  • 50% of the companies surveyed say they reduced or expect to reduce total landed costs by more than 6 percent as a result or reshoring or nearshoring, down from 58% in last year's survey
  • 41% of those surveyed see nearshoring as an opportunity, with 86% of that number saying they've nearshored or expect to nearshore in two to three years
  • More than half of those surveyed say they expect security and safety issues in Mexico to improve in the next five years

"Manufacturing is hard, and so is deciding where and how to source your manufacturing," said Finley. "Companies would be wise to put a lot of hard thought into their sourcing decisions, and to make sure whatever they do is underpinned by sober, in-depth analysis."
 
AlixPartners urges companies to consider seven factors when evaluating where to locate manufacturing. They include 1) direct local labor costs, 2) direct local raw-materials costs, 3) factory overhead (compliance costs, taxes, regulations, etc.) 4) inbound transportation costs, 5) associated capital costs for inbound logistics, 6) foreign-exchange rates and 7) duties and tariffs.
 
About the Study

The AlixPartners Reshoring/Nearshoring Executive Survey and Outlook analyzed manufacturing sourcing costs, patterns and expectations related to meeting U.S. demand. The study included an online survey, conducted in January and February, of 143 senior-level executives from manufacturing and distribution businesses across more than 13 U.S. industries. Among the companies represented in the survey approximately half had annual revenue of $1 billion or more, and all of the respondents said they sourced production across multiple continents.
 
About AlixPartners

AlixPartners is a leading global business-advisory firm of results-oriented professionals who specialize in creating value and restoring performance at every stage of the business lifecycle. We thrive on our ability to make a difference in high-impact situations and deliver sustainable, bottom-line results. The firm's expertise covers a wide range of businesses and industries whether they are healthy, challenged or distressed. Since 1981, we have taken a unique, small-team action-oriented approach to helping corporate boards and management, law firms, investment banks and investors respond to critical business issues. For more information, visit www.alixpartners.com.

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