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Re-shored, re-shaped and re-emergent B2B?

High Tech, as I’m sure you are aware, is all about the latest cool device. In fact I’m sitting on a plane (again) writing this on just such a device. You are also probably aware that high value electronic devices such as phones and music devices have been the cause of supply chain consternation for some years. Typically they were designed in the West and assembled in the East. As a result all sorts of issues arose, including: demand and supply mismatches, balance of payments issues, cheap labour, child labour, long lead times, exposure to rare earths, copyright, pirate stores, court cases and litigation. Yet despite all of these issues, the Far Eastern production machine appears to power on.
Over time supply chains have been redesigned to accommodate this off shoring approach. Purchasing offices have been established in Hong Kong, shipping lines have increased the size of ships as they struggled to provide enough capacity, US ports have expanded and double decker trans-continental trains have been introduced. In addition, distribution centres have been built to accommodate the forward or bulk buy inventory required by the long lead times. In my world of B2B, it created a need for visibility into remote manufacturing and logistics systems so that buyers can see where their stuff is. Or, as it often happens, where it isn’t.
So, it would seem obvious that anyone wishing to develop and assemble a new device such as home media player would do so in the Far East. Yet the latest hot device from Google has a curious message stamped on the back. It says, “Designed and Manufactured in the USA”. This new Google wireless home media player, named the Nexus Q, is made in a factory just down the road from Google’s US headquarters. With labour costs having risen tenfold in parts of China, the faster time to market and the close collaboration available by being in the US means “right shoring or re-shoring” is more attractive, and starting to make an impact. I also discovered recently that one of the main reasons for keeping production in China isn’t cost after all, the component supplier network there is simply much better, a well-established network of component suppliers in Shenzhen vs. Sunnyvale. But re-shoring is going to change things.
There are clear signs of this change. Caterpillar has pulled production of some models back into the US. A niche luggage manufacturer has established a small plant in the UK rather than ship small empty plastic boxes half way round the world. Lobbying groups in the US are actively counting the jobs that have been re-shored. Recent surveys, particularly by Boston Consulting, have suggested that nearly half of companies with more than $10Bn of revenues are actively considering re-shoring now. Further analysis has shown how re-shoring could change the balance of opportunity within a decade for some goods, possibly creating around two million new US jobs. And they are re-shoring because overseas costs are increasing, the total supply chain costs of Far Eastern sourcing are underestimated, product quality is not as good as it could be and flexibility and proximity to customers are much better if you’re local.
So, it would seem that speed and flexibility are the key to the new re-shored, on- shored manufacturing. So that means B2B integration is required. In truth B2B integration has been slow in China because low labour costs help overcome supply chain issues. In high cost North America and Europe much greater level of automation will be required to compete. So hopefully, as we re-shore manufacturing we can on-board the trading partners, such as those Shenzhen based component suppliers I mentioned earlier, and thus maintain connected competitive advantage through B2B integration. We will still need visibility, but let’s have visibility of the parts not just the finished goods. Oh, and wouldn’t a B2B Managed Services solution work well here? Just a thought.

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