Under the current supply and demand uncertainty all Australian businesses should develop strategies to progressively yet decisively be motivated to establishing reshoring initiatives as part of their strategic business plan.
Dual sourcing under these new initiatives can also form an integral part of this strategy as this also forms part of a risk mitigation plan for sourcing responsiveness and competition.
After two (2) decades of offshore sourcing to low-cost countries, there are many manufacturers directing their efforts into strategic ‘Rightshoring’ and specifically to eliminate the uncertainties of government, financial and operational landscapes which ultimately affect continuity of supply with economic benefits.
In the 1990’s, manufacturers across the world including Australia were sold on the lower cost of Asian labour which started the ‘Offshoring’ boom and put countless numbers of local enterprises out of business.
Since then manufacturing salaries in Asia have risen dramatically and businesses have experienced the flip-side of overseas production such as low quality, higher taxes and duties, expensive freight costs, larger inventories, and extended lead-times. Added to this is the nightmare of intellectual property theft with environmental and social issues damaging local manufacturers reputations.
With the ongoing rise of protectionist policies and continuing global uncertainty, offshoring just simply doesn’t add up to sustainable savings and guaranteed profits anymore.
Australia is already investing in rapid advancements of automation technologies, robotics and predictive analytics which has highlighted ‘reshoring’ as a more prominent alternative to ‘offshoring’
In the USA for instance, ‘reshoring’ now generates more manufacturing jobs than what is ‘offshored’
The benefits of ‘reshoring’ must be looked at seriously when you consider tax incentives, higher quality, shorter lead times, smaller inventories whilst also being able to meet fluctuating client demands more quickly, have an easier collaboration system, better skilled and innovated workers, and protection of intellectual property.
Taking all of this into perspective, selling locally made premium products, eliminating import duties, and reducing freight costs will obviously increase profits substantially.
There is no doubt that Australia has lost skilled manufacturing engineers, technicians, and tooling specialists as a result of ‘offshoring’. There is also a challenge relative to high labour costs and expensive energy costs which will need to be aggressively addressed by industry, representative bodies and government to rapidly bring overhead operational costs in line with competing overseas countries.
When businesses commit to seriously strategise their ‘Reshoring’ initiatives they will need to build a profitable model. Any business case must have a strategy and technology including an appropriate ‘return on Investment’ (ROI) to ensure the business case works positively and sustainably.
‘Rightshoring’ is similar to any other investment and must stand up financially by a return on initial costs.
- There must be cost savings due to higher levels of quality. ‘Offshoring’ has regularly shown inferior product quality which increases costs in multiple ways through client returns, waste, and eventual lost sales
- The supply chain benefits come through simplification as this alone save money because of lower working capital. Reduced logistics costs, shorter lead times, more accurate forecasting, improved flexibility, smaller inventories, with reduced waste and obsolescence
- Increased sales through higher brand value and a made in Australia logo has shown that market will accept a higher price of products compared to those from overseas
In order to strategise correctly for ‘Rightshoring’ in todays complicated, highly competitive and globally networked market you will need to set a business case by saying a convincing YES to the following questions:
- Do you want to protect your intellectual property rights by manufacturing locally?
- Do you want to develop a new product and/or process under the R&D tax concession initiatives currently offered through federal government initiatives?
- Do you need to reduce development to market lead times to enhance an advantage in the marketplace?
- Do you need to reduce lead times because of customised products, frequent updates, or highly variable market demands?
- Does your business have a global best practice system of sourcing raw materials focussing on regional manufacturing and local distribution?
- Have you negotiated and strategized transport costs to optimise piece pricing to best practice levels?
- Have you optimised your economic batch quantity negotiations with the client base to ensure you have minimum production costs in manufacture?
By strategizing to ‘Reshore’ you also need to aggressively look at and adopt ‘Cost Efficient’ and ‘Competitive’ manufacturing through the use of lean and centralised operations that are extensively robotised and automated with predictive and ongoing preventive maintenance programmes thus minimising or even eliminating output downtimes.
- By capturing advanced manufacturing technologies, initial capital expenditure can be minimised, operational costs can be reduced, and flexibility bin operations can be improved
- Agility and scalability are crucial within your operation for efficient ‘Onshoring’ as this will allow you to increase required investment gradually and in line with market demands
- Technologies can be utilised through a ‘cloud-based’ control system to guarantee minimum downtimes. For an uninterrupted operation, data is continuously collected from the product lines and analysed inn the cloud. This allows any deviations or problems in the process to be fixed remotely before they stop a production line
In the future, the winning manufacturers will be those who are the quickest to harness new technologies, including automation, robotics, and data analytics.
While there are still Australian manufacturers sourcing from overseas, with careful and urgent attention this can be rapidly and effectively brought back home.
‘Reshoring’ back to Australia could be and will be a great boost to jobs growth and we should also realise that we can be globally competitive if we take the right approach.
Let us look at some simple statistics which may spur your enthusiasm to treat ‘Reshoring’ as an absolute and urgent imperative through 2021 and beyond.
- Labour costs in China have increased 10-15 percent each year for the last fifteen (15) years
- 62% of ‘Reshored’ jobs between 2010-2017 came back from China
- Companies are increasingly aware of the risks associated with ‘Offshoring’
Let us look at costing comparisons between China and/or India and Australia with the added unseen risk costs associated as follow:
- Current quoted Cost ex China or India
- Freight (slow)
- Additional Inventory cost
- Safety stock cost for uninterrupted supply
- Expedited supply (air freight etc) due to schedule/market fluctuations
- Warranty claims uncertainty
- Engineers/managers visits
- Stockouts of long lead-time items due to schedule/market fluctuations
- Supplier soon becoming competitor
- Currency risk movements
- Political instabilities
- Poor information flows
- Engineering changes/ Running changes/breakpoint controls
- Quality control management
Together we can re-develop the great manufacturing reputation of Australia which was second to none anywhere in the world.