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Good OM Reading: Reshoring Revisited

June 23, 2014

A recent study, Where in the World, compiled by the Entrada Group,  provides some interesting insight as to why small- and mid-size manufacturing executives are now ranking the U.S. and Mexico as “prime locations” for lower-cost production of goods bound for North America.

Here are some of the findings from Entrada’s survey:

  • Proximity is appealing — While the U.S. is the most attractive low-cost manufacturing location among all respondents (at 33%), it’s worth noting that among respondents from companies that already manufacture in 2 or more locations (their headquarters plus one), Mexico and the U.S. tied as the top choice, each with 23% of the response.
  • Experience with expansion matters — Respondents from companies that currently manufacture at 2 or more locations revealed a greater appetite for future expansion to a low cost location or locations, when compared to firms producing solely at their headquarters. Of companies that manufacture in 2 or more places, 67% said they plan additional expansion in the future, compared to just 33% of single-location manufacturers that plan future expansion.
  • Quality and the bottom line both count — While respondents overall rank high-quality production as the most important factor when choosing a manufacturing destination, low operating costs was tops among companies when reflecting on motivation for past expansion, by more than 2-to-1 over high-quality production.
  • Cost savings are not always realized — Companies that expanded to a “low-cost manufacturing location” achieved their goals to a large extent just half of the time, with half realizing just moderate savings or worse.
  • Today China is the most common low-cost location, followed by Mexico — More than half of survey respondents (51%) currently manufacture product in China, with 35% manufacturing in Mexico, the 2nd-greatest response.
  • China, Mexico not “either-or” — Out of firms that manufacture product in China, 40% also produce in Mexico. Indeed, for many manufacturers, a presence in both countries makes sense for delivery to regional markets.
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