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Next-shoring: The next great manufacturing wave

Next-shoring: The next great manufacturing wave

The comeback of American manufacturing could not have been done with the support and help of local businesses adapting to the needs and desires of consumers in the 21st century. Economic factors have also greatly helped with the development of new and existing factories and shops around the country, as well as ERP solutions such as Microsoft Dynamics NAV. In particular, supply chain firm Arena Solutions notes that, by 2015, the U.S. will draw even with China in terms of manufacturing costs in relation to productivity, with the latter country's labor expenditures rising substantially in the last few years. With this in mind, another important innovation has surfaced in recent years that may give businesses an even more important edge: next-shoring.

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Next-shoring is defined by consulting firm McKinsey as a form of setting up operations based not on cost preferences on the supply side, but the proximity of demand. Instead of running a factory in some other part of the world, a company can run a local shop that's near where customers are most requesting a product. For example, if a business has a lot of clients in the southeastern United States, it may make the most sense for it to have a factory either creating products or parts for them in Georgia or Alabama rather than on the Chinese coastline, or even in Mexico. The same goes with other regions in the country. One idea is having multiple shops in different regions of the country doing the same thing.

There are a lot of benefits associated with next-shoring. The most important of these is shipping. A major factor in the increase in the cost of manufacturing in China has been attributed to changes in shipping that have made it more expensive to send goods across the Pacific. By running a local operation, fulfillment is reduced significantly. These cost savings are passed on to customers.

More importantly, delivery times are also reduced, especially when combined with proper warehouse management systems. Rather than having to wait several days for an order to reach its customer, most shipping services in a next-shoring operation can get the job done in 1-2 business days within a certain region. While not national, it works ideally to people in an area where demand is highest. As a result, customer satisfaction increases. It also opens the potential for new practices, such as made-to-order rather than made-to-stock.

To discuss Microsoft NAV solutions for manufacturing, join the Microsoft Dynamics NAV for Manufacturing LinkedIn group.

Posted in: ERP Solutions, Manufacturing Productivity

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