Right-Shoring: Balancing the Best of Manufacturing and Supply Chains

Make Some Noise
Right-shoring supply chain elements overlaid on a manufacturing factory shipping department
Make Some Noise

Over the past few years, we have been approached by several companies to either help them re-shore existing manufacturing projects or launch new on-shore manufacturing projects because of increased transport costs, tariffs, long lead-times, inability to travel to those off-shore countries and for other case-specific issues.

What we have found is that there is no one all-in-one solution for each situation and no quick fix to the world’s supply chain. This has forced us to think long and hard about how we can better serve our clients given the continually evolving manufacturing and supply chain landscape.

Comparing Manufacturing Location Options

Like most challenges, people like to break things down into simple, easy to understand categories. Similarly, the conversation and debate in the manufacturing space has largely been around whether to “off-shore”, “on-shore” or even “near-shore” your manufacturing.

What we have tried to help our clients understand is that the reality likely lies in a custom combination of these approaches – something we now refer to as “Right-Shoring”.

For context, here is a quick definition of terms and key differentiators: 

  • Off-Shoring: manufacturing on another continent, accessing large pools of skilled labour at reduced costs, and potentially tax & regulatory benefits, but requiring transport by ocean or air, language, and time zone differences
  • On-Shoring: manufacturing occurs in your own country, offering the opportunity for better visibility and control, and reduced costs from shipping delays and damages. However, it may not be the most cost efficient or offer the best access to skilled labour
  • Near-Shoring: manufacture not in your own country but one that is easily accessible by land transport, usually within or near to your time-zone. Near-shore manufacturing can reduce shipping timelines and complications, and may result in fewer language or cultural barriers
  • Re-Shoring: converting a manufacturing process from off-shore to on-shore or near-shore. This involves the relocation of assets, talent, production facilities and systems.
  • Right-Shoring: selecting the optimal combination of the benefits of off-shoring, on-shoring and near-shoring for your business, industry and product, given your unique needs, time, cost and quality factors, and the current economic and geopolitical environment.

Going Beyond a Typical Cost Analysis

Dave Evans published an article in December 2020 for Forbes entitled “It’s About Right-Shoring, Not Re-Shoring” that really helps to define what is right-shoring:

“What right-shoring suggests is that there are a set of variables that should be considered when selecting the ideal manufacturing geography. Those variables will likely include volume, technology, lead-time, price, certification. There are actually a whole lot of variables that need to be considered”.

A thorough landed-cost analysis will analyze all supply chain costs including labour, materials, transportation, warehousing, and customs fees in addition to other indirect costs. We have found that companies tend to overly fixate on the piece-price to manufacture their product and fail to initially evaluate the many other factors at play as well as their future exposure to those factors. Some of these factors have been thrust to the forefront more recently – such as transport costs, tariffs, etc.

What is also becoming more of an issue lately, for off-shore manufacturing is extremely long delivery lead-times, which not only delays your ability to sell and generate revenue, but it can also tie up valuable working capital – which costs money and strains cashflows.  What companies must do is evaluate the cost of maintaining that working capital and factor that into their product cost. Even less tangible to put a price on is, simply your customer’s sentiment for where your product is manufactured.

Is Right-Shoring the Right Decision for Your Manufacturing Needs?

One of Inertia’s main services is to help our clients manufacture the products we have designed for them.  Our goal has always been to build the best manufacturing solution for our client’s specific situation – whether that is off-shore, on-shore, or a custom combination.  We present our clients with multiple manufacturing and sourcing options, allowing them to decide what is best for their business – beyond the basic evaluation of piece-price.

Our philosophy to manufacturing and sourcing, and how we pitch our services to clients is what Dave Evans expresses about the value proposition of right-shoring:

“Right-shoring succeeds when the innovator, engineer or purchaser has access to as much choice as possible, and the visibility or transparency to make the right choice. It succeeds when they have all the data they need at their fingertips and when they can easily understand the real cost of ownership when they buy from a particular geography.”

If you are considering where to manufacture your product, there are many factors to consider beyond piece-price and your personal desire to manufacture here or there. You may even find helpful information in our guidance on the common mistakes startups make in choosing a contract manufacturer.

Whatever you choose, it pays to spend the time to understand and evaluate the many distinct aspects of manufacturing, supply, transport, tariffs, and so on to build a solution that works best for your business now and for the long term.

Subscribe below ⬇ for more manufacturing knowledge and experience sharing from Inertia, or contact one of our manufacturing experts to discuss options for right-shoring your product manufacturing today.

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