One continuing trend in manufacturing regionalization is moving from an “off-shore” model to a “nearshore” model, where manufacturing services are in closer proximity to where demand and innovation take place.
One Explanation Behind The Rise of Manufacturing Regionalization
Due to China’s labor rates increasing by about 20% per year, and an overall rise in transportation costs, North America has become more of a favorable environment for regional players. In addition, using off-shore services introduces risk to the supply chain, such as the 2011 tsunami that hit Japan and therefore disrupted the supply chain throughout the U.S.
The Impact of Manufacturing Regionalization on Inventory
The location of services within a geographic region has a major impact on inventory levels, the velocity of production and jobs within the region. The trend of nextshoring has caused manufacturers and those within the supply chain to adapt to and prepare for the changing nature of manufacturing.
For small and medium-sized manufacturers, manufacturing regionalization and the increased demand for current technologies create the need to find and maintain good talent. Companies need to invest in training for their employees and increase relationships with community colleges and technical associations.
Resources To Help With Your Manufacturing Operations
A 2015 law put into effect a tax deduction for small and medium-sized manufacturers wanting to invest in new equipment. This part of the law – Section 179 – provides smaller manufacturers with a deduction on investments of up to $500,000 per year on machinery, vehicles, computers and computer software. Manufacturers needing a new ERP solution, for instance, can benefit from the Section 179 deduction for the software and hardware it runs on.
Examples of Successful Manufacturing Regionalization
Consider the impact these companies are making on the region where they are located, and their local partners in the supply chain:
- Nissan shifted their production of lithium-ion batteries from Japan to localized manufacturing and re-tooling at an existing assembly plant in Tennessee.
- Sleek Audio, which produces high-end earphones, moved its manufacturing back to the United States after 3 years of production in China.
- NCR Corp opened an ATM manufacturing facility in Columbus, GA to produce ATMs for the North American market, effectively bringing production back to the U.S. from China, India and Hungary.
As the trend of manufacturing regionalization continues to grow, companies must use this as a call to action to maintain relevancy and be a player in the supply chain.
Our Series on the 10 Drivers of the Future of Manufacturing
In the World Economic Forum’s white paper, “Manufacturing Our Future, Cases on the Future of Manufacturing,” the Global Agenda Council on the subject determined that manufacturing has become so complex that to ensure its development, the private sector, public sector and civil society may often converge.
They determined what must be done within ten different drivers of the future of manufacturing, including ones specific to capabilities and those specific to policies and trends.
Manufacturing regionalization is the ninth entry in our series covering the ten drivers, our first provides an overview on their recommendations concerning Advanced Data Analytics.