Onshoring Grows in Popularity: Is it Right for You?

Jeff Campbell

Vice President

Fidelity Bank

jeffc@fidelitybankmn.com

fidelitybankmn.com

Topic: Banking / Finance

Many small and mid-sized businesses that initially benefited from outsourcing are now finding reasons to return production or purchase parts made closer to home. Business owners have become disillusioned because the quality of the product may be inconsistent, sometimes flawed. Many report that the headaches are getting bigger and lasting longer; they don’t have time to troubleshoot problems every few months in an effort to save money they’re no longer sure they’re really saving.  

What changed? Labor costs overseas aren’t as inexpensive as they once were, costs in the U.S. went down, overseas transportation became much more costly due to the cost of oil, and business owners are seeing the impact of using products with low quality. For some, there’s no longer any cost saving at all in offshoring, and for others the small savings available isn’t worth the hit to their reputation over the long term.

How do you determine if you should buy parts or use a production facility closer to home?

Analyze True Costs and Compare. To determine whether it makes sense for you to onshore, a full-scale analysis of the true cost of sales is necessary. Include costs such as carrying costs, the risk of items being returned because of a quality issue and the impact that this will have. Compare that against the cost of delivering a higher quality product that has little risk of being returned.

Analyze Risks and Rewards. Is your supply chain irregular? Are factory or transportation issues making delivery and quality erratic? How does that affect your ability to respond to your client’s expectations?

Have Realistic Expectations.  Offshoring makes you vulnerable when natural disasters occur in areas without well-developed response teams.  In addition, man-made political upheavals can create issues with your labor base. Can you afford this kind of instability?

Consider the Cost of Late or Broken to Your Reputation. Will customers look elsewhere if your deliveries are late or if your merchandise is flawed or inconsistent in quality?

Making a significant change in your production can feel risky, but when you’ve thoroughly weighed the costs, risks and benefits, you can make the right decision for your bottom line.