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Offshore production is losing its appeal

14 February, 2009

Almost 90% of a sample of manufacturers in the Europe and the US who have moved production to low-cost economies are now considering changing this strategy, according to new survey. The US management strategy consultancy Archstone quizzed 39 senior executives in manufacturing companies on both sides of the Atlantic and found that they are becoming increasingly selective when making offshoring decisions.

“For years, the concept of offshoring, or moving production and/or sourcing operations to a foreign country, has been the mantra of any supply chain manager looking to cut costs,” says John Ferreira, who heads Archstone’s global manufacturing industry practice. “Now, amid volatile oil prices and an uncertain global economic future, this analysis no longer is a certainty.

“The perceived 25-40% cost savings associated with offshoring have previously been made possible by low labour costs, cheap commodities and favourable exchange rates – factors that no longer exist in today’s marketplace.” Ferreira adds.

The Archstone study reveals that in the past three years, there  have been significant increases in offshoring costs, including:
• a 135% hike in marine freight costs;
a 44% increase in manufacturing wages in China;
an 18% rise in the value of the Chinese Yuan against the US dollar; and
a 27% increase in the global commodity price index.

The survey also revealed that manufacturers are concerned about several other issues that affecting offshoring, such as: slower cycles and delivery times; reduced supply chain flexibility; lost visibility, co-ordination and control over the supply chain and quality; and bottlenecks in logistics.

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