Technological enablers to support the Reshoring of outsourced manufacturing

Thursday, February 22, 2018

As the capstone requirement for my recently-completed MBA degree, I was tasked with the creation of a major research paper in lieu of a thesis. The primary difference between the two is that a thesis requires the generation of incrementally new theoretical thought, whereas a major research paper serves as a synthesis of available academic research to support a core theme or hypothesis.

As I possess a substantial background in purchasing, inventory management and supply chain, and in light of recent public discussions regarding the possibility of repatriating the manufacturing capacity that had been progressively “lost” by the United States to China, I chose to focus on what I considered to be the novel topic of the technological enablers that might justify a case for transitioning manufacturing production back from China.

During the course of my research, I encountered and reported upon a number of originally-anticipated themes – that recent wage inflation in China had progressively eroded the opportunity for labour arbitrage that had originally rationalized outsourcing, and that automation and technological proliferation, coupled with lower energy costs facilitated by renewables, were increasingly evening-out the competitive playing field, from a capital and operating cost, and capabilities standpoint. Specific technologies like additive processes, robotics, and artificial intelligence in particular are offering ever-sophisticated and ever-cheaper options to ever-smaller manufacturers that can be deployed on a cost-parity basis across all geographies, on the push-side of the equation.

What was somewhat unexpected, however, was the research I encountered that supports the strength of the pull-side of the equation. My research reaffirmed that citizens, regardless of their publicly-espoused sentiment, are unwilling in practice to pay any form of price premium or subsidy in order to encourage factories to reestablish themselves within consumers’ borders, and therein solidifying the caveat that reshoring can only be possible through the achievement of cost-parity with foreign outsourcers. However, evolving consumer-driven demands for mass-customization (the preference for consumers to be able to personally customize a product, rather than be forced to accept one that has been standardized for a broad global audience), coupled with increasing levels of price-sensitivity, and demands for vendors to achieve increasingly aggressive lead times, compel manufacturers to seek efficient and effective solutions to address such trends.

Central to a consumer revolution of this nature is the rise in size and purchasing power of the Millennial cohort, and, as I progressively substantiated by poring through the countless psychology journals to reaffirm the fact, their most divergent collective traits are shaped by their high degree of narcissism relative to predecessor generations. I was reluctant to pursue this specific theme initially because it detracted from my core focus of technological enablers, but also due to the fact that Millennials, en masse, are often unfairly characterized as possessing such disparaging traits as selfishness, laziness, impatience, and aggressiveness. Having spent a year with dozens of individuals drawn from the Millennial generation during my MBA tenure, such generic characterizations did not reflect my personal experience, given that I collaborated with superb, intelligent and selflessly hard-working individuals that I couldn’t substantively differentiate through their qualities, from my Generation-X peers. However, as any statistics professor will regularly remind you, “a sample of one is not a valid representative sample”, and I therefore allowed the peer-reviewed data to guide my exploration of this particular theme.

Ultimately, as I discovered through my research, while particular technological forces may enable a resurgence of capacity to transition back to former manufacturing powerhouses as the low-cost benefits of outsourcing are able to be neutralized, complex societal forces may ultimately be the strongest driver of future demand in forcing the repositioning of manufacturing capability nearer to the locale of ultimate consumption. One academic contends that “Only raw materials and data will be transported over long distances in the future” (Matt, 2015), providing us with a glimpse of the dramatic change we might expect to see within the manufacturing, supply chain, and logistics realms, and among the broader society, in the coming years. Whether driven by manufacturers or consumers, we can expect to see a new generation of agile factories proliferating throughout consumer markets in the future.

If you’re interested in reading more, the full text of my research paper can be purchased in both hardcopy and electronic format from a variety of online book sellers, including Amazon.