Inventory Management: Is Reshoring US Manufacturing the Answer?

We’re pleased to have David Hutchinson provide this op-ed article on his thoughts about trend of Reshoring US Manufacturing. David is the founder and CEO of Symbiant Technologies, a solution provider in the inventory management sector. Learn more about David after the article.

Lean isn’t a destination for distributors, it’s a journey. The reshoring trend is a huge part of creating a lean supply chain, and creates the foundation of lean inventory management.

There are at least 3 critical items that allow you to reduce costs and increase service level in warehousing:

Tight and Necessary Warehousing Processes, including the right tools such as good Barcode Solutions.
What Warehouse Metrics do you have in place to help you determine if your processes are going well or not.
You warehouse location is optimal in the first place to meet service level commitments.
These together will help you reduce costs in your warehouse.

More U.S. based companies are bringing manufacturing back to the states or the North American region for a variety of reasons. First, distributors are tired of dealing with long lead times waiting for products to travel from Far East suppliers and its effect on their inventory management. Second, there’s the risk of a breach of intellectual property rights ¹ if products that are sourced to other countries are reproduced under an off-brand label. Third, the savings from lower wages in foreign countries are no longer standard as wage rates increase nationally ².

Bringing production back to the U.S. can offset these risks. Lead times are already long when dealing with overseas suppliers, but add in weather setbacks, product abnormalities, port strikes, customs issues or transportation disasters and these disruptions threaten your inventory management.

These days, it’s taking even longer to ship finished products. Lisa Ellram, a professor who specializes in supply chain management, tells the Associated Press that in order to conserve fuel, cargo ships have reduced their speed by 20 percent ³. That means it takes an extra four or five days for a container ship to travel from China to the U.S.

Using international suppliers today is like getting trapped in quicksand: it was easy to jump in with both feet because of the allure of cost savings, but it’s hard or impossible for a supplier to get back out because they’ll never recoup their capital.

Regionally-based supply chains condense lead times and promise products that are delivered consistently and of a higher quality. Plus, in many cases, distributors will receive tax incentives for producing them in America.

Yes, reshoring can mean significant savings for distributors.

Distributors’ inventory management is best-served by regional centers. Distributors don’t need to mass-order products when the supplier is nearby. High-volume items will be moving continually through the system with an automatic reorder made possible thanks to warehouse inventory software ⁴. Items with a lower level of demand can be stocked in smaller quantities with no worry of the product running out or becoming obsolete because distributors can stock quickly in small amounts with a local supplier.

The demand for U.S. goods is on the rise. A survey last year from ThomasNet found that 95 percent of manufacturers plan to buy more from domestic companies ⁵ or keep purchases at the same level as 2011.

Warehouse inventory software also allows distributors to ship just in time, an option many customers are demanding these days. More companies are adopting the Amazon model and trying not to have to stock product, instead shipping directly from the manufacturer. The manufacturer fulfills the order, carries the inventory and handles all the risk while the distributor acts as the risk-free middleman by just monitoring the virtual warehouse and handling invoicing. The Amazon model frees up capital for the distributor while still allowing them to gain margins from a variety of products with a limited pass through.

Warehouse inventory software is the key for this new era of distribution. By using warehouse inventory software, distributors can process, track and sort their inventory from a variety of manufacturers. Especially for mid-tier or smaller companies, only warehouse inventory software can handle such unique system requirements at an affordable price tag.

But distributors need to beware of making the mistake of thinking they are lean just by reshoring. Lean is all about eliminating waste, eliminating anything that doesn’t provide value to the end customer and mastering a waste process that doesn’t add additional cost. If you receive a product, unpack it, shelve it, relabel it and ship it again, is that really providing value to the end customer? Or are you just creating additional steps?

Once operations are on the same continent, distributors should then focus on creating an efficient warehouse. They can minimize routes for picking and reduce the amount of times a product is handled.

David Hutchinson is the CEO and co-founder of Symbiant Technologies. He has over 25 years of experience implementing ERP and technology systems in both public and private sector organizations. He has received several awards, including the Richard Drew award for Creative Thinking by 3M Corporation.