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Manufacturing is going through a genuinely transformative period, with many factors driving companies to reconsider long-established offshoring strategies.
Accenture and MIT believe that this “new normal” offers US companies and policy makers a great opportunity to take bold and aggressive steps to reinstate the country as a manufacturing powerhouse.
It seems like a growing number of US companies—Ford and Caterpillar to name just two—are repatriating some of the manufacturing operations back to the United States. Such moves are supported by Washington policy makers, who believe the United States should push for growth in the manufacturing sector.
Are we truly entering a new era, or are these examples simply rare exceptions to a largely irreversible trend? This paper aims to help answer these questions by identifying the most influential drivers of manufacturing growth.
Manufacturing is undergoing a period of transformative change. The recession has of course played a role, but perhaps even more important have been other, unrelated events.
As companies come to terms with a radically altered “new normal,” they need to respond to three important drivers:
Taxation. Differentials between US and other tax rates continue to make it more economic to manufacture all or some product offshore.
Changing demographics. It is increasingly clear that physical proximity to consumers can affect issues such as providing custom products and customer service. As a result, regional manufacturing strategies are increasingly important.
Supply chain strategies. Cheap oil was the enabling factor for manufacturing strategies that required long supply chains. Increased oil prices (and greater all-round volatility) have made transportation costs more important relative to inventory, production and fixed facilities costs. As a result regional distribution centers become more attractive, and sourcing and production move closer to demand.
The United States remains a large, affluent market that generates significant global demand. However, the reality is that less and less of that demand is being filled by stateside manufacturing operations.
However, manufacturing is now genuinely going through a genuine transformation, thus presenting US companies and policy makers with the opportunity of reversing the trend, returning the country to an era of manufacturing growth. The biggest hurdle may that a new mindset is needed: a sense of urgency, an acceptance of new ideas and an acknowledgement that the playing field is uneven. Hyper-aggressive programs and policies will be needed.
The United States has been able to rise to a similar challenge, such as when Japan emerged as a significant manufacturing power in the 1980s. Then as now, the key is extensive collaboration between industry, government and academia.
Accenture has an established manufacturing practice and years of experience in helping manufacturers achieve high performance.
David Simchi-Levi is a professor of engineering systems at MIT and is considered one of the premier thought leaders in supply chain management. His research focuses on developing and implementing robust and efficient techniques for logistics and manufacturing systems. He has published widely in professional journals on both practical and theoretical aspects of logistics and supply chain management. Professor Simchi-Levi coauthored the books Managing the Supply Chain (McGraw-Hill, 2004), The Logic of Logistics (Springer 2005) as well as the award-winning Designing and Managing the Supply Chain (McGraw- Hill, 2007). His latest book, Operations Rules: Delivering Customer Value through Flexible Operations, was published by MIT Press in September 2010.
James Paul Peruvankal is a graduate student at the MIT’s Sloan School of Management and the School of Engineering. His research interests include supply chain strategy alignment and cost of complexity of systems. He has worked on supply chain IT projects for major multi-national retailers. He is a Certified Supply Chain Professional by the Association for Operations Management. He holds a Bachelor of Technology from the Indian Institute of Technology, Mumbai, India.
Bill Read is the managing director of Accenture’s North America Supply Chain Consulting group. With close to 30 years of supply chain consulting, ERP and outsourcing experience to draw on, Read is known for his effective consulting style, deep process expertise, and an ability to work with all levels of client management to achieve radical improvements to business operations. He has a deep understanding of supply chain mastery that allows him to specialize in supply chain transformation for businesses with difficult operational and technology challenges across the manufacturing, distribution and retail industries.
Narendra Mulani is the managing director of Accenture’s Product’s North America group, and is responsible for creating value for clients across a variety of products industries including: retail, consumer goods and services, life sciences, and automotive, industrial, infrastructure and travel. Mulani’s client experience focuses on leading large-scale value chain improvement engagements, and he is passionate about the effect of digitization, analytics and sustainability on all aspects of consumer life. Narendra also served as a member of the global senior leadership team at Accenture as a key architect of Accenture’s High Performance Business framework.
John Ferreira is the executive director of Accenture’s North American Manufacturing group. With more than 25 years of both industry and manufacturing consulting experience across multiple industries, he has overseen the delivery of many operations and enterprise transformation efforts. He holds an MBA from Northeastern University and a BA from the University of Massachusetts. Based in Hartford, Connecticut, he can be reached at firstname.lastname@example.org.
June 8, 2011
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