October 7, 2024
About 50 years ago, businesses in the U.S. shifted manufacturing to South America, and then overseas to China. The shift was highly motivated by lower production costs.
If businesses could get their parts, electronics, and vehicles manufactured at a fraction of the cost, it made sense to move production overseas. They’d pay more for shipping, but the lower wages and material costs still lowered the overall costs.
In the past decade, we’ve seen a push to bring manufacturing back to the States, and some businesses have shifted back to domestic and nearshoring operations.
There are some survey metrics that show manufacturing is returning to the U.S.
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Like anything, there are pros and cons of using domestic suppliers and shifting from low-cost countries to U.S. manufacturers.
In this post, we’ll share 5 advantages of using a domestic supplier, and some of the challenges.
Domestic suppliers provide raw materials, products, and services to customers within the same country.
Domestic simply means that the business is done in the same country. The main benefits of domestic suppliers happen because of close proximity.
This means that the closer the supplier and customer are, the greater the benefits.
For example, a domestic supplier that’s working with customers in the same city or state has stronger benefits than a supplier in California working with a customer in Maine.
Plenty of businesses want to keep their supply chain operations as close as possible. Here are the main reasons why.
The first benefit of using a domestic supplier is reduced transportation costs. When raw materials and goods are transported from one country to another, there are significant costs involved in the process. This goes beyond the extra shipping costs. There are additional taxes, import fees, currency exchanges, and other hidden fees.
Even if the labor is cheaper, the overall manufacturing costs can be reduced by having goods manufactured domestically,
North American companies spend over $1 billion on logistics every year. Many of those logistic costs can be reduced by localizing your supply chain operations. Domestic suppliers also help you maintain a reliable supply chain by avoiding interruptions.
Local manufacturers can offer greater flexibility and implement changes faster than an international supplier. It’s easier to communicate, and the reduced shipping times make design changes and demand shifts easier
Local suppliers are typically more proactive and reactive than suppliers who are farther away. They can deliver products quicker and it’s much easier for a supplier to coordinate a shipment when a new request is made. Being closer enables you to resolve problems, launch products, and meet changing consumer demands faster.
Updated manufacturing technology and certification standards, like the ISO 9001:2015, help ensure high levels of quality control. Communication also plays an important role. Better communication helps you coordinate orders more effectively and leaves less room for errors.
Domestic suppliers also reduce the chances of things getting lost in translation. Small, but important details, can get miscommunicated or under communicated when you’re working with big teams of people in different countries, cultures, and timezones.
Inventory management is a significant part of every business. Not having enough inventory causes profit losses, and unhappy customers. People want their orders fulfilled immediately. We’ve seen how quickly the global supply chain can get interrupted in just a few days. That leaves people stuck waiting weeks and months to get what they ordered and paid for.
On the other hand, holding too much inventory is expensive. It locks up cash flow and increases storage costs.
Having the right amount of inventory is essential, but it’s not always easy. Shipping materials overseas takes weeks, which makes inventory control more difficult. Businesses need to make more long-term guesses about consumer demands, which are always changing. If a business suddenly needs more product than their normal order, they’ll be waiting at least a few weeks. A local manufacturer could meet the additional demand in a fraction of the time.
Local supply chains are also less likely to be impacted by global events, which reduces the chances of unexpected supply chain interruptions.
The environment has become a significant factor in consumer’s buying decisions. More and more people are paying attention to the companies that invest in environmental responsibility. A study from GettyImages found that 69% of people do everything they can to reduce their carbon footprint.
Localizing your business operations is a great opportunity to help the environment. Reducing shipping and storage also reduces emissions and energy usage. Ultimately this helps you increase consumer confidence, and your business benefits from positive brand awareness and customer loyalty.
Local suppliers do face some challenges. One of the main reasons for moving manufacturing elsewhere was the reduced cost of labor and materials. Increasing minimum wages make it more expensive to keep manufacturing operations local.
Secondly, the specific processes you need may not be available locally. Having access to a global network means that you have access to more suppliers with a broader range of capabilities. Or a local supplier can’t handle the amount of work you need.
Spex has served as a local manufacturer since 1946. If you want to learn more about how we can help optimize your supply chain, and provide a range of manufacturing service, reach out to one of our team members.