A couple of weeks ago there was an article in the Hartford Business Journal talking about more offshore outsourcing that was returning to the U.S. The article sums up why companies are returning the best:
The argument goes: when total cost is considered, production is cheaper locally; there is less concern about quality and intellectual property theft when dealing with a domestic company; and with new lean practices, more streamlined production lowers domestic costs.
“Company after company has learned by keeping things closer together, that leads to a stronger overall value chain,” said John Shook, chairman and CEO of the Lean Enterprise Institute, based in Cambridge, Mass. “I see a lot of companies bringing things back.”
This is a hard lesson for companies to learn. As mad as I would like to get over companies making the choice to chase cheap labor, I have to remind myself they were playing with the rules as they understood them. Ten plus years ago, value stream accounting was not known. The only system most people knew was the standard costing system. This view did not take into account the quality and lead time aspects of chasing cheap labor.
Value Stream accounting is now more widely known, thanks to efforts like the Lean Accounting Summit. If companies continue to chase the cheap labor costs, I really don’t have any sympathy for them. The article lists other reasons Arcor sees offshoring as not a good idea:
Arcor has advantages over offshore companies when competing for local work, Francoeur said. Particularly when a client is developing a new product, there’s a lot of back and forth between Arcor and the customer, which would be slowed significantly if the client had to wait days for a project to be shipped from an offshore company.
New products tend to be more sensitive to copying and intellectual property concerns, and clients trust local companies more when dealing with sensitive information, Francoeur said.
With more and more companies learning total cost is better the more local you are to your market, no matter where in the world you are located, hopefully, it will be come the norm to stay local. We have to continue to talk about total costs and keep pushing the topic with leaders in our companies. We can use the companies that left and came back as examples and eventually we will get there