Reshoring, supply chain issues, regionalization, government engagement – these are elements that have placed manufacturing at what MIT’s David Simchi-Levi describes as a “tipping point.” The organization went straight to the source: surveying manufacturers. Response proved revealing.
The Massachusetts Institute of Technology (MIT) Forum for Supply Chain Innovation says that manufacturers are seriously rethinking their supply chain strategies. Results of the 2012 MIT Forum Manufacturing Survey indicated that fostering business growth was a top priority. MIT sought to identify the most influential drivers.
That was the main focus in the recent (July 25, 2012) conference held at the MIT Faculty Club in Cambridge, Mass., which was keynoted by Tom Kurfess, representative for the White House Office of Science and Technology Policy (OSTP) – and that placed the MIT survey results beneath a bright spotlight. The big question: How can manufacturers successfully drive business growth to remain competitive?
Leading up to the conference, MIT’s Forum also released the 2012 U.S. Reshoring Survey, a research effort that provided insights on geographic movement of manufacturing activities. Survey goal: How to best understand the reasoning behind manufacturers’ revamped strategy, as well as current or planned reshoring initiatives, and how US Government policies could impact the likely reshoring.
According to MIT professor David Simchi-Levi, the survey provided his organization an important tool in understanding movement of manufacturing production and assembly, and how government policies could bring such activities back into the US.
Searching for Answers
Simchi-Levi provides context and background: “The MIT Forum for Supply Chain Innovation brings together about 30 companies to talk about the major supply chain issues. At the beginning of 2012, I wanted to know their views about what the Forum should focus on.”
That led to an initial, small-version survey that allowed companies to express their ideas. Simchi-Levi reveals the early results. “We found that many were interested in the topic of offshoring and reshoring, and if the manufacturing industry was at a tipping point.”
This led to the larger survey. “I felt we should collect more data about what companies try to accomplish with their manufacturing strategy, and whether their manufacturing footprint is changing, and which industries were transformational,” explains Simchi-Levi.
Once survey development was complete (about two months ago), the questionnaire become available, via mail and online. “A major issue addressed was changes we see in the supply chain – significant increases in labor costs in developing countries, restrictive energy costs, and the increase in risk,” says Simchi-Levi. “These changes may force companies to reconsider their supply chain strategies. Are some or all changes compelling manufacturers to change? If so, how?”
Further, MIT wanted to complement insights not only with data but with a research model that made sense of the results. “It’s one thing to report what we glean from the survey; it’s another thing to explain the information in a systematic way,” says Simchi-Levi. “That would provide additional insight. What is being done? Why it is being done?”
The major take-away points from this effort include:
- Reshoring – “Clearly, there is a move in this direction, if only in thought,” says Simchi-Levi. “We found that about 37 percent of companies are considering moving back to the United States. But when we asked if they were taking action, the figure dropped to about 13 percent.”
- Regionality – “Reshoring is but a part of a larger picture,” Simchi-Levi points out, adding that movement is not just about heading back to the US but to develop a regional-based manufacturing strategy. “This means China for Asia, Eastern Europe for other European regions, and US and Mexico and other Latin American countries for the Americas. It’s a substantial change from what manufacturers talked about in the 1990s, when the key phrase was globalization. Now it’s about regional strategy. For instance, to offer a theoretical example, ‘my facility’ in China will support my activities in Asia; ‘my facilities’ in Eastern Europe will support my activities in Western Europe; ‘my facilities’ in Mexico will support activities throughout North America and South America.”
- Time-to-Market – the main driver to regional strategy is a substantially reduced time to market.
- Movement – “Some industries are more active in moving facilities to North America,” describes Simchi-Levi. “This includes motor vehicle product and parts manufacturers, electrical equipment and appliance manufacturers, and the largest consumer packaged goods companies. But electronics is not moving at all. One of the reasons why some companies and industries aren’t quick to move is because of the logistics involved. If you build a plant in China, it’s expensive to move the infrastructure to the United States. Transportation costs, among others, are considerable.”
- Government Engagement – “We asked how the US government can help, and our research indicated that this involved the corporate tax rate, which has enormous impact on decisions on whether to move or stay. Washington DC can make a big difference by understanding the effect of tax policy. The US has one of the highest corporate tax rates.”
Related to that last point, the MIT Forum for Supply Chain Innovation continually strives to bring together government, academic and business representatives – whether that means collaborating on research or just making presence felt in Forum events.
“Discussions about innovation, technology, government policy and supply chain strategies can only enable manufacturing growth,” says Simchi-Levi.
Again, he says that we’ve appeared to have reached a tipping point. “Manufacturing can—and most likely will—change in the next decade.”
Stay tuned – we will provide more information about MIT’s research and observations next month.