By APICS CEO Abe Eshkenazi, CSCP, CPA, CAE | 0 | 0 | February 07, 2014
It's the new concept that got my attention to this January report from McKinsey & Company: "Next-shoring: A CEO's guide." Not "offshoring," which the authors acknowledge means moving manufacturing to lower-wage workers in developing nations. The title also doesn't include "reshoring," or moving manufacturing back to developed markets as workers wages increase in developing ones. So, what's next-shoring? The folks at McKinsey say next-shoring emphasizes both proximity to demand and proximity to innovation.
“Both are crucial in a world where evolving demand from new markets places a premium on the ability to adapt products to different regions and where emerging technologies that could disrupt costs and processes are making new supply ecosystems a differentiator,” write Katy George, Sree Ramaswamy, and Lou Rassey.
The economic fundamentals that cultivate next-shoring are as simple as supply—labor and energy costs are evolving—and demand—industry, such as automobiles, machinery, and food and beverage, is positioning itself close to its demand. Consider China, for example, where wages have almost doubled since 2008. Instead of diminishing manufacturing there, higher salaries are giving the workers buying power.
The authors also cite decreasing energy costs as a benefit to manufacturing, especially for industries such as petrochemicals, fertilizer, and steel. In the United States, natural gas costs have decreased 50 percent annually since 2007 as gas production from shale deposits has increased. “McKinsey Global Institute (MGI) research suggest that by 2020, lower-cost energy could boost US [gross domestic product] by somewhere between $400 billion and $700 billion.” In developing regions where the power supply is unreliable, technologies, such as lithium-ion batteries and fuel cells, and renewable—energy advances in solar and wind power could satisfy factories’ power needs.
The authors attest that technology promises more than energy savings, and they note advanced robotics, 3D printers, and the digitization of operations as major disrupting innovations.
“Next-shoring isn’t about the shift of manufacturing from one place to another but about adapting to, and preparing for, the changing nature of manufacturing everywhere,” George, Ramaswamy, and Rassey write. They recommend the following strategies for companies:
- Optimize location decisions: Emerging markets are growing in their consumption, and it is important to have manufacturing facilities that are close.
- Build supplier ecosystems: Successful new products will result from the combination of technical expertise and local domain knowledge.
- Develop people and skills: Manufacturing is evolving, and it needs talent to thrive. Different regions will face different workforce challenges.
APICS: Developing people and skills
How are you and your company preparing for success in the era of next-shoring? McKinsey reports that organizations will need to invest more in formal training and on-the-job coaching to bridge the talent gaps. Whether you are growing your business in North America or implementing a worldwide strategy, APICS is prepared to be your go-to supply chain and operations management training and education resource.
For example, the APICS Certified in Production and Inventory Management (CPIM) program helps candidates master essential terminology, concepts, and strategies related to demand management, continuous improvement, supplier planning, material requirements planning, and more. To enhance its availability worldwide, APICS now offers global exam delivery (GED). To find out how you can benefit from GED, visit the APICS website.
In addition, APICS 2014 Shanghai, April 17–18, promises to provide individuals and organizations with insights into how global companies are achieving supply chain innovation and success. Whether you are in the market for certification training or education, APICS should be your next move to better prepare for next-shoring.