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reshoringinstituteWe have been working hard over the past couple of years to help companies evaluate and plan for bringing manufacturing back to America. We believe it’s important to rebuild the American economy and in particular, the middle class. Rebuilding our strength in the manufacturing sector is one important way.

For every new manufacturing job created, there are about 1.5 additional jobs created. This is because manufacturing workers spend their money on houses, cars, consumer electronics, food and clothing which drives employment and economic growth in other sectors. All this spending has a remarkably positive economic effect. Communities thrive, employment rates improve and the American dream is once again revived.

Although we have been assisting clients in their Reshoring efforts, we decided to broaden our efforts by establishing a research and support institute. This gave rise to the Reshoring Institute, a collaboration with the University of San Diego.  The Institute is a 501c3 Non-profit organization and survives on tax-deductible donations.

Our Mission

Reshoring Institute provides research and support for companies bringing manufacturing and services back to the America.

Our Vision

In collaboration with the University of San Diego Supply Chain Management Institute, we provide information, research and support for companies trying to “Reshore” or bring manufacturing and services back to America. This may include things like site selection, tax incentives, science and math education, marketing and PR and cost comparison development. We direct this Reshoring work and include student interns in support of research projects and consulting projects.

You can read more about the Institute here: www.ReshoringInstitute.org or contact Rosemary Coates, Executive Director at rcoates@ReshoringInstitute.orgreshoringinstitute

I spoke at the Global Supply Chain Council’s Sourcing Shift Conference in Shanghai last week. The audience was a mix of c-level executives and very senior sourcing people. These folks have been running international sourcing and manufacturing operations throughout China and across Asia for many years. They are savvy business people with amazing international experience.
So I was astonished that almost no one in the crowd had heard about America’s Reshoring movement. A 2014 Boston Consulting Group report says that 52% of American corporations over $1B in revenue are considering Reshoring. And with Walmart’s new pledge to spend $250B on US-made goods over the next 10 years, Reshoring is all over the news.
We listened to various speakers talking about the shift of manufacturing from China to even lower cost countries including Indonesia, Vietnam, Myanmar and Bangladesh. The cost per hour comparisons were remarkable. They quoted “cut and sew” and assembly operations in Myanmar at $.35/hour and Bangladesh at $.33/hour. Yes, you read that right…thirty-three cents per hour. These sourcing folks and the multinationals they represent are still chasing the lowest labor cost to produce their products.
Then it was my turn to talk about how Reshoring will affect China and specifically, how it will change these people’s jobs. I asked for a show of hands to see how many people were familiar with the American Reshoring movement. Only three or four raised their hands.
So as I described the Reshoring movement in America, they were fascinated. “How can it be that Americans will pay so much more for American-made goods?” they asked. I explained about the new “economic patriotism” that has enveloped the country. Americans want to rebuild the economy and believe that bringing back manufacturing is one way. But products must also be cost competitive. To achieve this, reshored manufacturing must be very automated including the use of robotics, 3D printing and 5-axis milling. “This is not a return to 1960’s manufacturing,” I said. “It is an evolution. And, in fact, the costs can be very competitive with China, when production is fully automated and when the total cost of ownership is considered.”
That got their attention. They are used to dealing with total cost comparisons. They have seen amazing changes in China over the past 25 years and understand the potential for evolution. And suddenly they understood. Their sourcing jobs are going to change, too.
Sourcing Shift Conf

Cof O UkraineIf you are an importer, you know the importance of US Customs regulations regarding Country of Origin markings. The regulations are in place so that US consumers can be informed about the origin of the products they buy. You can find C of O markings on adhesive stickers attached to products, on imported food labels, on soft labels in apparel and on the outside of a shipping carton or crate. But what happens when one country takes over another? How should the rules of origin apply?

Customs and Border Protection support the US government’s political position in this matter with the enforcement of C of O regulations. Take for example, the current and very serious dispute over the Crimean Peninsula between Russia and the Ukraine. The US government has taken a clear stand against Russia and one of the ways is through C of O marking requirements. CBP requires products of Crimea to be marked with Country of Origin: Ukraine. This is a very significant point being made by the US government. Goods coming from the Crimea cannot be labeled “Made in Russia” because the US government does not recognize the Russian government there.

On April 28, 2014, the White House issued a press release announcing the implementation of further sanctions against Russia including export restrictions for high-technology goods, subject to the Export Administration Regulations (EAR), which could contribute to Russia’s military.

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) also announced that, effective immediately, they will “deny pending applications for licenses to export or re-export any high technology item subject to the EAR to Russia or occupied Crimea that contribute to Russia’s military capabilities.” Existing export licenses meeting these conditions will be subject to revocation.

Supply chain professionals often discover that the real reason for a trade law or country regulations is political, not economic. The laws are enforced to further the agenda of the importing country, in this case the US. For the US and Ukraine, this means supporting the Ukrainian government in their fight to keep Ukraine independent.

2013-07-05 01.58.31I took the bullet train from Shanghai to Nanjing today, a journey in a pleasant 1st class, sparkling clean rail car at 200 km/hour, for about $30.  Rail is such a great way to travel in China.  It’s efficient, convenient and inexpensive, plus you see things you would never see from an airplane.

Along the way, in every direction, are miles and miles of factories.  They come in all shapes and sizes – small and squat to enormous smokestacks –apparently producing simple assembled products, electronics, plastics, castings and everything you can think of in between.  

Chinese Finance Minister Lou Jiwei told the G-20 meeting in 2014 that manufacturing accounts for nearly 60% of Chinese GDP, an unsustainable share which has created the problems of pollution and overcapacity, he said.  This is very evident as I traveled through the manufacturing areas between Shanghai, Wuxi and Nanjing.  The pollution was overwhelming; the skies were thick with a smoky fog and the sun was a muted disk low in the sky.  The pollution gets so bad from time to time that people wear surgical masks whenever they are outside during the most dangerous periods.

The Chinese government is no longer shying away from or denying allegations of the horrendous air quality.  In fact, in the latest government Five-Year- Plan, China is finally putting real muscle and money into environmental clean-up.  I expect to see substantial improvement over the next few years.  In addition, China plans to use the excess manufacturing capacity to address the needs of their own burgeoning middle class by producing products demanded at home.

Americans need to work on balancing the difference between the Chinese economy supported by 60% manufacturing and the US economy where only 11-12% is based on manufacturing.  Manufacturing is the fundamental backbone of a healthy economy.  We need to bring some of it back to the US- but very carefully.  We want skilled jobs that pay a living wage and don’t pollute the environment.

2013-01-23 05.43.24I just finished a consulting project for a major international brand that wants to enter the eCommerce market in Russia.  Although not new to eCommerce, my client was looking for a more in depth review of the possibilities and capabilities.

Among the many challenges with logistics in Russia, some are unique requirements that don’t exist in other places.  For example, when customers order fashion items over the Internet or via a call center, they expect overnight delivery to locations in Moscow and St. Petersburg.  But this overnight delivery also includes a specific appointment time and a fashion consultant who delivers the goods to the customer’s door and then waits while the items are tried on.  I suspect they also provide feedback….”That makes you look fat”  etc…

Russian customers are among the most demanding anywhere in the world.  But there are other factors at work here, too.  In order to deal with significant petty theft, packages would never be left on someone’s doorstep. They must be delivered and signed for in person.  Credit cards are not widely used via the Internet or over the phone in Russia, so the majority of transactions are done COD.  Russian Post is often slow and unacceptable for customers of eCommerce. Call centers are expected to follow up with every customer to assure satisfaction with their purchase.

The logistics challenges in the Russian market are significant.  The overall supply chain has to be flexible enough to accommodate creative solutions to inventory stocking levels, security, customs clearance and currency exchange.  Returns are very high because customers will often order multiple sizes and reject the unwanted merchandise which then must be returned to the fulfilment center and restocked expeditiously.

To address these issues in Russia, some eCommerce companies have developed fully integrated end-to-end eCommerce businesses including: web store development, web site and shopping cart management, call centers, fulfillment centers, delivery services and fashion consultants. Necessity is the mother of invention.

eCommerce can be a challenge in any country, particularly the Third World where delivery capabilities are underdeveloped. But there is no stopping the double-digit growth of on-line shopping around the world.  The unique requirements of B2C business are yet another avenue for which Supply Chain professionals must gain competence

St Basil's Church

St Basil’s Church

This week I am in Moscow and overall, I find Moscow to be a bit bleak – miles of low-slung beige and gray block-style buildings reminiscent of the Cold War Soviet government. The exceptions include a small group of new downtown skyscrapers and Red Square.

With my China sourcing consulting business, I have been to Beijing and Tiananmen Square many times but this is the first time I’ve been to Moscow and its famous Red Square.  Both cities are heavily industrialized, the seat of their respective governments, and both have famous Squares.  So how does Red Square compare to Tiananmen Square?

First, they are both enormous.  The Chinese claim that Tiananmen can hold a million people and being there, it seems possible.  While not as big, Red Square is quite impressive, with the attached Kremlin grounds and several churches and museums.  Both have picturesque historical buildings including the Chinese Forbidden City and the Russian St. Basil’s Cathedral with the colorful onion domes. On the sides of both Squares are the seats of government: The Chinese Communist Party and the Kremlin.  Both Squares have remarkable museums with extensive and awesome collections. Both Squares have monuments to workers.  Tiananmen has Mao’s Mausoleum and Red Square has Lenin’s Mausoleum.

But the more important thing is that these two Squares were built as places of powerful governments and a show of might and strength. Both Squares are often used for military parades and other official government business. The message seems to be tops-down with leadership and power at the pinnacle and the people at the bottom.   You can “feel” this in both places to the point where it is a bit intimidating.

Contrast that with American monuments such as the Washington Mall.  The Mall seems to have a totally different feel, more egalitarian, more “Of the People.”  Even the White House is surrounded by an open fence, unlike the high walls of the Forbidden City and the Kremlin.

It serves us well to remember and respect these distinctions when we are dealing with global commerce.  Most nations of the world maintain tight control over capitalist ventures and international commerce.   We need to be aware and sensitive to cultural and governmental differences in our Supply Chain planning and execution.

RESHORINGFor the past 15 years or so, I have been helping companies offshore their manufacturing.  There have been, and continue to be, pretty significant cost savings in low-cost labor markets.  But with the waning US economy, it’s time we wake up and put some Yankee ingenuity into bringing some manufacturing back. We think it is possible to bring 15-20% of offshore manufacturing back to the US.

I am not saying we can or should bring it all back.  There are still global cost advantages to low-cost labor markets.  And China represents the largest single target market in the world to sell goods to.  Companies should continue to  manufacture in China to serve the Chinese market.

The U.S. manufacturing sector has added 430,000 jobs since 2010; a small trickle of what we need to recover, but still a move in the right direction. Companies that are reshoring include some of the nation’s largest manufacturers: Apple, General Electric, Ford, Caterpillar and NCR.  A 2012 study concluded that reshoring could add 2 million to 3 million jobs and an estimated $100 billion in annual output to a range of industries by the year 2015.

But bringing manufacturing back isn’t as easy as you may think.  There are a host of considerations and analyses that companies must do to determine the costs and feasibility of reshoring. Several of the important factors in the original offshoring decisions have dramatically changed. Consider these 5 factors as the initial steps in determining your need to rebalance global manufacturing and reshore some activities back to the US.

1)      Cost Increases, Taxes

2)      Innovation and Automation

3)      Market Access and Localization

4)      Skills

5)      Political Environment and Public Sentiment

We are helping clients evaluate the possibilities now.  For more information go to www.BlueSilkConsulting.com/Reshoring

I am proud to announce the publishing of my 3rd book, 42 Rules for Superior Field Service.

Writing a book is a daunting task.  It may look easy and hundreds of thousands of people try it, but it is tougher than you think. 

First you have to submit a book proposal to a publisher and hope your idea is good enough to be accepted. If your book proposal is accepted, you sign a contract and then your publisher or executive editor will work with you to determine a timeline and milestones for the book-writing process. Then you have to get busy and start researching and writing. If you prefer to outline your book first, this task must be accomplished early on.

 If you are writing non-fiction, there is a lot of research to do.  You must be able to write about a topic, plus back up your writing with facts and evidence, and perhaps some statistics.  You may even conduct interviews with experts and surveys for data. 

Armed with research, you begin the writing process.  If you have a full-time job, this means being disciplined enough to write on some sort of schedule whethe42RulesForSuperiorFieldService_Jacket_X1A_050313r it’s weekends or nights or early mornings.  Unfortunately, I find that after working all day, I am often too tired to write effectively at night.  This means that my writing time stretches out longer than it should.  Chapters that should take days to research and write often take weeks to finish.

Once the main body of writing is done, you must add “front matter” and “back matter” including an introduction, dedication, table of contents, appendices, contributors’ bios and an author’s bio.  You must also obtain endorsements from colleagues or well-known people who can recommend your writing.  Endorsements are printed on the back or inside flap of the book.

But don’t do a happy dance just yet…next comes the editing cycles.  First there is executive editing, where your editor reviews the manuscript and gives feedback regarding the content.  She makes suggestions about the flow and the way you have supported your information.  When she’s done, you have a few re-write cycles that may take many weeks to complete. 

After executive editing comes copy editing.  In this stage, the grammar and style sheet police pick at every period, awkward phrase, tense agreement, capitalization, etc.  The copy editor also checks facts and questions every detail that isn’t footnoted or attributed.  When she’s done you have several more re-write and correction cycles.

Finally comes the lay-out process.  Once again you edit the manuscript after it is laid out in book-form and again there are a few edit cycles.  Once you are satisfied, the book goes to print.  Only then you can do a happy dance!

Of course, once the book is published, the marketing cycles begin…

flag (2)There are some fundamental differences in business practices that you should know when working with Chinese suppliers.

Culture impacts everything

China’s 5000 year history and traditions affect everything.  The dichotomy of modern industrial China, superimposed with traditional values and approaches to doing business, is often a surprise to Westerners.

Guanxi is not networking

Guanxi is someone’s personal network and long-term trusted relationships between parties. It is not simple networking.  It involves a commitment over time. You cannot do business effectively in China until you build this type of trusting relationship.

Validate everything in writing

Even though there are more English speakers in China than any other country in the world, it is often a mixture of Chinese and English that is not understood by either party.  Just because a Chinese business person speaks English, does not mean he understands the nuance of the language.  Every detail of the contract, specifications for production, expectations, etc., should be put in writing, discussed and confirmed several times.

Contracts are viewed differently

In the Western world, contracts represent the culmination of negotiation on price, delivery, specs and other terms.  In China, a contract is viewed as just the beginning.  Just as an American high school student may view graduation as the end, parents view it as commencement or beginning.  A contract in China is a commencement and the start of real negotiations.

Quality fade

Quality fade, the process of quality degradation over time, is the single biggest issue in low cost manufacturing countries. It happens frequently in China where manufacturing processes are immature and competitive pricing drives the profits to extremely low levels.  You have probably noticed quality fade, but didn’t know what to call it, or understand how it happened.  Maybe you noticed a plastic shampoo bottle that seemed too thin.  Maybe that hand-held electronic game you put in your son’s Christmas stocking stopped working after a few days.  Maybe the zipper in your pants broke after a few zips. The initial production may have met all expectations, but over time, there was degradation in production quality.

Outsourcing and subcontractors

China business is typically a combination of primary manufacturers and many sub-contractors that provide parts and services.  Without regular monitoring of the production processes in China, this common practice of sub-contracting and outsourcing gets out of control.  US importers find it harder and harder to control quality over time and sustain delivery schedules from Chinese vendors.

Importers must remember that doing business in China is not at all like doing business in America.  The processes, culture and legal environments are a world apart.

I participated in the 2013 Bloomsday 12K run/walk in Spokane, WA on May 5.  This is an important and well-known road race, mostly because of the event’s size.  About 50,000 people participate from the surrounding areas and some from across the country.  It’s a fun event with bands and fans all along the hilly course and a big party at the finish line.

At about mile 5, while I was desperately trying to take my mind off my aching feet, I started to think about the supply chain support required for special events like this.  Bloomsday is exceptionally well organized and managed, and the supply chain challenges are especially difficult.

Just getting people lined up in the proper time/age groups at the start of the race is amazingly orde

50,000 runners start Bloomsday in Spokane

50,000 runners start Bloomsday in Spokane

rly and efficient.  And consider for example, making sure that there is enough water poured into cups and ready to hand to 50,000 people at 4 stations along the route.  Water is critical to keep participants hydrated in the warm May sunshine and for their successful finish of the race.  These are major logistics challenges of a huge event like this, and the Bloomsday logisticians did a remarkable job.

There are other considerations, too.  T-shirts at Bloomsday are legendary.  The design of the annual t-shirt is kept secret until race day, but behind the scenes, ordering 50,000 shirts must be a daunting task.  The tag inside my t-shirt says it was made in Mexico.  Sourcing t-shirts must have included months of planning for production and importing into the US.  The shirts (in the size we ordered) were available at organized distribution tables at the end of the race. 

These kinds of big events are akin to other supply chain challenges such as pumpkins and costumes at Halloween and Christmas trees in December.  It takes a lot of talent and effort to get the right products to the right place at the right time.  Bloomsday Supply Chain people are some of the best.  Well done Spokane Bloomsday, well done!

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