It can be tempting to outsource your supply chain: extremely cheap labor and production costs are incredibly enticing. But, unless your product is intended for an overseas consumer base, those are the only benefits you'll receive. The numerous hidden costs that can creep up on your business far outweigh those potential savings.
In fact, once the total cost of ownership (TCO) is calculated, you might not see any savings at all. If you want to know your TCO, here's a helpful estimator.
Here are some of the greatest benefits to keeping your supply chain local.
1. A local supply chain helps you be proactive rather than reactive.
Market trends can rise slowly and become the new standard for production - or they can appear in a flash and disappear just as quickly. Quickly shifting with consumer demand (or even leading a new trend) is how companies stay relevant and profitable.
It's simply impossible to do this when your manufacturer is overseas. You can't immediately take advantage of innovative new designs or processes when they have to go through ten different communication channels in multiple different languages to reach the point of production. You can't serve this new product to your customers in a timely manner when it takes upwards of 5-10 weeks to ship to your warehouse, nevermind the actual time to manufacture, assemble, and distribute.
When your supplier is local, you can have your flash of insight, make it actionable, and have it in the works within days. Shipping times are minimal, lead times are drastically reduced, and your product will hit the shelf long before your competitors can scramble to catch up.
2. It's great PR for your company.
People love local businesses. Not only are they willing to pay more for American-made goods, but they're also more likely to spread the word about locally sourced products.
You'll see political benefits as well. There's a lot of anger in American communities regarding local businesses getting pushed out by big corporations. Keeping your supply chain local means you're helping to support the local economy, and receiving the economic benefits in turn.
In general, it's very easy to use your local sourcing as a selling point.
3. You can take advantage of JIT and inventory management.
Inventory management is an area where costs can sneak up on you. Storage costs, higher risk of damage or loss, and slow turnover are only a few issues with poor inventory management. When you're sourcing locally, your manufacturer can work with you to create an optimized, high turnover inventory management plan that will help you cut costs.
You can also take advantage of JIT principles with your materials, manufacturing, and distribution. This means producing items on-demand, which helps you react quickly to changes in consumer needs.
4. You completely avoid the hidden costs and risks of distant outsourcing and offshoring.
There are always the obvious risks: long shipping times, high transportation costs, ridiculous lead times. However, there are an incredible number of hidden costs in offshoring that most companies don't notice until they're already stuck. Here are a few of the biggest hidden risks of offshoring.
A local supply chain means a stable vendor, quality assurance, and a highly innovative team manufacturing your product. The problems you can run into with American manufacturing are familiar and easily dealt with through laws, contracts, and other legal and social consequences.
A local supply chain keeps you relevant, flexible, and secure.
If you're currently offshoring your manufacturing, or you haven't yet committed to a manufacturer, consider the pros and cons of a local supply chain. You might be surprised how much your business can benefit from manufacturing in the USA.
(Editor’s note: This blog was originally posted in July 2016 and was recently updated.)