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Reshoring – An Opportunity to Redesign Processes to Lower Total Cost of Ownership

March 7th, 2012

Reshoring - Process Redesign to Lower TCOThe drive to reshore goods, and services, for the US market builds every day.  Growth in emerging markets is driving up local wages.  The decline in the value of the dollar has increased the cost to produce abroad for import back to the US.  The need to provide faster AND better delivery makes for a increasingly powerful competitive advantage.  The ability to manage shorter supply chains increases quality.  These and other factors are driving more ompanies to look at reshoring opportunities.

A critical element in a reshoring decision is a Total Cost of Ownership analysis.  Made popular by the Gartner Group when attempting to capture all the costs of software and IT systems over the product’s life, it is an excellent concept to apply to reshoring as it goes beyond a simple vendor price or internal transfer price by looking at overall system costs.  At a personal level, think how we apply it when comparing cars for purchase. We incorporate costs to maintain, operate, insure, finance and, eventually, what we get back when we dispose of the car.  Total cost of ownership …. not just purchase price.

Reshoring to Lower TCOReshoring provides a unique opportunity to lower the Total Cost of Ownership as the existing supply chain and internal production processes can be designed with a blank slate.  The iterative redesign that first occurred when it was offshored and then occurs again when reshoring can leverage past experience, and work with a blank slate.

For example, we have a client which offshored a production line to capitalize on lower direct labor costs.  After a severe fire in the offshore facility, they decided to bring the line home.  They performed a Design for Lean analysis on the entire process and lowered the cost to a level significantly less than the pre-fire offshore line.

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Another client brought back its customer service operations.  Again, through a redesign process and armed with clear Voice-of-the-Customer (VOC) about their offshore facility, they were also able to lower its costs and increase customer satisfaction, thus significantly lowering their Total Cost to Service.

Redesigning a production line or a service delivery process are great opportunities to really pour through VOC and design the value streams and supporting processes with a clean slate.  Clear VOC, strong design capability and application of lean skills can collectively be used to take advantage of declining costs in the U.S. and better meet customers’ needs thus lowering the Total Cost of Ownership.

If you would like to discuss these topics, feel free to contact me.

  1. March 27th, 2012 at 15:28 | #1

    Hi John – I work for a titanium supplier and manufacturer here in Houston, TX. The re-shoring movement is great for the US manufacturing sector and for US workers. Its time we realized that wages are by no means the only cost to production. Focus on the manufacturing workforce if also necessary – we must focus on educating the future generation of manufacturers so that we’ll be able to fill these new jobs with people who are qualified to perform them.

    Anyhow, thanks for sharing! – Aly

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