What Do You Do If the US is a Low Cost Manufacturing Location and Source of Cheap Energy?

This post is brought to you by Northwestern University MEM professor and author of the book Supply Chain Network Design, Michael Watson.

Two recent MEM blog posts talked about the fact that the U.S. is becoming a lower cost manufacturing location and a source of low-cost energy.

As an engineering manager, what should you do about this?

The simple answer is that you should make more in the U.S. or look for new low cost U.S. suppliers.

And, this is what some firms are doing.  A major retailer recently told me that they were finding more low cost suppliers in the U.S.—years of improving their business coupled with a closing of the wage gap made these suppliers less expensive than their competitors in China.  And, chemical companies are already starting to make major investments in new plants.

It can go even deeper.  Another recent article talked about the trend to move production closer to the markets to avoid hidden fixed costs like quickly being able to fly an engineer to a plant to fix a problem.

But, from a management point of view the answer is not always that simple.  A lot of these articles are written for a U.S. audience that wants to hear about an increase in U.S. manufacturing.  However, many firms have a global customer base, fixed plant investments, and different products with different types of products.

To do what is right for your firm, the changing energy prices, wage gaps, and hidden costs are important to consider.  But, you must also factor in where your customers, where the growth is, and conditions around the world.

In the end, what you want to do is consider the full supply chain and determine a good strategy for where you will make each product and how you will get it to the market.  This is covered in-depth in the book, Supply Chain Network Design, and I cover this strategic topic in the Operations Excellence class this winter.

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