Production Moving Back to the US and Mexico

On Sept 19, the Chicago Tribune ran a story from McClatchy Newspapers on companies moving production from China to Mexico as the wage gap closes.

Interestingly, besides just the cost of wages, the article sites examples of some of the hidden fixed costs in production. For example, problems will always surface in a plant.  How much does it cost in terms of time, wear and tear, and money to get the right engineers to the plant to fix the problem.  The article quoted one firm saying that if there there is a problem in Mexico, the US engineers can leave in the morning and start working on the problem several hours later.  China requires much more.

This is similar to an article from the Wall Street Journal this summer where David Simchi-Levi’s study was quoted as showing that companies were moving production back to the U.S.  He called this “reshoring.”

Among the main reasons cited for reshoring: a desire to get products to market faster and respond rapidly to customer orders; savings from reduced transportation and warehousing; improved quality and protection of intellectual property.

In a very short time, the factors that determine where you should produce can change.  This also impacts your distribution network.  It is not clear what the landscape will look like three years from now, but these examples highlight the importance of network modelling.  A model of your business and the key drivers allows you to keep your supply chain as efficient as possible.