09 October 2013

Reshoring: Buzzword or Reality?

Reshoring is jargon for bringing manufacturing back from China. It is happening in the US, driven by a combination of higher labour costs in China and lower domestic energy costs from fracking. Intangibles, like the efficiencies from having design and production in the same facility and lower costs of automation, also have a bearing. IKEA has recently opened a factory in North America, to cut its delivery costs to that market.

In our own area of third-party logistics (3PL), we are finding that doing pick-and-pack in Auckland is now costing not much more than doing it in Shanghai. We expect the Chinese cost advantage to disappear altogether before long, as their labour costs continue to increase in double digit annual percentages. The transit time from our distribution centre (DC) in Shanghai to retail stores in New Zealand is counted in weeks, while that from the Auckland DC is counted in hours. The best solution is to operate a mixed service, where some base lines are packed in China while others, more time-sensitive, are stored at destination for rapid fulfilment.

Speed to market is becoming increasingly important. Zara, a giant Spanish clothing retailer, spent a lot of time and money setting up a system to attach security tags in the DC, as the normal practise of having that task done by employees in the stores added a few intolerable hours to final availability. Their garments are, in the main, put through a steam tunnel and shipped in hanging bags, ready for retail on arrival. This method is now used by most large European retailers, as the mall rents are too high to waste precious floor space preparing garments for sale. This trend is also developing in New Zealand.

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