The U.S. Manufacturing picture got a boost of confidence from Apple Inc. last week, as the company announced plans to bring manufacturing of one of its Mac computer lines back to the U.S. in 2013. Apple is prepared to invest $100 million in the endeavor, and will rely on partnerships with local suppliers to produce the Macs. Recently, Apple has moved some of the assembly of products like iMacs back to the U.S., and there are a number of Apple components already made in this country, including the A5 processor that powers all iPhones and iPads, and the glass from Corning that covers the iPhone and iPad. Additionally, several of Apple's global suppliers, including well-known Foxconn, operate plants in the U.S. This announcement represents a signal from Apple that the time is right for the manufacturing industry to reinvest in the U.S. as a location for producing goods.
At IDC Manufacturing Insights, my colleague Simon Ellis has been talking about the notion of profitable proximity sourcing for a number of years, and the news from Apple is yet another data-point highlighting the dynamics that are playing out in the global manufacturing environment. The inherent complexity of the extended global supply network is a consequence of globalization and the chase for low-cost manufacturing that drove much of the exodus of manufacturing from North America in the 1990s. Yet, the reality of those factors has created a lead-time lag in product sourcing that makes it very difficult for companies to be agile and responsive in the face of today's volatile demand trends.
As we are seeing throughout the industry, manufacturers and retailers and other practitioners have begun to recognize and measure the cost of these long lead-times, including the underlying costs of poor service levels and lower responsiveness. End-user supply chains are beginning to take a more flexible regional approach to sourcing and supply, with the goal of locating capacity closer to demand as a way to better respond to fluctuating consumer demand cycles.
Another good example of how a manufacturer is leveraging regional sourcing to deliver better service and local product mix to the consumer is New Balance. The sneaker manufacturer is an anomaly in the footwear industry because it is the only athletic shoe manufacturer still making shoes in the U.S. New Balance manufactures 25% (roughly 7 million) of the shoes it sells to the U.S. market in this country each year. The company leverages the agility of proximal sourcing to respond to market demands for specific sizes, and also offers an entire line of made-to-order customized sneakers to the U.S. Market.
A profitable proximity strategy will properly balance cost-optimized sourcing, lead time-optimized sourcing, and demand/supply balanced sourcing to provide a globally distributed supply network that best meets the business objectives for cost and service. It is important to point out that profitable proximity sourcing does not dissuade low-cost country sourcing, rather encourages it as part of a diversified sourcing portfolio.
Naturally, global supply network changes will not, and cannot, occur overnight. Cost optimization will still be a major driver throughout the supply chain, but manufacturers are beginning to redefine what is included in cost structures, beyond the very obvious labor and materials aspects, such as the cost of longer lead-times on demand, or the cost of lower service levels that result from these lags. Sustainability is also becoming a key sourcing consideration, and profitable proximity has the ability to satisfy green initiatives in the supply chain.
At IDC Manufacturing Insights, we expect to see more instances in the coming year of manufacturers that are relocating parts of their supply chain to optimize their omnichannel customer sourcing and fulfillment efforts, and some of these efforts will include re-shoring in the U.S. to better meet customer needs.