White Paper
From Supply Chain to
VALUE CHAIN
From Supply Chain to Value Chain
FROM SUPPLY CHAIN TO VALUE CHAIN:
The value of regional manufacturing alliances
in the American Reshoring Trend
According to Industry Week, the rise of a more technical labor force to manage
supply chain operations — combined with rising wages in Asia, higher shipping costs
and the need to accelerate time to market to meet retailer and consumer demands —
has led to more companies shifting their manufacturing strategies from outsourcing
overseas to developing products closer to where they will be sold.
“Reshoring, or "next-shoring" as this tactic has been dubbed,
allows manufacturers to increase the speed at which product is
replenished on warehouse and store shelves. The faster
inventory can be moved to the consumer, the sooner the
costs to warehouse, ship and dock goods can be freed up.”
This game-changing trend is giving rise to collaborative
regional manufacturing alliances that leverage advanced
technical expertise, accelerate design to production speeds
and deliver higher quality products to end users.
Traditional O.E.M. supply chains have favored off shore
manufacturing when the differential in labor rates and low
trans-ocean shipping costs have offset the advantages of
producing goods “closer to home.”
Clearly, Asia has been a global force influencing the
traditional manufacturing supply chain. However,
production costs in Asia are increasing due to a variety of
factors such as rising energy and commodity costs, as well as real estate and
building costs associated with setting up new manufacturing infrastructures.
Further negating the perceived competiveness of outsourcing to Asia is new labor
laws which will likely push manufacturing costs even higher as the
employee/employer equation tilts more in favor of employees, guaranteeing better
working conditions and pay.
As firms within the supply chain have become more specialized, the relative
importance of the roles of individual firms within these chains has changed. A new
approach has transformed the relationship of companies in a supply chain from one
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From Supply Chain to Value Chain
based on transactions to one based on adding value through strategic collaboration.
In the value chain model, individual companies leverage their unique capabilities and
knowledge – including innovation capacity – to add value to the end product,
regardless of where in the supply network they are located.
The growing trend toward “open innovation,” where companies look beyond their
organization’s borders for ideas, will provide new opportunities for SME’s with
innovation capabilities to adopt the value chain model and enter this promising arena.
Moreover, competition based upon providing the lowest priced products ignores an
emerging move toward localization of sourcing, which is being pursued more
aggressively due in part to higher energy costs. Fully-landed costs of imported parts
and products are becoming more expensive and the future outlook tends to favor
more local or regional sourcing.
Trans-ocean shipping and international communication have indeed become
relatively inexpensive in recent decades, opening up lower cost sourcing options.
Therefore, offshoring, reshoring or keeping the status quo are very important
decisions for many American companies. The outlook for manufacturing activity in
the United States depends on numerous factors, including the state of the global
economy, so where will manufacturing growth take place in coming years?
It’s wise to avoid such generalizations as “America manufacturing is dying” or
conversely, US manufacturing is roaring back!” Too many economic complexities
affect offshoring, reshoring and in-house manufacturing decisions so it’s important to
look closely at each company’s unique situation and market. In the past year,
however, US manufacturing production has increased faster than real GDP growth,
part of its cyclical recovery according for Forbes.
The American Reshoring Outlook
The improved logistics of collaborative regional manufacturing alliances overseas to
serve those local markets can offset reasons to move manufacturing to/back to the
US. This fact obviously bodes well for the reshoring efforts of those US companies
with strong domestic markets. It’s all about adding value through strategic,
specialized collaboration. Again, in the value chain model, “individual companies
leverage their unique capabilities and knowledge – including innovation capacity – to
add value to the end product, regardless of where in the supply network they are
located.”
According to Bill Conerly writing in Forbes, “Reshoring will continue, but not across
the board. The greatest reshoring will occur in industries that benefit most from cheap
natural gas and have access to global markets. These are chemicals and metals
(both primary manufacturing and fabrication). The other major industrial user of
natural gas is glass and ceramics, but these are not traded much internationally due
to high shipping costs.
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From Supply Chain to Value Chain
“Reshoring will also continue for products that change rapidly, including fashion
apparel and technology, but whose product value/weight ratios do not justify air
freight. It will be less pronounced in sectors with strong foreign demand for the
products. Why shut down a Chinese plant if Chinese demand for the product is
increasing? However, reshoring may occur in cases where total demand is rising.
Instead of closing the foreign factory, a domestic U.S. factory will add to capacity.”
As the world is in a constant state of flux, it’s important to continually study and
reevaluate overseas manufacturing. In the final analysis, it’s all about total cost of
ownership. Many companies make the mistake of determining sourcing decisions on
price alone. When it comes to something as highly impactful as where to
manufacture, it’s critically important to aggregate all costs and risk factors for more
objective and accurate decision making.
VITEX ALUMINUM MANUFACTURING SOLUTIONS
“Synergy in aluminum extrusion and downstream manufacturing.”
Vitex Extrusion is a dynamic aluminum extrusion company with a synergistic approach to
downstream manufacturing. We provide system integrators, OEM’s and other manufacturing
companies complete aluminum extrusion and component solutions from design support &
prototyping to full scale component production and supply chain integration.
Through ongoing investments into new aluminum extrusion, machining and fabrication
technologies, we’re continually advancing our nimble,
flexible and scalable capacity to meet our customers’
extrusion and component manufacturing
requirements.
We serve companies in many diverse markets such
as electronics, sporting goods, solar energy, fiber
optics, thermal management, utilities and
construction. We continually evaluate business
opportunities that can expand our product and service offerings.
Manufacturing Synergy
We define manufacturing synergy as a business model where the value and performance of
two distinct manufacturing processes – aluminum extrusion + aluminum fabrication, integrate
into a single manufacturing operation that can offer greater realized customer value and
performance, than two or more companies, with single production process focuses.
Our continued expansion in aluminum extrusion, downstream manufacturing and supply
chain services translates to increasing the value we add to each customer’s business. By
maintaining strategic excess capacity for sudden shifts in volume, Vitex is prepared to keep
pace with design changes, prototyping and production fluctuations.
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