Over the last decade, many industries have increasingly looked to emerging markets as a base for cost-effective operations – and the pharmaceutical sector is no exception. Indeed, the ‘offshoring’ trend has spread through the sector, with pharma contractors and clinical research organisations often outsourcing to non-traditional countries, attracted by the available patient pool, healthcare systems and favourable regulations. Manufacturing and production companies have also been enticed overseas, especially to China, where lower labour, operational and infrastructure costs have proved a popular ticket.
However, a US initiative that aims to stop the high number of North American manufacturers moving their operations to other countries is now gaining momentum. Originally launched in 2004, the Save Your Factory campaign, organised by FANUC Robotics, seeks to educate manufacturers serving all industries about the benefits of returning to home shores.
According to the initiative, the appeal of emerging markets has run its course for manufacturers. Those working overseas now face additional burdens, such as an extremely long supply chain, long inventory delays, high shipping costs and the growing problem of intellectual property theft – concerns which are bringing many companies back to the US.
As well as highlighting these hidden costs, the campaign emphasises the advantages offered by robotics and automation solutions, which it says can help manufacturers stay viable and globally competitive by remaining based in the US. Most of the followers and supporters of Save Your Factory are equipment suppliers, system integrators, government representatives and associations.
The initiative argues against companies manufacturing in low-wage markets for the following reasons:
- High costs associated with importing products, such as high taxes, inventory delays, inability to maintain and monitor inventories, and intellectual property concerns
- Exposure to the effects of volatility in exchange rates with other major currencies (1)
- Fuel and transportation costs are at an all-time high
- More difficult to implement and maintain quality control policies and procedures, leading to an increased risk of poor product quality and potentially affecting large inventories in transit
- The inability to respond to surges in demand by implementing shorter product pipelines
- The low-cost real estate across the US
As the campaign explains, companies must consider the implications on their bottom line, and manufacturing locally instead of overseas can cut these costs significantly.
In addition to high fuel and transport costs, it is becoming difficult to monitor quality in products shipped from overseas. High transportation costs come into play again if damaged or badly manufactured products must be shipped back to an overseas manufacturer. There will also be lost transit time.
Another consideration is that, as consumer demand changes, companies based overseas may face greater costs in implementing changes due, for example, to slower reaction times and language barriers.
Furthermore, corporations lose money and their customers grow impatient when they have to wait for products to arrive from overseas. Long delays and great distances also make it difficult to track and correct problems when they arise. The instance of intellectual property theft, a relatively new concern among manufacturers, can be discovered, stopped or prevented more efficiently on domestic soil, says the initiative.
An added incentive for US companies based in China to return home is the new laws in place for overseas employers and foreign nationals to contribute to Chinese national healthcare. Recently introduced legislation indicates that “companies could pay roughly 37 per cent of monthly income per employee, and employees in turn could pay 11 per cent, representing potentially hundreds of dollars per month per worker” for healthcare if you are a foreign national employer or employee working in China (2).
The Boston Consulting Group reports that “products that require less labour and are churned out in modest volumes, such as household appliances and construction equipment, are most likely to shift to US production” – and pharmaceutical manufacturers could well follow suit (3).
The initiative also argues for the increased use of robotics and automated solutions within domestic manufacturing, as they can compete – and often win – against overseas manufacturing, when total manufacturing and distribution costs are carefully evaluated. In particular, high-speed, highly repetitive cost-effective robots are now available for picking, packing and assembly applications that were previously done manually and cheaper in emerging markets.
Marketing and international business specialist Andrew Thomas states in an IndustryWeek forum that “in a globalised economy, using robots might be one of the best ways for US manufacturing jobs to live, thrive and survive”, because robots allow companies to remain competitive and grow while cutting costs (4). By implementing robotics solutions, workers can be moved to better, more skilled locations.
Other initiatives have been launched to support the drive to encourage businesses back to the US. These include the Bring Jobs Back to America Act introduced in 2012, which proposes creating repatriation task forces to identify opportunities for moving manufacturing back to US soil and potentially providing tax breaks for returning firms (5).
1. Dollar charges to 3-year highs vs major currencies, Reuters. Visit: www.cnbc.com/id/100871329
2. Tberezowsky, China imposes health care tax – Is this enough to reshore US manufacturing operations? 1st June 2011. Visit: http://agmetalminer. com/2011/06/01/china-imposeshealth- care-tax-is-this-enough-toreshore- us-manufacturing-operations
3. Made in the USA, again: manufacturing is expected to return to America as China’s rising labor costs erase most savings from offshoring, 5th May 2011. Visit: www. bcg.com/media/pressreleasedetails.aspx?id=tcm:12-75973
4. Thomas AR, Robots save and create mfg jobs. Visit: http://forums. industryweek.com/showthread. php?t=22011
5. Tice C, Moving factories back home, 19th April 2011. Visit:http:// corp.americanexpress.com/gcs/ insideedge/articles/movingfactories-ct.aspx
Save Your Factory urges US manufacturing companies to recognise automation, robotics and efficiency measures such as lean manufacturing as more cost-effective and profitable alternatives to offshoring. It implores corporations to examine all the factors associated with manufacturing success – not just the initial short-term investments. The initiative was set up in 2004 by FANUC Robotics. More information is available at www.saveyourfactory.com