Wednesday, May 18, 2011

Proximity Based Manufacturing Supply Chains as Trend of the Future?

The Economist proposes that the current trend in global manufacturing could shift based on the following priorities, other than labor arbitrages.

-Proximity to customers

Many multinationals will continue to build most of their new factories in emerging markets, not to export stuff back home but because that is where demand is growing fastest.

-Inventory Management

Firms are also trying to reduce their inventory costs. Importing from China to the United States may require a company to hold 100 days of inventory. That burden can be handily reduced if the goods are made nearer home (though that could be in Mexico rather than in America).

Read the rest here

Ballooning inflation means not only rising wages in Emerging markets which erodes the opportunities for labor arbitrage, but may also extrapolate to substantial increases in transportation costs which could alter the cost benefits of outsourcing.

So perhaps proximity based supply chains could be a dynamic that could gain a larger role in the future.

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