Global sourcing. First, it was off-shoring, then on-shoring, and now, right-shoring. Which is right? Simply, all are right. The decision on where to source material, components and products requires a look at the total cost and not just the BOM (Bill of Material) or product cost as delivered.

American manufacturers are getting smarter. Smarter about how we recognize all the costs that go into the number associated with the cost of sourcing material, components or product manufactured in one of the low labor cost areas of the world that have become so popular in the past decade.

What has been happening is the "soft" costs are ending up in overhead. We were not allocating (or knowing) the costs of increased air travel, spoilage, shipping damage and communication errors made along the supply chain put in place by global manufacturers.

Having uncovered and understanding all these added costs industry is doing the natural thing - overreacting. "Bring it all back!" Re-shoring has become the new buzzword and strategy. Before we let the pendulum hit us in the back of the head let's think about what we are doing. Who is the customer and where are they located in this global marketplace? We need to start with the customer and work backwards applying the KISS (Keep It Simple Stupid) principle. The conclusion one will usually arrive at is "Build It Where You Sell It".

Not just for the sake of a simple, efficient, low-cost supply and delivery chain, but also. the value of being close to your customer. Value such as being able to bring the client into your factory and your test laboratories; being able to have your production workers interact with customers and suppliers, soliciting all-important feedback for your product. These activities have significant value although they are more elusive than so many standard minutes of labor to machine a part.

Today's "right-shoring" is Build It Where You Sell It.

For a more detailed article on rooting out and finding these soft costs read (Industry Week) about Viatran, a worldwide maker of pressure and level transmitters for oil and gas services, steel production, injection molding, die casting, and chemical production industries.

CR4 would like to thank Larry Butz of GEA Consulting, for contributing this blog entry.