The global chip crisis appears to have reached a crescendo. Opinions vary on how long it will last. Analysts with optimistic estimates are betting on improvement in early 2022, while those with more pessimistic outlooks are placing their bets on late 2024. Though it’s likely the reality lies somewhere in between, the forecast disparity is a testament to how uncertain the situation remains.
Surprisingly, supply chain uncertainty has spawned certainty about one thing: the dangers of U.S. dependency on China-based high-tech manufacturing. “America First” is rapidly becoming a supply chain battle cry. Incentivized by massive government subsidiaries, policymakers, and industry leaders across the political spectrum are crossing party divides and beginning to function as a unified front to drive a resurgence in domestic manufacturing. But although the U.S. appears to be headed in the right direction, not even corporate recipients of massive government subsidies can move quickly enough to stop the bleeding. (Take Intel’s two new $20 billion Arizona-based fabs that won’t be fully operational till mid-2024.)
Domestic Investment and Global Supply Chain
Despite the political, economic, and supply chain decoupling we’re seeing between the U.S. and China, this doesn’t imply that offshoring is going the way of the dinosaur. Offshore manufacturing will likely always play a key role in U.S. economic might, so the problem isn’t one of either/or but of both/and. The global supply chain will remain just that: global, but it will be characterized by increasing degrees of decentralization aided by the latest in blockchain technologies. For example, at Pivot International, we leverage this both/and approach with 320,000 combined square feet of domestic and offshore manufacturing capability.
Diversified Sourcing is About Much More Than Managing Risk
Even if a supply chain utopia existed, access to a diversified supply network — including domestic and offshore manufacturing options — represents a company’s best bet at driving cost-efficiencies and managing risk.
The Advantages of Domestic Manufacturing
Independent of its role in managing risk and reducing U.S. dependency on China-based suppliers, domestic manufacturing delivers a host of advantages that can make it a superior choice in any supply chain climate. These advantages include:
The U.S. is one of the few countries that does not levy Value Added Tax (VAT), the tax applied to almost every link in the broader supply chain. Because VAT can apply to so many variables, companies often underestimate its cost and impact on their investment. Partnering with a domestic supplier can circumvent many VAT costs and better protect your margins.
Avoiding or Reducing Tariffs
Working with a domestic manufacturing partner for all or part of your product development needs can eliminate tariffs or significantly reduce them.
Keeping Container and Shipping Costs in Check
In the wake of “Containergeddon,” the role of domestic manufacturing in making an end-run around these risks is now painfully obvious. But putting container shortages and the resultant sticker shock aside, domestic sourcing can help companies avoid ocean container costs altogether, which are among the heftiest shipping expenses.
Manufacturing in the American Midwest — Often a Superior Solution
When it comes to cost-competitiveness, Midwest manufacturing can often outperform coastal manufacturing for two reasons. First, because the midwest is a central hub for logistics and e-commerce, it beats the “In” and “Out” costs of almost any other area of the country.
Second, coastal cities almost always represent the greatest concentration of wealth (and thus notoriously high costs of living.) This means that the operational costs of coastal manufacturing can be much higher than in the midwest, and these costs are passed along to customers. At Pivot, our customers have often been surprised to receive quotes from us that have been dramatically lower than those they’ve received from coastal manufacturers. And among other benefits of manufacturing in the Midwest, they appreciate how easy it is to be quickly onsite in our Kansas, Nebraska, and Missouri facilities within a matter of hours from anywhere in the U.S.
Domestic Manufacturing Is Assuming Unprecedented Importance
With port disruption, supply shortages, and trade tensions mounting, domestic manufacturing is assuming unprecedented importance. And this recognition is driving extensive investment in the sector for the first time in decades.
At Pivot, we are proud to be playing a role in securing U.S. supply chains and providing our clients with multiple solutions to complex NPD and sourcing challenges. With nearly fifty years of experience across fourteen industries, industry-leading Design-for-Manufacturing talent, and a one-source business model to simplify and streamline your NPD, we are the U.S.-based global partner you’ve been looking for.
If you’d like to learn more about how we can help you move your NPD successfully forward, contact us today for a no-cost consultation!
We look forward to working with you!