Let’s think about localizing, not reshoring, as we build healthier supply chains
Here in Detroit, we celebrate when a new automotive manufacturing facility is opening or an old one is getting a makeover. It was good to learn that the $220 million Ford transmission plant in nearby Sterling Heights will be the first and only North American producer of front-wheel-drive hybrid transmissions, building what Ford previously sourced from Japan. Production will be located not far from final vehicle assembly in Wayne, MI. Detroiters are also happy about having the new 2013 Fusions and Mustangs built “downriver” in Ford’s renovated facility in Flat Rock.
Many plants opening here are suppliers from Germany, Japan, and the U.K. that make interior and seating systems, braking systems, powertrain components, lighting systems, body panels, fasteners, brackets—you name it. Faurecia is expanding its manufacturing of interior modules here. In May, Brose North America bought a 380,000-square-foot facility near Detroit Metropolitan Airport for making door modules and seat structures. Suppliers are shortening the distances between their production facilities and the assembly plants they will feed. What’s going on in Detroit is also happening in San Antonio, Indianapolis, and Spartanburg. Pretoria and Port Elizabeth in South Africa. Communities in Australia, Asia, Europe, and South America have their own centers of auto industry growth.
Decision makers up and down the automotive supply chain have realized that crunching labor rate figures is not sufficient for making sourcing decisions. They have learned:
1. Supply chains can be interrupted catastrophically at any time.
2. Tightly choreographed supply and inventory—call it Just-in-Time if you will—is unforgiving.
3. It really does cost money to ship things across the world.
4. It really does take time to ship things across the world.
5. It really does cost money for people to travel across the world, which they do more often than expected in order to make outsourcing work.
6. Brands are tarnished when companies move local jobs across the world.
I would call this model an integrated, localized, proximate supply chain. The dictionary meaning of “proximate” is: 1) probable, 2) nearest, 3) very close, and 4) about to happen. Stretching these definitions a bit, I think “proximate” translates to good supply chain strategy:
• It’s probable—less risky—that you will receive what you need.
• The nearest supplier has the simplest, least wasteful, and least costly way to transport what you ordered to you.
• Very close in distance is also closer in relationships—you communicate face-to-face more often and people get to know each other.
• About to happen – The beat of the supply chain cadence is ready to advance from one link to the next with the least delay possible.
Hear how Nissan hopes to achieve localization in Russia.
The echo of Henry Ford’s great River Rouge complex—where iron ore came off the boat at one end and new cars drove away from the other—is heard in all our new manufacturing development. That ultimate in vertical integration, with a single company doing everything from steel- and glass-making to polishing the fenders at the end of the line, is gone. Now a multitude of companies networked together allows innovation to emerge from every node, not true in the old days of top-down control. The process of linking the nodes with effective information networks is bearing fruit, and it’s becoming time to see the competitive advantage of geographic proximity for an entire supply chain.
Karen Wilhelm has worked in the manufacturing industry for 25 years. She publishes the blog, Lean Reflections, which has been named as one of the top ten lean blogs on the web.