Reshoring operations back to the United States has recently emerged as an important trend in manufacturing. However, there are some significant challenges facing companies that have moved back or are planning to move back, challenges that present clear opportunities for cloud-based ERP software to provide solutions.
The Reshoring Trend
Industry analysts, even those who might have been skeptical over talk of reshoring, can now agree - reshoring is real. Over the past few years, an increasing number of companies have moved their previously offshored manufacturing operations back to America. Rising wages, increasing energy and transportation costs and poor product quality in countries such as China have convinced these companies that it makes sense to reshore back to the U.S., especially for products intended for the American market, which is not only the largest consumer market in the world but a large industrial market as well.
In fact, more than 200 companies have brought offshored production back to America since 2010, increasing the number of U.S. manufacturing jobs by 650,000 in a four-year period. Well-known domestic and foreign firms are helping to drive this reshoring trend. General Electric, Caterpillar, Siemens, Toyota and other Asian and European automakers are just a few of the companies who have moved or have announced plans to move manufacturing operations to America.
In a recent survey by The Boston Consulting Group (BCG), 24 percent more senior manufacturing executives at companies with sales of $1 billion or more would consider reshoring in the near future, and 54 percent said reshoring is an option.
The Challenges of Reshoring
Successful reshoring requires companies to achieve high levels of efficiencies in all areas of their operation. Specifically, reshoring companies need to speed up innovation to respond to rapidly changing markets, reduce inventories and lead times, improve product quality, reduce problems and other bureaucratic obstacles, and of course reduce costs everywhere.
In order to meet these challenges, companies are finding that they must increase efficiencies in every step of their supply chain and integrate their business processes to improve productivity. Design, manufacturing and distribution processes must all be optimized. Markets change very quickly, especially in the global economy. To remain competitive, companies must be able to change products quickly and easily while maintaining a high level of quality control. That’s where agile and lean manufacturing techniques enter the picture.
Agile manufacturing focuses on meeting the needs of customers while maintaining high quality while controlling costs involved in production. Companies using agile manufacturing have strong supplier networks and a number of teams that cooperate with each other work within the company to deliver products. These companies are able to retool facilities quickly, negotiate agreements with suppliers and partners to respond to changing markets, increase production on highly demanded products and redesign products when necessary.
Lean manufacturing is related to agile manufacturing, except that in lean manufacturing, the goal is to reduce as much waste as possible. Companies with lean manufacturing work to cut all costs that are not directly related to the production of a particular product. There are even some companies who have adopted both lean and agile manufacturing techniques, enabling them to develop more efficient processes across their supply chains to successfully respond to changing consumer tastes.
One aspect of this ability to change production quickly between products is scalability. Companies must be able to manufacture successfully produce different products quickly, often focusing on efficient, low cost manufacture of smaller runs of a product. The ability to scale operations up or down as required has become a critical component of success for many companies.
Many companies that have already moved their operations back to the U.S. have been using old on-premise ERP systems, believing that these expensive systems are enough to help them meet the challenges of reshoring. But these firms are quickly discovering that the older on-site systems are not helping them meet the efficient, productive, high quality and low cost manufacturing requirements of the modern global economy.
Through it all, reshoring companies are looking to reduce costs everywhere. After all, the reduction of costs is the main driver behind the reshoring trend.
Cloud-Based ERP Provides Solutions
Successful reshoring depends on increasing connections between steps in the supply chain and improving efficiencies to cut costs. Cloud ERP solutions can provide solutions to these challenges.
Cloud computing has made ERP for manufacturing a critical component in reshoring. The cloud provides centralized data storage, sharing of data-processing tasks and internet-based access to services and resources.
Cloud ERP systems are modular, letting firms implement only those modules that meet their requirements and providing seamless integration of company processes and workflows.
Cloud ERP frees companies from having to manage their system by themselves, allowing them to focus on more important parts of their business.
Cloud ERP offers a number of clear benefits to reshoring manufacturers:
- Visibility into every function across many departments - Cloud ERP software helps companies by providing visibility into every function across many departments. Cloud based ERP for manufacturing and ERP for wholesale distribution help reshoring companies manage their manufacturing, distribution and supply chain operations anywhere and in real time. Manufacturers and distributors can access a single system to coordinate multiple sites and services with centralized visibility across global operations. Organizations can then achieve much greater insight on what is happening or what will happen at each step of the manufacturing, distribution and supply chain processes.
- Increase the speed of innovation - The flexibility of the cloud and the speed of deployment make manufacturing systems well suited to cloud based ERP solutions. Cloud ERP systems are highly scalable, allowing companies to realize cost reductions while delivering new products to demanding markets.
- Improve productivity - Cloud ERP lets companies integrate their business processes seamlessly and improves productivity of the workforce through ease of use. Employees in all departments can enter data quickly and easily, resulting in more accurate data in real-time and faster decisions to help drive growth.
- Improve efficiencies - Manufacturing cloud ERP modules serve every step in the manufacturing process to increase efficiencies, control costs and ultimately increase revenue. Seamlessly manage sales orders by converting customer quotes into product orders. Purchase order management modules generate orders for suppliers. There are cloud ERP modules for production engineering, inventory management, lot and serial control, scheduling and capacity planning, and shop floor control. Material requirements planning (MRP) helps companies plan what to buy/make in time to build products. Manufacturing cost control and project control modules give companies finer control over costs.
- Mobile integration - We all know that businesses moving from desktop and laptop computers to smartphones and tablets. Cloud ERP systems are accessible from anywhere on a variety of devices, and the ability to integrate with mobile devices lets manufacturing and supply chain operations work with business operations from anywhere. When a company’s data is in the cloud, employees across the globe can access critical data from anywhere and become empowered to react quickly to any problems that may arise. Chances are that when reshoring is being attempted, not all of the employees of the new plant will be in the same locale as the plant and will require that efficient and effective mobile access that is available through Cloud ERP systems.
Many companies who have reshored or are planning to reshore their manufacturing have on-premise ERP systems. However, these companies have discovered that these systems are expensive to maintain and require regular updates. Cloud-based ERP software can be updated daily without the production delays that come with updates to on-site ERP. Manufacturers who move to the cloud gain real-time insight into operations, something older ERP systems simply cannot accomplish.
How effective are cloud ERP systems in helping companies reduce costs and drive revenue? Numbers don’t lie. A recent study by The Aberdeen Group comparing cloud ERP to on-premise ERP systems found that cloud ERP solutions are implemented, on average, in 63 percent of the time that it takes to implement an on-premise ERP solution. New organizations or first time ERP buyers, including companies with reshored operations, can get up to speed much faster.
The same study found that organizations with cloud ERP solutions achieve return on investment 75 percent faster than companies with on-premise ERP software. Finally, cloud ERP solutions can reduce a company’s IT department workload. Cloud ERP solutions outperform on-premise ERP solutions in IT workload reduction by 27 percent.
So reshoring is real, and the benefits of cloud ERP are significant. Vendors like Rootstock Software can help manufacturers successfully reshore by providing cloud ERP solutions that are configurable, scalable and adaptable. Organizations looking to reshore can count on Rootstock’s modular cloud ERP solution to give them the flexibility they need to accommodate any workflow, add new capabilities, quickly address changing market demands, and implement social collaboration. Rootstock software provides state-of-the-art manufacturing, distribution and supply chain apps that integrate out of the box with native sales and accounting apps.
Companies who have reshored, or are in the process of reshoring can rely on Rootstock Software’s unrivaled executive experience in software and established base of installed and implemented cloud customers. It is essential to reshoring to offer a better way to plan and execute critical manufacturing tasks, deliver essential information to all parts of the organization, facilitate timely and informed business decision making, and ultimately reduce costs and increase profits.
Pat Garrehy is the Founder, President and CEO for Rootstock Software.
ALSO READ: The Role Of Cloud Based ERP In Reshoring Manufacturing
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