US Groups weigh Asia as costs rise

Most big US manufacturing companies are considering relocating factories from low-cost Asian countries to the US or Latin America as they face rising logistics and transport costs, according to a report being released today by Accenture, the consultants.

The earthquake and tsunami in Japan, which have wreaked havoc on global supply chains, have underlined how multinational manufacturers can find themselves stranded without critical components.

For example, General Motors, the US carmaker, plans to stop production today at a factory in Louisiana that makes pick-up trucks, due to lack of parts normally supplied from Japan.

Boeing, the aircraft-maker whose 787 Dreamliner relies on Japanese manufacturers for more than a third of its parts, said it had enough inventory of components for the next few weeks, but was unsure of supplies beyond that. Jamco, the Japanese company that makes the 787’s galleys, warned that deliveries could be affected by fuel shortages.

Caterpillar, the world’s largest manufacturer of earthmoving equipment by revenues, said its factories around the world could be “sporadically impacted” by the disruption to its Japanese supply chain. The company has already located alternative sources for components produced by its Japanese suppliers.

The problems in Japan could prompt big manufacturers to reassess the risks in their global supply chains. The Accenture report suggests that, long before the earthquake, such companies were already looking at simplifying supply chains by bringing them closer to end-markets.

Some 61 per cent of manufacturing executives surveyed by the consultancy said they were considering more closely matching supply location with demand location by onshoring or “nearshoring” manufacturing and supply.

Matt Reilly, Accenture’s managing director of process and innovation performance, said that this could lead to a wave of factory relocations in the next three years as big US manufacturers move production from Asia to the US and Latin America. “In the past five years, companies were driving at labour cost arbitrage and lower material costs,” Mr Reilly said.

“But now that oil and transportation prices have gone up, productivity gains are not as big as they were, and there are issues around risk in supply chains, companies are starting to go where the customers are, instead of where the raw materials are.” He said the shift was also being driven by customer demands for quicker supply times and greater customisation.

“A lot of what’s going on in manufacturing innovation is about trying to get customer feedback quickly and injecting that back into the supply chain, so that features and functions can be changed quickly,” he said. “It’s tough to do that when you’ve got stuff going on in Thailand or Japan.”

A string of other international companies have also cautioned that their supply chains could be disrupted by the Japan quake, including Sony Ericsson, Volkswagen, Volvo and GKN, the UK car and aerospace components manufacturer.

Japanese companies are racing to reopen their plants at home, but they need all of their suppliers to reopen too. Nissan said it would restart five plants today, but only to make parts rather than assemble cars. Its output will depend on the supply of components and a sixth plant in Fukushima prefecture, near the stricken Daiichi nuclear plant.

For its study, Accenture surveyed executives at 287 manufacturing companies, most with headquarters in the US.