If you’ve been following Amazon at all, you know that the company is starting to move to a more distributed model. Instead of having a few gigantic distribution centers in low-cost states, the company is setting up a bunch of smaller ones, near major metropolitan areas, so people who live in those areas can get their stuff faster. And, as per usual, our beloved Amazon is ahead of the curve.
Now, McKinsey & Co. is saying that manufacturing is going the same way: Moving the manufacturing either to where the raw materials are, or to where the consumers are, so they can cut the cost and time of distribution – a process it calls “next-shoring.”
In its report, Next-shoring: A CEO’s guide, McKinsey goes into some detail about this. For example, while manufacturers may still be building plants in China or India, it’s not because of the low wages in those countries. Indeed, the company says, wages in China have nearly doubled since 2008. Instead, it’s because the plants are making products intended for the Chinese and Indian markets.
A number of factors are influencing this move, McKinsey says, ranging from energy availability and costs, to a lack of skilled employees for a larger factory, to the development of technologies such as robotics and 3D printing that require fewer employees to begin with.
The smaller factories also help companies pivot more quickly in response to market changes and technology innovations, McKinsey says. “[E]volving demand from new markets places a premium on the ability to adapt products to different regions and where emerging technologies that could disrupt costs and processes are making new supply ecosystems a differentiator,” the company writes.
Moreover, consumers in other countries are no longer satisfied with buying the same products that are made for markets such as the U.S., but are demanding products tailored to them. “The regional, ethnic, income, and cultural diversity of markets such as Africa, Brazil, China, and India (where some local segments exceed the size of entire markets in developed nations) is raising the ante for meeting local demand,” McKinsey writes. “In the automobile industry, for example, fragmenting customer demand has led to a 30 to 50 percent increase in the number of models.” And, the same goes for the U.S. Increasingly, U.S. consumers want to buy local; they want to buy from American mom and pop manufacturers and distributors just like you (queue Springteen’s “Born in the USA”).
So, why is this so important? Consumers from all over the world are going to expect this level of flexibility and personalization from all of their manufacturers. It will become the new normal. In order to keep up, small business manufacturers and wholesale distributors must embrace a new mind set – one that centers on one thing and one thing only: technology.
Steve Leavitt, GM of U.S. Cloud Solutions for Exact