Over the past 2 decades, many American companies have chosen to move their manufacturing practices abroad to countries like China, or Mexico, where the cost of labor is or at least was significantly lower.  Recently, however, something has changed and offshore manufacturing costs have begun to rise, particularly in China.  This leaves the window open for the United States who has recently seen a decrease in labor costs given the past influx of manufacturing plants popping up abroad.  In addition to high labor costs most companies have also chosen to manufacture abroad because of U.S. tax policy.

So why have manufacturing costs increased abroad? Experts speculate that maintaining an extremely long supply chain and inventory pipeline along with intellectual property theft have driven costs up, making it easier for companies to return.  In May of 2009, AlixPartners LLP, a consulting firm based in Southfield, Michigan, released its AlixPartners 2009 Manufacturing-Outsourcing Cost Index, which shows a significant change in the aggregate Low-Cost Country (LCC) manufacturing rankings within just the first six months of 2009, as Mexico surpassed both China and India for the components studied. Outsourcing has become “a whole new ball game” according to Stephen Maurer, a managing director with AlixPartners.

With new tariffs, taxes, and employee salary and benefits laws that took effect January 1, 2009, many OEMs have had second and even third thoughts about keeping manufacturing in China. China, which was once the cheapest place to manufacture has fallen to third place behind India, and Mexico which is now number one due to lenient tax laws and still-low labor costs.

Hy-Lite Blocks, a division of US Block Windows, recently moved it molding operations back from China to its company headquarters in Pensacola, Florida.  Company president, Roger Murphy, thinks that the move will improve the company’s bottom line.  “About 60 to 70 percent of the blocks we sold came from China,” says Murphy. “[This involved] a long, complex supply chain, and complicated inventory planning and forecasting, and as oil got more expensive, so did shipping costs, effectively eradicating any cost savings that we were realizing.”

Cutting manufacturing and other ERP costs could allow you to devote more time and resources to developing a better customer relationship strategy.  Where does your business manufacture its goods?