Should You Consider ‘Reshoring’ Despite the Cost?

By: Charlie Bogoian, VentureBeat

The business world has been lamenting over the past few years that the US has shifted from being a country that makes things to a country that largely makes its things somewhere else. With the cheaper labor costs of many developing countries — not to mention the new technologies that make managing such relationships easier — outsourcing and offshoring have become prevalent among growing US businesses.

But we’ve started to see manufacturing work (and jobs) slowly but surely “reshoring” back to the U.S. For startup entrepreneurs, this is a very good time to evaluate your supply chain. You may find some advantages to moving production back to the U.S. that could take your business to the next level.

Why we “reshored” our manufacturing

Our company, Kenai Sports, creates 100 percent sustainable clothing made from waste and post-consumer content harvested from landfills. And like so many others in the labor-intensive apparel industry, we started off manufacturing abroad for the typical reasons. Hats that cost $0.45 to make and T-shirts that came in at under $1.00/piece were a siren’s song for an upstart apparel company.

But we very quickly determined this was not going to work in the long run. With issues like unreliable communication and extended lead times, customer satisfaction was quickly waning. Avoidable mistakes (like off-center logos, printing errors, and not-so-straight seams — all indistinguishable in photos provided by manufacturing) prevented us from realizing the cost advantages we anticipated. And those problems were coupled with an overall lack of accountability that showed no sign of changing.

Our frustration lead us to a brainstorming session where we unanimously decided to “reshore.” Here are the some of key benefits we identified:

  1. Lead time: First and foremost was a drastically-improved supply chain. We cut our average lead time in half while simultaneously gaining the ability to collaborate and monitor quality control at levels unprecedented for our company to date.
  2. Sales: A major portion of our work comes from collegiate athletic programs, and to be able to produce a sample in a week, as opposed to a month, made the sales process markedly easier.
  3. Customer retention: Customer satisfaction and retention rates also saw a substantial uptick, both of which are integral for success in almost any startup, regardless of what you’re making.

But what about the cost?

It turned out that the higher production costs were well worth our drastically improved supply chain and happier customer base. Since we openly strive to be sustainable in both product and process, reshoring falls right in line with our company values. We now have a transparent operation we can confidently state emphasizes a strong social element in the production process.

Luckily, we also have a customer base that values our reshoring enough to pay a slight premium for this service. By working with us, forward-thinking schools like Babson College — a key partner in innovation and sustainable product development — see their own purchase decisions as a chance for further education. And top-level decision makers, like Babson’s athletic director, use Kenai’s focus to prove that competitiveness through innovation really works.

These results are by no means unique to Kenai. According to recent Boston Consulting Group research, more and more consumers in the U.S. (80 percent) and abroad are willing to pay a premium for products made in the U.S.

Should you reshore your manufacturing?

The short answer is, it depends.

Reshoring is by no means an end-all solution, and for many businesses, it still makes sense to produce abroad. But it’s worth noting that in more than a few developing countries with a strong manufacturing presence, a thinning labor supply and a recent (and much-needed) spotlight on worker’s rights means costs are on the rise — a trend that looks as if it will continue. This may make reshoring more financially justifiable.

It’s also an ethical choice: According to a report from the Clean Clothes Campaign, more than 500 Bangladeshi workers have died in factory fires since 2006. This number includes the November 2012 disaster at the Tazreen Fashions factory, where over 110 workers were killed. A December 2012 New York Times article placed blame squarely on factory management for the extremely hazardous working conditions and lack of safety protocols. But more importantly, it exposed the lack of transparency in apparel manufacturing – U.S. retailers that were selling the apparel made at Tazreen Fashions had no idea that’s where their clothing was made (nor would they have known had it not been for the fire). As media outlets continue to expose horrific events like this, retailers are forced to accept an unprecedented level of accountability for their sourcing decisions.

If you run a young company that may realize some of the same benefits we experienced, we strongly suggest investigating this option even further. Even in this “new economy,” targeted investment into an underutilized sector of the “old economy” may provide shockingly positive results.

Charlie Bogoian is one half of the visionary entrepreneurial team behind Kenai Sports, the award winning “sustainable sportswear” brand. Recently named one of Connecticut’s “Social Entrepreneurs of the Year,” this Babson College grad is a passionate ally for sustainability initiatives across the globe. Phil Tepfer, cofounder and CEO of Kenai Sports, also contributed to this article.

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