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Insourcing: A twist in the China plus one strategy

Products marked "Made in USA" are increasingly sharing shelf space with “Made in China” goods.

Although many US volume importers are “buying American,” turning the country into the poster child for insourcing, China still appeals to most buyers.

China manufacturing remains relatively inexpensive and, with proper long-term planning, cost efficient, both of which are critical as buyers continue to be price conscious.

For KuraDesign Handbags, having its handbags manufactured wholly in the US would have a heavy impact on quotes.

"The price would have to be doubled since the cost of bead work in the US alone already equals current production expenses," owner Margo Schlossberg said. "With their significantly better quality, the all-US bags could compete in a higher price niche but that is not how I built my business strategy."

Such concerns are the reason why some suppliers, including Celebriducks, continue to maintain factories in China even as they set up and operate manufacturing facilities in the US. Celebriducks actually allows its clients to specify where final production is to be done. Currently, 75 percent of the company’s sales are of China-made ducks. US models account for the rest.

Simple Wave LLC, a popular reshoring success story, still has customers in the US who prioritize affordability over country of origin. "I can even say that products with the Made in the USA tag are more popular among non-US buyers than those within the US," said co-founder Rich Stump.

Why insource at all?

For all the advantages China has costwise, manufacturers there are hard-pressed to match the convenience insourcing offers.

Procuring within the US means buyers get their products faster. "For small to midsize orders, price is not so much a factor as a shorter delivery lead time," said Ketch Rogers, marketing director of Monster Digital. The Simi Valley, California-based company designs and engineers advanced data storage and memory products.

Housewares supplier Simple Wave leverages its quick turnaround, between seven and 21 days, in attracting orders for its signature product, the CaliBowl.

The bowls are manufactured in a factory in Northern California. This allows Simple Wave to operate on a just-in-time delivery model and "respond quickly to our customers' special requests," Stump said. "We can, for example, get to the factory within minutes to try out new colors."

Boosting the convenience factor further, insourcing reduces transportation "headaches" such as the rising cost and duties of international shipping, and LCL shipping difficulties.

SEE ALSO: New online booking portal eases LCL shipping woes

According to Celebriducks founder Craig Wolfe, some US suppliers accept orders as small as 200 pieces and have these ready for delivery in just a few weeks. Celebriducks is based in San Rafael, California.

Speaking in 'tongues'

For US buyers, communicating with a US manufacturer is naturally easier when compared with discussing business with a China-based OEM supplier in English.

"When my Chinese contact speaks English, I really have to think about the way he communicates and make sure that everything is spelled out," said Schlossberg of KuraDesign. The company's headquarters is in Vienna, Virginia.

Describing a problem KuraDesign encountered with a China ODM factory, Schlossberg said, "The pink used was never of the same shade and the lining never matched the bag material. But when I spoke to the manufacturer about this, all my contact said was, 'Isn't pink pink?'"

For Amzer, Inc. CEO Pinakin Dinesh, having a US supplier means not worrying about not just the language barrier but the difference between two time zones as well. This is especially true during critical periods when time-sensitive or snap decisions have to be made.

Many buyers also believe US manufacturers, with their "think out of the box" approach, have an edge over makers in China where design work is more of logical.

"US suppliers' better understanding of the retailer and consumer perspective is helpful in design and engineering," Rogers of Monster Digital said. "This speeds up prototyping, sample development and delivery.

SEE ALSO: Creativity-It's not that they can't...

Buy cheap, get cheap

Quality issues are another reason US buyers are shifting to domestic sourcing.

Those on the buy side continue to equate China's relatively low prices with poor quality. This is despite the advancements manufacturers there have made in this regard and the options importers can take to ensure product quality

Concerns stem from the extra-long supply chain in China. The fact that numerous, often unnamed, vendors are providing materials and components used in manufacturing their product means buyers are unable to conduct QA completely and thoroughly.

A similar argument, however, can be made when it comes to US products.

Because certain materials and components are no longer made in the US in large quantities, some factories purchase requirements abroad. For reshorers, or manufacturers that moved production back to the US, this means retaining their current vendors, which are more often than not based in China.

SEE ALSO: Nesting challenges await manufacturers reshoring

Reshoring Initiative president Harry Moser said the alternative is to form a new network of providers out of the limited vendor pool in the US.

Mamahuhu Colombia, which has an office in Miami, Florida, is taking this option. “It is easier to find suppliers of genuine leather in the US than it is to locate vendors in China offering PU leather of comparable quality,” manager Jack Dorney said.

The search for and use of top-quality materials in the US, and high worker wages there are bringing up both production expenses and prices.

Nevertheless, a growing number of distributors, retailers and consumers are willing to shell out a few extra dollars for quality goods.

Luxury Daily observed the same in a September 2012 survey. About two-thirds of the US-based participants said they are willing to pay more for US-made products across all 10 pre-identified categories. The categories were baby food, home appliances, household furniture, car parts and tires, apparel and footwear, electronics, household goods, hand tools, toys and sporting goods, and mobile phones.

US insourcing, reshoring further

Thanks to the growing convenience and cost efficiency it provides, insourcing will remain on volume buyers’ agenda in months ahead.

In Global Sources’ latest importer survey, for instance, 86 percent of respondents said they will be increasing orders to manufacturers within their home countries even as they continue to purchase from China.

For US buyers, the reinvigorated domestic manufacturing industry plays a significant part in their decision to boost insourcing.

In turn, US production is expected to expand steadily as reshoring continues to gather steam.

Fifty-four percent of the US-based manufacturing executives surveyed by The Boston Consulting Group August 2013 said they are planning or actively considering moving back production to the US from China. BCG also noted a jump in the percentage of respondents whose companies are already reshoring or will be doing so in the next two years.

As with insourcing, reshoring evokes patriotism and nostalgia, particularly for certain labor-intensive industries that originated in the US then disappeared as factories moved offshore.

By moving back to the US, Celebriducks revived rubber duck manufacturing in the country. The company is said to be the only rubber duck supplier to carry out all production processes in the US. "For this, Celebriducks has been featured in books, magazines and newspapers, and on TV and radio," Wolfe said.

Click here to read the complete article on Global Sources.

Note: This article "Insourcing: A twist in the China plus one strategy" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through e-magazines and trade shows.

All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.

Disclaimer: All product images are provided by the companies interviewed and are for reference purposes only. Those product images featuring products with trademarks, brand names or logos are not intended for sale. We, our affiliates, and our affiliates' respective directors, officers, employees, representatives, agents or contractors, do not accept and will not have any responsibility or liability for product images (or any part thereof) which infringe on any intellectual property or other rights of a third party.

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