Companies in developed markets are increasingly nearshoring production as the labour cost advantages of manufacturing in places such as China have eroded, according to a new report.
Alix Partners’ report Homeward Bound said businesses in the US and Western Europe were facing a new challenge as they move production facilities closer to their main bases of consumption.
The difficulty is that not all local labour markets can meet rising demand, which means the onus increasingly falls on automation to offer a solution.
With automated technology such as robotics having made tremendous strides over the past five years, capabilities have dramatically improved and costs plummeted.
“Today this kind of technology can help manufacturers augment – or entirely replace – functions previously performed entirely by humans,” said the report.
“To exploit those technologies, manufacturers will likely have to make capital intensive investments.”
At the same time organisations need to understand that automation cannot replace a human workforce but rather would shift the focus to a new set of critical skills.
This means that as automation technology becomes more widely available and affordable companies will increasingly focus on developing and retaining employees who can be “aligned” with the tactical use of robotics.
In a 2016 survey of manufacturing and distribution companies serving North America and Western Europe, Alix Partners found 69% of respondents said they considered nearshoring a possible opportunity to meet US and European demand – up from just 40% in 2015.
More than two-thirds say they’ve nearshored in the past three years or plan to do so in the coming three years.
Companies are also reporting mounting labour challenges, especially when it comes to finding people to fill key manufacturing roles, such as process or product engineers, line operators and frontline supervisors.
“Those shortages may lead to higher-than-expected labour costs, reliance on contractors or temporary labour, and other ramifications that could make nearshoring less attractive for labour-intensive manufacturers going forward,” said the report.
More than 60% of respondents say they are building relationships with local education providers, 55% are increasing wages to attract additional candidates and 53% have internal apprenticeship programmes in place to address the shortages.
Two-thirds of respondents plan to invest a significant amount of future capital in robotics and automation technologies alongside production equipment and lines at existing facilities. A further 64% are planning significant investment in optimising their production footprints.