“Getting it there quickly is going to replace getting it there cheaply as the key consumer demand.”
Ed Yruma quoted by Courtney Reagen, CNBC, "Same-day delivery wars; the need for speed”
I am going to step out today and make some predictions on the future of manufacturing based upon the collapse in direct to consumer delivery times. In my last article, “Speed to Market and the Future of Manufacturing,” I made the point that direct to consumer shipping times are now beginning to be calculated in hours and even segments of hours rather than in days (Amazon proposes to get your order in one-half hour by drone). According to some, the demand for quickest is beginning to replace cheapest in how consumers calculate their purchase decisions.
I propose that the collapse in consumer time expectations may mimic the collapse in cost expectations that occurred in the 1980’s. Then it was Wal-Mart who figured out how to dramatically reduce costs, which had an enormous impact on how manufacturers rethought everything from package size to product size and more. Now it is Amazon with its goal to get products in consumers hands in as little as a half an hour.
Shouldn't we expect a similar impact throughout the supply chain? Aren’t retailers going to eventually mimic consumers in their expectation for far faster shipping times? Will suppliers and retailers continue to be willing to wait 30 to 60 days to receive an order from Asia?
With that in mind, here are some thoughts on what may happen:
1. Chinese manufacturers will build facilities in the United States
As far as the world’s play industry is concerned, China is one big factory. Initially based upon lowest price and now equally linked to its huge scale, the world’s toy makers and sellers have long seen China as an integral part of the supply chain.
If the companies and retailers are no longer willing to accept months to market, they are going to have to dramatically rethink their use of containers and ships. Therefore, I would not be surprised to see a Chinese company open if not a factory, an assembly point, in the U.S. After all, Japanese companies successfully moved automobile production to the US; why shouldn’t Chinese companies try a similar tack.
2. Local Manufacturing
We have for years been hearing about on-shoring (bringing manufacturing home) and it is beginning to happen but the combination of higher costs in China plus concerns about IP protection and shipping costs have made it increasingly attractive. Here is how Forbes writer Gary Wollenhaupt puts it in his article, “Why 'Made In The USA' Is Making A Comeback:” “ …more than half of U.S.-based manufacturing executives at companies with sales more than $1 billion plan re-shore production to the U.S. from China or are actively considering it, according to a 2013 survey by The Boston Consulting Group.”
In 2013 I wrote two articles (“Hong Kong + Shenzhen = San Diego + Tijuana?” and "Tijuana Wakes Up") on the rise of the San Diego / Tijuana region as a rising assembly manufacturing center. Among the reasons cited were a shorter supply chain and just in time manufacturing, reduced risks due to the nearness of American management and better comparable labor costs. When you add the need for speed, I think you may well see this area boom.
4. 3-D Printing
The wild card in all of this is 3-D printing. Whether through 3-D printing facilities in retail stores; specialized printing facilities like Shapeways and Kraftwurx or in people’s family rooms we could see a change that not only adds speed to market but challenges the very need for manufacturing, logistics and retailing. With in home printers now under $500 it’s becoming less science fiction and more reality.
Do you agree, disagree, have a different vision; what do you think?