The trend in the global manufacturing industry focuses its attention on bringing manufacturing back to the United States, known as reshoring. The major cause for this decision is mainly due to the rising labor cost that occurs in places like Vietnam, China and other outsourcing countries. As NPR News stated, “… at least 200 companies have already returned, and there's been a dramatic jump recently in the number of companies saying they're seriously thinking about [reshoring] .” According to the Wall Street Journal, the increase in labor cost was made by the government to boost the domestic consumption and economy without relying too much on export . However, with the increase in wages, those countries are losing its competitiveness in the manufacturing industry. Multinational companies, especially from the United States, realized that the strategy of producing goods by outsourcing has become ineffective.
To gain a competitive advantage and increasing market share, a company must understand and analyze the strategy they choose in managing their total system. Reducing cost by moving production to a lower cost country is proving to be one of the many factors that contribute to the success of a company. There is no guarantee that a successful strategy will always work in the future or in the face of change. A strategy will only work for a certain period of time until variation in the global macro environment comes into play, such as the rising of labor cost. As Guy Morgan, the Managing Director and Global Operations Advisory Group Lead says, “those having a more macro view will do best. Additionally, those recognizing the needs of the global customers will do best, finally, those having the agility to move quickly with volume and market shifts will do best .” Thus a company that dealt with manufacturing sector must be flexible in facing an ever changing business environment.
In the last centuries, there are various developments in the manufacturing industry, and many organizations implement one of these well-known production methods: Six Sigma, Lean, Theory of Constraints and recently Labor Cost Reduction Model. Each of these methods has contributed major success to their inventor during their era. As a result, many books about these methods were written and many firms across the world have studied and tried to emulate the success of using these strategies. Each method has its own advantages and disadvantages in a certain situation. In this essay we will discuss how an organization could gain its market share through the utilizing operation strategy of either theory of constraint or labor cost reduction model.
Labor Cost Reduction / Production Cost Reduction Model
For the last decades, firms in developed countries were outsourcing its production to a developing nations such as India, Bangladesh, China, Vietnam and Indonesia. As discussed earlier, the main intention of this outsourcing strategy is to benefit from...