This is the second article in the series and will answer the question: “Why Onshore to Australia?” with discussion of what cost justification strategies can be employed to pave the way to onshoring to Australia.

In this series of articles covering onshoring to Australia, I will be discussing what it means and how Australian companies can really benefit from the process of onshoring. The benefits to the Australian worker may be obvious, but how can Australian companies justify the expense of making significant changes to their supply chains to onshore to Australia? This is the second article in the series and will answer the question: “Why Onshore to Australia?” with discussion of what savings can be realised by Australian companies onshoring portions of their supply chain to Australia.

As Australian companies’ onshore portions of their supply chains there will be significant benefits across the Australian economy.  Onshoring manufacturing operations like machining, plastic moulding and metal fabrication will benefit Australian companies through reduced costs and risks, described in detail within this paper.  Over time other related business activities, with greater value add, will join the onshoring journey as well. The traditional smile curve comparing the value added at different stages of the product life cycle is shown in Figure 1. When many product manufacturing orders started moving to Asia, manufacturing was the main service offering . Decades ago, the switch to Asia for manufacturing was driven solely by cost savings. Vertical integration of other services like research and development and detailed design wasn’t something that companies would go to Asia as a source. Today that has changed. As suppliers in Asia grew and looked to increase their ‘value add’, engineering and design services became available and associated with manufacturing in Asia.   

Figure 1, The Smile Curve

• LinkedIn

Suppliers in Australia have the same opportunity to increase their value add within product life cycles with onshoring. Over time, suppliers that first provide machining, moulding and other manufacturing services will add additional services creating higher paid positions. This is why it is vital to Australia’s future technological growth to foster increased capabilities and capacities in the manufacturing sector.  More about this later.

How are Australian companies thinking about onshoring related changes to their supply chains? It’s understood by most that onshoring would be good for the country and the workers, but what are companies planning to do? A survey of 500 senior manufacturing employees in Australia was conducted by research agency OnePoll in December 2020. According to a statement from PROS, the research found that:

• 55% of manufacturers intended to reshore operations within the coming three years
• 22% had already reshored, with nearly half of companies’ overall manufacturing capacity (48%) targeted to return to Australia by 2023
• 78% believed Australia had the technology, people and economy to support the industry ‘boom’

Nearly two-thirds of American manufacturers are “likely” to bring production and sourcing back to their home continent, according to a Thomas survey.

Why Onshore to Australia?

Some companies may decide to mandate use of Australian suppliers when the procurement costs are within a certain percentage of alternative sources. Some governmental entities have mandated Australian sourced,

Queensland Transport and Main Roads Minister Mark Bailey said “The Palaszczuk Government has made a commitment that by 2025 every new urban bus we add to the fleet in SEQ will be zero-emissions, by 2030 we’ll roll that out to the rest of the urban fleet – and of course we want them to be built here in Queensland” These measures are good for Australian suppliers and workers of course, but how does a company cost justify onshoring?

Onshoring does not have to mean that a company’s entire supply chain needs to exist within the county’s borders/shores. For most companies this would be impossible. Rather, onshoring changes should reduce cost and, or risks for the company sufficiently enough to justify the effort of making the changes. Most companies make business decisions based on a cost vs benefit analysis often referred to as a return on investment. Businesses will also apply this type of analysis to their onshoring to Australia decisions. Turns out there are many ways for a company to cost justify making changes to their supply chains to onshore.

Over the past several decades supplier selection decisions have been primarily based on one over driving factor: Cost of the part. Not the whole cost of ownership, just the price per unit. Many purchasing agents (buyers) didn’t understand the full cost ramifications of the supplier selections that they were making. In many companies, buyers were (and still largely are today) siloed away from operations, engineering and quality departments. This siloing blocks a buyer’s ability to see the bigger picture regarding costs, and buyers often don’t know what questions to ask. These costs are often referred to as ‘hidden costs’ and in some cases will be greater than the purchase price of the goods or services.  Leveraging a more sophisticated procurement model for supply chain management needs to be adopted so that the total cost of ownership is used to make supplier selections. 

Let’s examine the ways in which a company can financially justify Onshoring to Australia in six areas: