In a number of previous posting, I’ve argued that in the I-Cubed Economy manufacturing it tied closely to other production activities, such as product development and services. All of that argues for keeping manufacturing local. Here is another reason — financing (from the Your the Boss blog on the New York Times):
When you source your product from China, and need to wait up to 90 days for each order, you have to carry extra inventory as stock-out protection — another big hit to your cash flow. When you use a domestic supplier, you can turn to FedEx or UPS to solve your problem overnight. That means you don’t have to carry as much extra inventory.
With a long supply chain, an entrepreneur faces tough choices because the company’s cash is tied up with suppliers and customers. With credit still tight, companies can end up struggling to cover the inevitable cash shortfalls that come from growth. Some companies resort to doing things like factoring — borrowing off their accounts receivable at interest rates that can top 20 percent — or bringing in outside investors and private equity money, decisions that cut into either net income or equity.