In recent years, the landscape of global manufacturing has been undergoing a significant transformation. Once driven by the allure of lower production costs and vast labor pools overseas, American companies are now reconsidering their strategies and turning their gaze back home. This shift, known as reshoring, is not merely a trend but a robust movement aimed at revitalizing domestic manufacturing.
Driven by a variety of reasons, such as the need to strengthen national security, reduce supply chain risks, and respond to the growing consumer preference for “Made in USA” products, the manufacturing industry is quickly making its way home. Advances in technology and automation have also made domestic manufacturing more viable and cost-effective.
In recent data provided by Medius, a survey showed that 69% of U.S. manufacturers had begun reshoring their supply chains, with 94% reporting success in doing so. Apple, for example, shared that its suppliers had invested more than $16 billion over the past five years to relocate production away from China to several other countries, including the United States.
But why is this happening?
Whilst reshoring can be extremely costly, with labor costs potentially being three times as high, reshoring has many benefits:
Firstly, reshoring has the ability to enhance supply chain efficiency, strengthen supplier relationships, and improve customer service, by reducing lead times, improving inventory management, and minimizing manufacturing and service disruptions.
Reshoring also reduces dependence on specific regions and countries. Due to the COVID-19 pandemic, vulnerabilities and risk regarding global supply chains were highlighted, leading many companies to return their manufacturing to the US. In addition to this, wars in Europe and the Middle East have also made trading routes unsteady, making reshoring more desirable.
New laws in the United States have also driven the resurgence in onshoring, providing incentives for companies bringing their business back home. The 2021 Bipartisan Infrastructure Law provides significant infrastructure investment, including funding for road and bridge improvements and transportation enhancements, which is expected to create numerous jobs in the manufacturing industry. Additionally, President Biden’s incentives to reshore semiconductor manufacturing through the CHIPS and Science Act of 2022 have led to a sharp increase in the construction of chip fabrication plants in 2023. The 2022 Inflation Reduction Act also aims to curb inflation by funding investments in health, medical, energy, and climate programs with approximately $369 billion. Each of these acts includes stipulations for the production and procurement of U.S.-made products and components, benefiting companies that manufacture domestically.
Reshoring can significantly enhance a company’s brand reputation and credibility by ensuring tighter quality control, adherence to standards, and consistent product quality. When manufacturing is brought back to domestic facilities, companies can closely monitor each stage of production, ensuring that every product meets rigorous quality standards. This increased oversight reduces the risk of counterfeits, imitations, and substandard products, which are often associated with offshore manufacturing due to varying regulations and oversight capabilities.
Finally, reshoring manufacturing to the USA can vastly improve communication and collaboration by eliminating time zone differences and language barriers, and by facilitating face-to-face interactions. Being in closer geographical proximity allows for real-time communication and quicker decision-making processes. This improved collaboration can lead to more efficient problem-solving, enhanced innovation, and better alignment between production and business goals, ultimately driving higher productivity and product quality.
Although reshoring seems to be receiving considerable support from both private and public sectors, along with government investments, domestic manufacturing still faces considerable challenges so here are some things to consider when looking to reshore our manufacturing.
Reshoring generates new job opportunities and supports economic stability; however, companies’ reshoring may face challenges such as skill gaps, limited workforce availability, and the need for extensive training, especially when specialized skills are required. To overcome this, companies must invest in training and collaborate with educational institutions to ensure a skilled workforce.
While reshoring can bring production closer to home, thereby reducing some international logistics challenges, it can also create new dependencies. Companies may find themselves reliant on a smaller pool of local suppliers, which can heighten the impact of any disruptions in the supply chain. If a local supplier faces issues such as production delays, financial instability, or capacity constraints, it can directly affect the company’s ability to meet its production schedules and quality standards. Additionally, local suppliers may struggle with scaling up operations to meet increased demand, leading to potential bottlenecks. Quality assurance becomes a critical concern, as any inconsistencies in supplier performance can compromise the overall product quality. This necessitates stringent oversight and robust quality control measures to ensure that local suppliers meet the required standards consistently.
Reshoring can also result in higher labor, operational, and production costs compared to offshore locations, potentially affecting cost competitiveness, profitability, and pricing strategies. It often requires significant investments in infrastructure, technology, equipment, and workforce development, leading to increased capital expenditures. Additionally, reshoring may limit a company’s ability to compete in some offshore markets. Higher domestic costs arise from paying higher wages and benefits and dealing with increased operational expenses. These can challenge a company’s ability to keep prices competitive, affecting market share and profitability. Moreover, substantial investments are needed to upgrade facilities, purchase new equipment, and train the workforce, straining financial resources.
However, with strategic planning, investment in technology and training, and support from government incentives, reshoring can be a viable and beneficial strategy. By bringing production back to the United States, companies can not only strengthen their operations but also contribute to the broader goal of revitalizing American manufacturing, fostering economic growth, and ensuring greater national security. The trend of reshoring is a testament to the evolving priorities of businesses, reflecting a shift towards sustainability, resilience, and quality in the global manufacturing landscape. As this movement continues to gain momentum, it holds the promise of a more robust and self-sufficient manufacturing sector, capable of meeting the demands of the future.
With thanks:
Covid Is Fading, But Reshoring Isn’t (forbes.com)
U.S. Manufacturers Reshoring, But It Will Take A Long Time (forbes.com)
