Would Reshoring Benefit Your Manufacturing Business?
By: Dean Simmons
Last year, U.S manufacturers were on pace to reshore 350,000 jobs back home from overseas, the highest number in decades, according to Wall Street Journal (WSJ) reporter Dion Rabouin.
The decision to reshore is influenced by various factors such as labor costs, supply chain disruptions, logistics, intellectual property (IP) protection, political factors, and market dynamics. American companies have generated higher profits for decades by offshoring jobs to foreign countries with lower-wage workers.
Pandemic Exposes Supply Chain Weaknesses
A resurgence in the idea of reshoring surfaced during the COVID-19 pandemic, with many companies looking to avoid the widespread disruptions they encountered in their manufacturing businesses due to weaknesses in their supply chains. And with labor costs rising in China, as well as ongoing trade tensions, U.S. manufacturers had a desire for more control over their supply chains.
Some companies who faced supply chain challenges during COVID-19 prompted them to reconsider their manufacturing strategies. However, it’s important to note that the extent of reshoring from China can vary by industry, company size, and geographic location. Reshoring is not a one-size-fits-all solution and depends on multiple factors specific to each company’s circumstances.
According to Rabouin of the WSJ, over the last decade GE Appliances, Stanley Black & Decker, and Caterpillar each reshored about 2,000 jobs. Other American companies, like Intel and Micron, have announced plans for new U.S.-based manufacturing facilities with jobs that have previously been done overseas.
The COVID-19 pandemic showed many companies their just-in-time supply chains were not strong enough or capable of handling a major disruption. Something had to be done to mitigate a repeat of such a worldwide phenomenon. In addition, geopolitical situations and uncertainties had the potential to adversely affect business operations.
Current global concerns of many industry leaders include the growing tension between China and Taiwan, the war in Ukraine, the U.S.-China trade war, and tariffs that make it more expensive for companies to ship their products around the world. Even extreme weather conditions are disrupting supply chains.
Newly passed congressional legislation offering tax breaks and other incentives is also fueling the reshoring efforts of manufacturers. This can be a major boost for the economy as American companies look to build and expand their organizations while foreign companies seek to establish or grow their presence in the U.S.
The Automation Factor
In his reporting on reshoring for the WSJ, Rabouin references MIT economics professor Daron Acemoglo, who has determined that a lot of what is motivating and encouraging a reshoring trend among U.S. manufacturers is automation. Acemoglo says that while automation can replace or augment workers in specific areas of production, it can also create jobs as more companies expand their operations and need workers to manage and operate equipment, robots, and other types of technology.
Professor Acemoglo concluded that “the overall trend of American manufacturers opening up new factories and expanding their operations, either through reshoring efforts or the result of legislative incentives, is something the whole U.S. economy should be excited about.” The implementation of automation measures will be a key element in this resurgence of the manufacturing industry.
However, like any business decision, reshoring has its advantages and disadvantages.
Advantages of Reshoring
Reduced transportation costs: By manufacturing domestically, companies can save on transportation costs associated with shipping goods from overseas. This can lead to significant savings, especially for heavy or bulky products.
Shorter lead times: Local manufacturing enables shorter lead times, allowing companies to respond quickly to market demands and changing customer preferences. Faster delivery times can lead to improved customer satisfaction and increased sales.
Enhanced quality control: Having production facilities closer to the home country allows for more effective quality control measures. Companies can closely monitor and address quality issues, reducing the risk of defects and product recalls. Improved quality can strengthen brand reputation and customer loyalty.
Greater intellectual property protection: Reshoring can provide better protection for intellectual property rights. In some offshore manufacturing locations, IP theft and counterfeiting can be a concern. By bringing production back home, companies can better safeguard their proprietary technology and trade secrets.
Job creation and economic benefits: Manufacturing reshoring can create job opportunities domestically, supporting local economies, and reducing unemployment rates. It can contribute to economic growth by generating income, tax revenue, and encouraging investment in related industries.
Disadvantages of Reshoring
Higher labor costs: One of the primary reasons companies moved manufacturing offshore was to take advantage of lower labor costs. Reshoring often means higher labor costs, which can reduce profitability and increase the final cost of products for consumers.
Skill gaps and labor shortages: Reshoring may face challenges related to the availability of skilled workers. If the necessary skills are lacking in the home country, companies may struggle to find qualified employees, leading to potential delays and increased training costs.
Infrastructure and setup costs: Establishing or expanding domestic manufacturing facilities can involve significant upfront costs, including infrastructure development, equipment purchases, and process optimization. Companies need to carefully evaluate the financial feasibility of reshoring to ensure a positive return on investment.
Disruption to existing supply chains: Shifting production from offshore locations to the home country can disrupt established supply chains. Companies may need to renegotiate contracts, find new suppliers, and adjust logistics operations. This transitional period can be challenging and lead to temporary inefficiencies.
Global market access: Manufacturing reshoring may limit access to certain global markets. Being physically closer to customers in one country may result in higher tariffs, trade barriers, or logistical challenges when exporting products to other regions. This can impact a company’s ability to compete in the international market.
Connecticut Manufacturer Reshores
Carey Manufacturing has been supplying catches, latches, and handles for military, aerospace, computer, electronics, telecom, automotive, and consumer applications since 1981 at their Cromwell, Connecticut facility. In 2015, Carey began reshoring their products from China.
The company invested nearly $3 million in laser cutters, a nitrogen generation system, and a new quality inspection area. It took a few years to streamline the process, but reshoring has created 10 new jobs and now 90% of Carey products are made and assembled in the U.S. at their Cromwell shop. The business is fully dedicated to manufacturing American-made products.
Ultimately, the decision to reshore manufacturing is complex and depends on various factors specific to each company, industry, and market. Companies need to carefully assess the advantages and disadvantages in light of their unique circumstances and long-term strategic goals.
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