If you read most business publications, then you’ll likely see an article on the Reshoring trend; companies moving manufacturing closer to the end user. In general, can manufacturers didn’t succumb to the offshoring trend and are not involved in reshoring, but no doubt they are impacted as suppliers make this shift. Where has offshoring or reshoring impacted your operations?
According to a Deloitte report released late last year, 62% of manufacturers have started the process of reshoring or near-sourcing production capacities closer to the US. By understanding the motives behind this trend, we stand to gain valuable insights into the future of the industry.
Let’s look at the key factors driving the reshoring/near-sourcing trend:
Supply Chain Resilience
Recent global events, such as the COVID-19 pandemic and trade wars, have highlighted the vulnerabilities of extended supply chains. Delays, disruptions, and the uncertainties inherent in international logistics have underscored the need to de-risk supply chains. By reshoring or near-sourcing, manufacturers can ensure a more dependable supply chain.
Quality Control and IP Protection
Producing goods closer to home allows manufacturers to exert tighter control over quality, reducing the incidence of defects and the corresponding costs associated with reworking or scrapping materials. When production takes place close to home, manufacturers generally have better control over intellectual property rights, reducing the negative impact of IP infringement.
Labor Cost Parity
Historically, offshoring was driven by cheaper labor costs, but that dynamic is changing. As wages rise overseas and automation becomes more prevalent, the cost advantage of offshoring diminishes. This makes the economic case for reshoring or near-sourcing more compelling.
Consumer Preferences and Market Responsiveness
American consumers are increasingly valuing “Made in USA” products due to perceived quality and a desire to support local industries. Reshoring enables manufacturers to respond quickly to market demand, offer faster delivery times, and capitalize on the premium associated with domestically made products.
As sustainability becomes a greater priority, many companies are assessing the environmental impact of their operations (ESG). Long-haul shipping and discrepancies in environmental regulations overseas can contribute to a larger carbon footprint. Reshoring can lead to greener manufacturing processes and a reduction in transportation emissions.
Incentives and Policy Changes
Government incentives, tax breaks, and other policy changes are making it more attractive for companies to bring manufacturing jobs back to their country. These initiatives can offset some of the costs associated with reshoring and make the financial argument for the move stronger.
The growth in automation, AI & advanced analytics, and sophisticated manufacturing technology has allowed manufacturers to produce more efficiently and compete aggressively with low-cost overseas producers. These technologies level the playing field and, in some cases, give a competitive edge to domestic production.
While the COVID-19 pandemic may have served as a catalyst for many manufacturers to re-take a fresh look at reshoring and near-sourcing, the trend is rooted in a broader, strategic reevaluation of manufacturing priorities. It combines economic, strategic, environmental, and consumer-driven forces that make a compelling case for manufacturing closer to home.