In recent years, there has been an emerging reshoring trend among U.S. manufacturers. The Reshoring Initiative, a non-profit organization, estimates that from 2021 to 2022, the number of new U.S. jobs from reshoring and foreign direct investment increased by nearly 35%.
Reasons to use domestic sources
The COVID-19 pandemic exposed serious supply chain risks associated with offshoring. For some manufacturers, reshoring can help avoid supply chain disruptions and reduce transportation and shipping costs. Other factors contributing to the reshoring trend include:
- Incentives for domestic manufacturing, including the federal CHIPS and Science Act and the Inflation Reduction Act, as well as state and local incentive programs designed to attract businesses;
- Wage inflation in foreign countries, which reduces the benefits of offshoring;
- The U.S.-China trade war, which has resulted in tariffs and other restrictions that increase production costs for U.S. manufacturers;
- Increasing political and public pressure to keep manufacturing jobs stateside; and
- Desire to gain more control over product quality, improve responsiveness to customers, protection of intellectual property and support local and national economies.
Another option is “near-shoring” — that is, relocating manufacturing operations from across the world to a nearby country, such as Mexico or Canada. Near-shoring to Mexico, for example, can provide many of the benefits of reshoring, including reduced supply chain risk, while providing access to a skilled, but perhaps more cost-competitive, labor pool.
Related Read: Manufacturing Evolving from COVID-19
Bringing operations back to the United States is not without its challenges, including the continuing shortage of skilled labor. A way to address this problem can be to embrace new technologies — such as automation, robotics, the “Internet of things” and artificial intelligence — to boost your workforce’s efficiency and productivity.
Another challenge is the cost and risk associated with relocating. For example, many experts advise manufacturers relocating from China to leave before announcing the move. Otherwise, their intellectual property, money and other assets — including personnel — may be at risk.
Consider the tradeoffs
Manufacturers contemplating reshoring should evaluate the pros and cons. Although reshoring may not immediately be the lowest cost option, the benefits of greater control and reduced risk may justify the investment.
For more information, contact Andy Dombro at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing and Distribution Group.