Intro to Reshoring
Understanding What Reshoring is and its Significance to America’s Future Success.
Reshoring involves bringing manufacturing and services back to the U.S. from overseas. This practice boosts local economies, improves supply chain reliability, and creates jobs, making it essential for national economic stability and growth.
Reshoring – What it is and How It Works
The term reshoring is simply used to explain the process of returning domestic product manufacturing from a foreign country back to the home country of where the business’s products are sold. Reshoring is the opposite of offshoring, a strategy that has been prevalent over the last few decades where companies moved their manufacturing operations overseas to take advantage of lower labor costs and other economic benefits.
Reshoring reflects a paradigm shift as companies reconsider the total cost of ownership and the strategic benefits of localizing their supply chains. This process can involve relocating entire production facilities or just a portion of the manufacturing operations. By bringing production back home, companies aim to improve control over their manufacturing, reduce risks associated with long supply chains, and align more closely with consumer preferences for products made in their own country.
Reshoring is also seen as a response to the evolving global economic landscape, characterized by rising labor costs in traditional offshoring destinations and increased emphasis on sustainability and ethical manufacturing practices. More on these issues in future classes.
Every Master Class needs a guest lecturer. In the field of reshoring, no one has worked as hard, for so long, evangelizing reshoring than Harry Moser, Founder of Reshoring Initiative (www.reshorenow.org). The HermitCrab Team considers Harry a friend and mentor, and often turn to him for advice and guidance. Much of the content for today’s lesson came from his content-rich website. Thank you, Harry.
The Reasons for Reshoring
30 years ago, you could sum up offshoring manufacturing to distant lands for any or all of three reasons, lower operating costs, CAPEX asset elimination, or access to new markets. Times have changed, and now there are many reasons to bring manufacturing back to the US, hopefully for good, and globalization winds down and global instability increases. Here is a top ten list:
1. Lead Time Reduction: One of the primary reasons businesses engage in reshoring is to significantly reduce lead times. Manufacturing products closer to the point of sale minimizes the transportation time and eliminates the delays involved in international shipping. This reduction in lead times allows companies to respond swiftly to market changes, fulfill customer orders faster, and improve overall supply chain efficiency. In industries where speed to market is critically important, such as fashion and electronics, shorter lead times provide a valuable competitive edge.
2. Higher Product Quality and Consistency: Reshoring can result in higher product quality and consistency. Domestic manufacturing facilities often have stricter quality control standards and more advanced technology. This ensures that products meet the high-quality expectations of consumers, which is crucial in maintaining brand reputation and customer satisfaction. In addition, closer proximity to the end market allows for better communication and quicker resolution of any quality issues that may arise, further ensuring consistent product standards.
3. Rising Offshore Wages: The economic advantage of offshoring has been diminishing due to rising wages in traditional low-cost manufacturing countries like China and India. As these economies develop, the cost of labor increases, making it less financially attractive for companies to maintain production overseas. Reshoring becomes a more viable option as the wage gap narrows, especially when considering the additional costs associated with transportation and tariffs.
4. Skilled Workforce: The availability of a skilled workforce in the home country can be a significant motivator for reshoring. Developed economies typically have a well-trained labor pool with the necessary technical expertise to manage advanced manufacturing processes. By reshoring, companies can leverage this skilled workforce to improve productivity, innovation, and the overall quality of their products. Moreover, investing in domestic training and development programs can further enhance the local talent pool, creating a sustainable cycle of growth and expertise.
5. Local Tax Incentives: Governments often provide various tax incentives and financial support to encourage companies to reshore their operations. These incentives can include tax breaks, grants, and subsidies that reduce the overall cost of setting up and running manufacturing facilities domestically. Such financial incentives make reshoring a more attractive and economically feasible option for businesses.
6. Image of Being Made in USA: Products labeled "Made in USA" carry a strong appeal and prestige that can enhance a company’s brand image. Consumers often associate domestically produced goods with higher quality and are willing to pay a premium for them. This positive perception can drive sales and customer loyalty, making reshoring a lucrative marketing strategy. Additionally, promoting products as locally made aligns with the growing consumer trend towards supporting local economies and sustainable practices.
7. Lower Inventory Levels, Better Turns: By manufacturing domestically, companies can better manage their inventory levels and improve inventory turns. Shorter supply chains and reduced lead times allow for more accurate demand forecasting and reduced need for large stockpiles of inventory. This leaner inventory management leads to lower carrying costs and minimizes the risk of obsolescence, contributing to overall business efficiency.
8. Better Responsiveness to Changing Customer Demands: Domestically located manufacturing facilities enhance a company's ability to adapt quickly to changing customer demands and market conditions. With shorter communication lines and quicker production turnaround, businesses can innovate and introduce new products faster. This agility is crucial in today’s fast-paced consumer market, where trends change rapidly, and the speed of response can significantly impact market share.
9. Minimal Intellectual Property and Regulatory Compliance Risks: Offshoring has often introduced risks related to intellectual property (IP) theft and complex regulatory compliance. Reshoring mitigates these risks as companies operate within the familiar legal frameworks and IP protections of their home country. This security is particularly important for high-tech industries and companies with proprietary technologies, ensuring that their innovations remain protected, and compliance standards are met without the added complexity of navigating foreign regulations.
10. Improved Innovation and Product Differentiation: Reshoring fosters a closer connection between R&D and manufacturing teams, facilitating better collaboration and faster implementation of innovative ideas. Proximity allows for quicker iterations and refinements in the product development process, enhancing the capacity for innovation. This constructive collaboration can lead to unique product offerings and differentiation in the market, giving companies a competitive advantage.
Why Reshoring Makes Sense for America
Reshoring is the fastest and most efficient way to strengthen the U.S. economy because it:
Helps Balance the Trade and Budget Deficits: As a rule, we should make as much as we can in the US, regardless of simplicity or mundaneness of the product produced. Reshoring can contribute to balancing trade and budget deficits by reducing the reliance on imported goods and increasing domestic production. When companies bring manufacturing back to the U.S., it decreases the trade deficit by cutting down the volume of imports. Simultaneously, it boosts exports as American-made products find markets both domestically and globally.
Reduces Unemployment by Creating Productive Jobs: One of the most direct benefits of reshoring is job creation. Bringing manufacturing back to the U.S. generates new employment opportunities in the manufacturing sector, ranging from production line workers to skilled technical positions. This job growth has a multiplier effect, stimulating additional employment in related sectors such as logistics, retail, and services. As a result, reducing unemployment enhances household incomes and stimulates economic growth.
Motivates Skilled Workforce Recruitment: Reshoring demonstrates that manufacturing is a viable and growing career path, motivating skilled workforce recruitment. This visibility can attract a new generation of workers and encourage investment in vocational training programs. When young people see stable, rewarding career opportunities in manufacturing, it can lead to increased enrollment in technical education and apprenticeship programs, ensuring a steady supply of skilled workers for the future.
Helps Maintain Industrial Capability for National Defense: Maintaining a strong domestic manufacturing base is essential for national defense. Reshoring helps preserve the broad industrial capabilities required to produce critical defense materials and technology. Dependence on foreign manufacturing for defense components can pose risks to national security, especially in times of geopolitical tension. By ensuring that these capabilities remain within the U.S., reshoring supports the country's ability to respond to defense needs swiftly and independently.
Does Reshoring Work? 4 Case Studies
There are many examples of companies successfully reshoring manufacturing back to the US, but there can (and will) be thousands more. We are looking at 10-20 years of an explosion of output within the US manufacturing base. Want some examples? Check these out!
Brooks Brothers: Brooks Brothers reshored 70% of suits from offshore locations due to rising wages, quality issues and lead-time, increasing jobs to 530 workers at their Haverhill, Mass. plant. Learn More Here
GE Appliances: Owned by Haier Group, GE Appliances has reshored thousands of jobs back to their original Appliance Park location in Louisville, KY, making washer/dryers, refrigerators, and dishwashers. Learn More Here
Liberty Tabletop: Greg Owens founded Liberty Tabletop when the parent company decided to move offshore, building a famous brand of products using modern manufacturing and marketing techniques. Learn More Here
Bath and Body Works: Consolidated global supply chain, ten disparate suppliers, 5000 employees into a 160-acre campus in Ohio. Perhaps the best example of reshoring, at scale, in the last 10 years. Learn More Here
Thank you for Reading!
Hopefully, you now understand reshoring, why it matters, and have examples to prove it works. We hope this was an informative read.
Tomorrow’s topic, Rethinking the Offshore Paradigm, will hopefully dispel the primary reasons for offshoring in the first place.
Thanks for reading,
The HermitCrab Team
