Supply Chain Simplification from Reshoring
Shorter Supply Chains Generate Multiple Benefits
Reshoring manufacturing to the United States offers numerous advantages, particularly in simplifying the supply chain. This strategic move helps businesses expedite production, control costs, and enhance overall efficiency. Simplification involves reducing the number of steps required in the supply chain, minimizing the distance goods travel, and streamlining control points. It also allows for rapid changes to orders, reduces in-transit damage, and cuts down on import tariffs and dock fees. Additional benefits include enabling smaller order sizes, direct-to-store shipments, eliminating the need for emergency air freight, and promoting ESG (Environmental, Social, and Governance) principles. These elements collectively contribute to more sustainable, responsive, and efficient supply chains that meet modern market demands.
Ten Benefits Explained
1. Financial Benefits: The first and most obvious benefit of reshoring’s effect on Supply Chain Logistics is costs. While labor is usually the driving factor for reshoring in the first place, and the primary driver of total landed cost, the price of logistics usually comes in second. While other benefits listed below will provide additional details, the expected cost savings from reshoring manufacturing include the elimination of several transportation nodes (shipment to dock, dock management, ocean cargo charges, and US dock management), inventory carrying costs, management costs, carrying costs, reduced/eliminated air freight, and reduced in-transit damage.
2. Steps Required: Reshoring significantly reduces the complexity, and the number of steps involved in the supply chain. When production is domestic, companies can cut out various intermediaries like international logistics providers, customs brokers, and multiple warehousing stages. This streamlined process reduces administrative overhead and potential points of failure. Businesses can achieve faster production cycles and quicker time-to-market. Simplified steps also facilitate better communication and coordination within the supply chain, ensuring more cohesive operations and efficient problem-solving. Fewer bureaucratic hurdles mean more straightforward compliance, helping companies adhere to local regulations more effectively.
3. Distance Traveled: Manufacturing domestically reduces the distance goods must travel from production to market, leading to several logistical advantages. Shorter travel distances lower transportation costs and reduce the time products spend in transit, which enhances delivery predictability and reliability. Companies can also mitigate risks associated with long-distance shipping, such as customs delays, geopolitical tensions, or natural disasters. Additionally, shorter supply chains are less susceptible to global supply chain disruptions, leading to increased stability. Reduced travel distances also contribute to sustainability by cutting down carbon emissions associated with shipping.
4. Points of Control: Reshoring manufacturing simplifies the supply chain by reducing the number of control points. With production closer to home, businesses can maintain tighter oversight of manufacturing processes, quality assurance, and inventory management. Enhanced control allows for more stringent adherence to quality standards and easier traceability. Localized production facilitates quicker identification and resolution of issues, minimizing disruptions. The increased visibility over the production process allows for better data collection and analytics, aiding in continuous improvement initiatives. Effective control also supports better compliance with regulations, boosting confidence among consumers and stakeholders.
5. Flexibility: Rapid Changes to Orders: Being closer to the market, reshored manufacturing operations can respond more swiftly to changes in consumer demand or market conditions. The agility to make rapid adjustments to orders ensures that businesses can stay competitive and meet customer expectations. Local production facilities can quickly modify product specifications, ramp up or scale down production, and introduce new products without the long lead times associated with overseas manufacturing. This responsiveness leads to higher customer satisfaction and loyalty. It also offers companies the flexibility to experiment with new ideas and innovations more freely.
6. Reduced In-Transit Damage: Manufacturing products closer to their destination significantly decreases transit time and handling, reducing the likelihood of damage. When goods travel shorter distances, there are fewer opportunities for mishandling or exposure to adverse conditions. This leads to better product quality upon arrival and reduces the costs associated with returns, replacements, and customer dissatisfaction. Companies can implement more effective packaging solutions tailored to shorter transit requirements, further minimizing damage risks. The overall result is a more reliable delivery of goods, enhancing brand reputation and customer trust.
7. Reduced Import Tariffs and Dock Fees: One of the financial benefits of reshoring is the reduction or elimination of import tariffs and dock fees. By manufacturing domestically, companies can avoid the high costs associated with importing goods from overseas, such as customs duties, tariffs, and various port fees. This cost-saving can be redirected towards other critical business areas like R&D, marketing, or expanding workforce capabilities. It also simplifies the financial planning process by removing the variable costs associated with changes in trade policies or tariffs. The savings derived can lead to more competitive product pricing in the market.
8. Smaller Order Sizes (Less than Container Load): Local manufacturing enables businesses to order smaller, more frequent batches of inventory, aligning production closely with market demand. This capability reduces the need for bulk ordering, which can result in overproduction and excess inventory. Smaller order sizes lead to lower storage costs and help mitigate the risk of inventory obsolescence. Businesses can operate more leanly, reducing waste and improving cash flow management. The ability to order smaller quantities also allows for more agility in responding to market trends and consumer preferences, enhancing competitiveness.
9. Direct to Store Shipments: Reshoring facilitates direct-to-store shipments, bypassing the need for multiple distribution centers or regional warehouses. This direct approach speeds up delivery times and improves inventory turnover rates at retail locations. Eliminating intermediary steps reduces handling costs and potential delays, ensuring that products reach shelves faster. Direct-to-store shipments also enable better synchronization with sales data, allowing for more accurate stock replenishment and reducing the risk of stockouts or overstock situations. This streamlined distribution boosts efficiency and ensures a seamless supply chain operation.
10. ESG Benefits: If ESG is important to you, then reshoring has the greatest impact. Reshoring manufacturing supports strong ESG (Environmental, Social, and Governance) principles. Shorter supply chains mean lower carbon emissions, contributing to environmental sustainability. Domestic production often adheres to stricter labor and safety standards, ensuring better working conditions and promoting social responsibility. Supporting local economies through job creation and local supplier partnerships fosters community development and economic stability. Governing practices improve with better oversight and transparency in domestic operations, boosting corporate governance. These ESG benefits resonate well with consumers and investors, enhancing corporate reputation and potentially leading to increased market share.
A Potential Example
Let’s use an example of dinnerware. A HermitCrab customer (large distributor of restaurant supplies) wanted to understand the benefits of shipping dinnerware (ceramic plates, bowls, mugs, etc.) from a potential new location in Hampton, SC to their Memphis, TN main distribution center.
Currently, their supplier is in Liling, China and ships a 20-foot container load of dinnerware every month. The order is loaded into the container 7 days after the Purchase Order is cut, then driven to the port of Shantou, a 380-mile trip and a 3-day journey to get loaded onto the container ship. After a 30-day, 6000-mile journey to the port of Long Beach, the container is unloaded and trucked to Memphis, Tennessee, a 10-day 1800-mile trip that includes waiting for the container to be unloaded and processed. Total distance and time: 8,180 miles and 50 days. Now factor in ESG, and this trip, by the means used in this example, consume 3,900 tons of CO2.
Let’s switch to the Hampton, SC location. From the point of order to shipment is still 7 days, but the journey to Memphis from the HermitCrab dinnerware factory is 460 miles, and requires a 2-day trip, and only consumes 253 Kg of CO2. If this customer switched from Liling, China, to Hampton, SC, they would reduce travel distance by 94%, travel time by 82%, and reduce their carbon emissions by 94%. See the figure below for a recap of the journey and benefits.
Figure 1: Economic Impact of Ocean Freight
Conclusion
Reshoring manufacturing to the US offers multiple benefits that simplify the supply chain, making it more efficient, responsive, and sustainable. Reduced steps, shorter distances, and fewer control points contribute to streamlined operations. The ability to make rapid changes to orders, coupled with reduced in-transit damage, enhances reliability and customer satisfaction. Cost savings from avoiding import tariffs and dock fees, coupled with the ability to order smaller quantities, improve financial performance, and inventory management. Direct-to-store shipments and the elimination of emergency air freight further optimize logistics and reduce costs. Lastly, reshoring aligns with strong ESG principles, promoting sustainability and social responsibility. Collectively, these benefits make a compelling case for businesses to consider reshoring as a strategic move for their supply chain optimization.
Thank you for Reading!
There was a wide focus on Supply Chain Benefits in today’s read, but tomorrow’s topic, Quality Control, will dig into how local production allows for stricter quality control measures that result in higher product standards and reduced defect rates.
Thanks for reading,
The HermitCrab Team
emerging market potential. Both nations were in the process of economic reforms, making significant strides toward industrialization and improving their infrastructure. Moreover, government policies in these countries were favorable to foreign investment, ensuring smoother business operations. Over time, these factors contributed to their rapid economic ascent, and today, both are in the top five globally in GDP, positioning themselves as superpower contenders. This economic transformation validated the initial perception of stability, making them attractive destinations for offshoring.
What’s Changed – In 1989, China was the 9th largest economy in the world by GDP, and India was not in the top 10. By 2019, China had jumped to the 2nd largest economy behind the US. Over that time, China’s GDP grew by 3850%, while Japan’s stayed pretty much flat at 36%. India entered the top 10 for the first time in 2019, landing at #6, and now sits at the 5th largest GDP in the world, with over 1024% growth. In other words, these formerly developing nations, grateful for our investment, now boast massive manufacturing bases, and are positioning themselves to challenge the US as a global superpower. They are not our friends.
Suggested Shift – We need to get our collective heads out of the sand and see the massive growth of these two competing economies as a threat to our global leadership position. We can’t solve all the issues with excessive consolidation of power, but we must be sure we can meet our own needs.
Conclusion: Time has proven these paradigms to be dubious, if not false. It’s time for a paradigm shift. Let’s proceed.
Definition of Paradigm Shift
A major change in how people think about or approach something. It's when new ideas and methods replace the old ones, leading to a completely different way of understanding or doing things.
Shift The Thinking – Where We Go from Here
There are new ways of looking at offshoring that create compelling reasons to reshore product manufacturing back to the US. Four new ideas should replace the dusty paradigms of the past. Remember, if Albert Einstein can be completely wrong, so can the paid consultants and industry wonks that suggested wholesale offshoring of industries somehow was “good for America”. We should ask for a refund.
Paradigm Shift 1: Government Action without Cronyism: This paradigm shift involves collaborative efforts by Federal, State, and Local governments to implement policies benefiting the entire manufacturing sector, rather than just favored industries like solar, EV, and chips. A key strategy is to streamline and reduce regulations that currently pose significant barriers to domestic manufacturing. Additionally, the government can apply strategically targeted tariffs to protect domestic manufacturers from unfair foreign competition, and providing incentives, such as tax breaks and grants for infrastructure development, encouraging companies to reshore production facilities. These incentives should be accessible to all sectors, ensuring a broad-based uplift.
Paradigm Shift 2: ESG is Here to Stay: Today, Environmental, Social, and Governance (ESG) factors are essential considerations for shareholders and activists. Forty years ago, manufacturing decisions rarely accounted for environmental damage. However, the rise of ESG has dramatically shifted this outlook. The worst pollution is caused by manufacturing in China and India—two of the world's biggest polluters, which makes these locations less attractive. With heightened awareness and stricter regulations, companies face immense pressure to adopt sustainable practices. This shift encourages businesses to re-evaluate offshoring strategies, focusing more on environmental responsibility. If you want to be as “ESG as Possible”, you need to manufacture in the US, period.
Paradigm Shift 3: Globalization is Ending: The retreat of the U.S. from ensuring safe ocean travel via the U.S. Navy marks the beginning of the end for globalization as we know it. This shift is leading to increased instability in global supply chains, driven by a resurgence of state-sponsored piracy and territorial disputes affecting key shipping lanes. The reliability and security of international trade routes are diminishing, making it risky for businesses to depend on offshore manufacturing. As these geopolitical challenges escalate, the imperative to reshore production becomes clear.
Paradigm Shift 4: Eat the Frog: The concept of "Eat the Frog" advocates tackling the toughest, most significant task first, ensuring nothing worse can disrupt your day. This principle applies to reshoring manufacturing as well. Reshoring may appear daunting for retailers, buying groups, and startups, yet it is crucial for long-term success. Adapting to this new paradigm requires a shift in mindset—accept the difficulty and embrace the challenge. In essence, it's time to "eat the frog" and bringing manufacturing back home. Do it today! Call HermitCrab! Shameless advertising!
Thank you for Reading!
Paradigms are always shifting, and we can use the past to help envision our manufacturing future through reshoring. We hope this was an informative read. Tomorrow’s topic, Economic Impact, will help show the benefits of reshoring for the entire health of our nation.
Thanks for reading,
The HermitCrab Team
