Specific Types of Reshoring

Made in America Can Mean a Lot of Things

Let's begin today with a story. In the Fall of my final year at Purdue University, I was already convinced that I did not want to be a mechanical engineer. Instead, I wanted to pursue a career in manufacturing consulting, or at least a job outside of the traditional engineering occupation. One of my top choices was IBM, specifically aiming to return to North Carolina and work for IBM at their large Research Triangle Park facility.

I flew down the night before my site visit, enjoyed a nice steak dinner with my sponsor, and spent the better part of the following day touring multiple buildings and listening to the IBM pitch about their product superiority, quality, and world class manufacturing techniques. Towards the end of the site visit, we came across a line of pallets with the monitor screen assembly waiting to be installed into the PC monitor shell. I asked the tour guide where the monitors were produced, and he replied that they were made in Japan. At the time, I certainly lacked the tactfulness that I hope I have curated over the decades, but the next thing I said was, “What? Made in Japan?? That's the hardest part of the manufacturing process, and we don't make it in the USA?”  I'm sure my nonverbal cues were just as off-putting as my question, and the guide had no good answer.

Shockingly, I did not get a job offer from IBM. 😊

The reason for the story is to point out the fact that even in the mid-to-late 80s, American companies were using offshore suppliers to do the “hard work”, while finishing the product assembly in the US and calling it “Made in America”. This is one of many versions of reshoring being deployed today, and while it is certainly a job creating possibility, it's a little bit like consuming a Twinkie™- it might look good and taste good, but it's full of empty calories.

The Many Types of Reshoring

Depending on who you ask, there are at least six examples of reshoring that can help bring manufacturing back to the US, they include the following, listed in order of importance:

1.        Full Reshoring

2.        Foreign Direct Investment

3.        Additive (3D) Manufacturing

4.        Insurance Policy

5.        Final Step

6.        Nearshoring

The chart below provides a representative example of the effect of these reshoring methods on the US manufacturing economy, both in terms of jobs produced and the improvement in US manufacturing security.

Figure 1: Types of Reshoring Options

Let’s look at each of these types of reshoring:

1) Full Reshoring

Definition: 100% reshoring means relocating the entire manufacturing process, and sourcing of raw materials, within the US. This strategy focuses on utilizing American labor and resources, bringing full production back to domestic grounds.

Benefits: Companies benefit from complete control over their production processes which can enhance quality and reliability. It supports local economies, reduces vulnerability to international supply chain disruptions, and may offer incentives such as tax breaks.

Ranking Rationale: HermitCrab’s reason for existence is to reshore manufacturing back to the Southeast United States. These jobs, and the manufacturing base they create, directly strengthen America’s economy and long-term manufacturing viability.

2) Foreign Direct Investment (FDI)

Definition: FDI involves non-US businesses setting up manufacturing operations within the US in order to avoid tariffs and meet local demand more effectively. Through investment in facilities and infrastructure, these businesses aim to strengthen their market presence domestically.

Benefits: This approach can create local jobs, stimulate the economy, and provide foreign companies with a competitive edge in the US market. It reduces tariff-related expenses, cuts logistics costs, and establishes closer links to US customers.

Ranking Rationale: FDI is the largest driver of new jobs in the US and their positive impact on communities is indisputable. It’s second to organic reshoring only because the profits and intellectual property remain in the hands of non-US firms.

3) Additive Manufacturing (3D Printing)

Definition: Additive manufacturing, or 3D printing, is an innovative reshoring strategy that leverages cutting-edge technology to produce items layer-by-layer directly from digital designs. This method is suitable for complex and customized production needs.

Benefits: It reduces material waste and eliminates the need for extensive inventories by enabling on-demand production. Companies gain significant flexibility through rapid prototyping and shorter lead times, promoting innovation and personalization. It also allows for the domestic production of parts that were previously outsourced due to complexity or cost.

Ranking Rationale: 3D manufacturing has a lot of potential to disrupt manufacturing and provide numerous opportunities to reshore the manufacturing of products, but not a lot of jobs. Currently it’s best considered for single part niche manufacturing – you cannot print an airplane.

4) Insurance Policy Manufacturing

Definition: Companies employing insurance policy manufacturing maintain a portion of their production domestically, while the majority remain offshore. This split ensures that companies are not solely reliant on foreign suppliers. The approach serves as a strategic hedge against risks such as geopolitical tensions or supply chain disruptions.

Benefits: By maintaining certain US manufacturing capabilities, companies can mitigate the risk of foreign price hikes and ensure stable supply lines. It enhances risk management, increases resilience against potential disruptions, and can lead to stronger bargaining positions with offshore suppliers.

Ranking Rationale: This type of reshoring is a bit cynical – the company that holds manufacturing in both the US and offshore is the equivalent of a cheating spouse – they need to commit and make the case that 100% Made in the USA is better than “sometimes” made in the USA in the name of profits.

5) Last-Step Manufacturing

Definition: Last-step manufacturing involves relocating the final assembly of a product to the US. This strategy allows products to be partly produced overseas while still benefiting from the "Assembled in the US" label.

Benefits: Reduced shipping costs and quicker access to domestic markets justify this approach, and it also aligns with consumer preferences for products that are at least partially produced in the US.

Ranking Rationale: Remember the IBM story? This reshoring approach leaves the “hard work” or the advanced work to other countries, while US workers get to provide the last 5-10% of value-added manufacturing to suit the US market.

6) Nearshoring

Definition: Nearshoring refers to relocating production processes closer to the domestic market, especially in Mexico or Canada. This strategy aims to retain the cost benefits of offshoring while minimizing logistical complexities associated with distant supply chains.

Benefits: The primary benefits include reduced transportation costs and shorter shipping times, resulting in better supply chain efficiency and improved agility in responding to market demands. It also allows companies to take advantage of relatively lower labor costs while staying close to the US market.

Ranking Rationale: Made in Mexico or Canada does not translate to many (if any) additional American jobs. The original impetus for the massive exodus of jobs from the US was as much of the result of NAFTA as it was from Japan (then China) making superior products for less. Yes, it is better that the jobs and manufacturing base now exist on the same continent, but the economic benefit is pretty low.

The Focus on Full Reshoring – It’s Harder to Bring It Back

We invested a lot of time discussing the various types of reshoring, but the strategic focus of HermitCrab and our clients is on the topic of Full Reshoring of products back to the US. The method of determining which products to reshore begins with the development of a sound strategy, already captured in yesterday’s (Day 17) class on Reshoring Strategy.

Full reshoring will require a national consensus on the need to revitalize our manufacturing base, especially on non-shiny industries like wood products, plastics, ceramics, paper goods, and textiles, all of which used to thrive in the Southeast US before poor decisions were made to allow offshoring as a “good thing.”

Conclusion: All reshoring is good reshoring, but some reshoring is better than others. The general aim of HermitCrab is small factory production of niche products, maybe with 50 to 100 workers per plant. Compare that to the Kia Automobile Factory in Georgia, where almost 4000 workers arrive every day just at that leviathan facility, plus the thousand plus other jobs in the nearby supporting manufacturing suppliers of the Kia plant. That FDI facility is absolutely astounding, and we are grateful it is here. One day we want to see American brands be made again in the US, by American Workers, at the same scale and prestige as Kia.

Thank you for Reading! Come back tomorrow for Day 19: Product Selection: The essential products best suited for (HermitCrab) reshoring. This class points out the neglected industries that are waiting to be reshored. This is a provocative read.

Thanks for reading,

The HermitCrab Team