The Advantages & Disadvantages of Manufacturing Reshoring / Onshoring in the USA
To curb supply chain disruptions and ensure self-reliance, United States manufacturing companies are bringing industries back for U.S. manufacturing reshoring.
The April 2020 Manufacturing ISM Report on Business outlines an increase in economic activity for U.S. manufacturing, which will continue to see an upward trend for the foreseeable future. Experts predict that this growth will be driven in part by manufacturers’ continued reshoring initiative.
Manufacturing Reshoring U.S. Trends
US multinationals are growing stronger as they produce more via their US-based operations. This change could be brought on by the fact that in the last five years, these companies have witnessed a drop in revenue as a result of offshore variables such as expenses related to inventory carrying, travel as well as a rise in wages in foreign countries.
However, newer automation has also mitigated the labor cost differential that made outsourcing so attractive initially.
According to the February 2020 Bank of America Report, a reversal in offshoring trends is bringing supply chains and jobs back to local shores.
Factors that continue to drive manufacturing reshoring include:
- The fact that the delta between U.S. and offshoring China labor rates has narrowed
- Overseas regulations have increased
- The complexities of post-sale customer support persist, forcing businesses to look homeward for help
An IndustryWeek article suggests over 1,300 companies are following manufacturing onshoring trends in the USA and plan to reshore soon – this can positively impact not only manufacturing plants but also breathe new life in supply chains, and support services across the U.S.
The coronavirus outbreak has also played a key role in increasing the manufacturing reshoring trend as companies rethink their sourcing strategies as well as their entire supply chains.
The Benefits Of U.S. Manufacturing Reshoring
Reshoring manufacturing to the U.S. offers companies more savings, pro-business incentives, workforce development, and automation – and that’s just the start. They can also look forward to the following when they relocate their manufacturing concerns back home:
- Shorter Lead Times
Operating in the U.S. not only increases manufacturers’ ability to source materials quickly through shorter supply chains, it also improves communications and decision-making. So you can increase your flexibility in customer responsiveness.
2. Better Product Quality
While foreign countries offer the benefit of low-cost production, other factors negate this benefit entirely.
These negative factors include
- Slow delivery times,
- Ineffective communication between manufacturing & design teams; and,
- Inability to deploy responsive quality corrections during manufacturing.
When coupled with mass supply chain disruptions as we’ve seen across Q2 of 2020, these issues compound to push down product quality, while delaying quality improvements and recalls.
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3. Skilled Workforce
U.S. workers make up one of the most skilled and dynamic workforces in the world – a result of the country’s high labor standards & education system. They are trained using stringent workforce development guidelines, while massive investments are also made in automation technology to enable specialization.
US based teams can quickly train and work across multiple lines, while more easily deploying new production methods or changes in process.
4. Increased Responsiveness To Customer Demands
The business world is all about meeting the needs of the end-user. A customer-centric market has implications for manufacturers who need to react quickly to new changes as they expedite production and shipping at any given time.
Reshoring manufacturing lines to the United States gives them the ability to easily modify products, cut delivery times, and meet production volumes despite the many variables that dictate them.
5. Minimal Regulatory Compliance Risks
According to SelectUSA, more international patents are filed in the U.S. than any other country.
This could be attributed to the fact that U.S. intellectual property laws are built to aggressively protect intellectual property, helping businesses fight counterfeiting and cyber theft.
This is a welcome change for local policymakers and manufacturers who’ve had to continually put up a fight to protect their products and ideas in low-cost countries such as China.
Manufacturing Onshoring: The Possible Downside
In the past several years, many American manufacturers have moved their operations back to the states, but the move doesn’t come without challenges.
The resulting factory work doesn’t promise to create more manufacturing jobs that such work once did.
Moreover, increasing competition forces tighter pay & compensation, meaning that manufacturing can no longer provide for the high standard of living that Americans seek.
But more importantly, the most significant disadvantage lies in the loss of massive, hyper-localized supply chains in Asia-Pacific countries like China.
These hyper-localized supply chains enable much lower landed costs of the product, even offering vertical integration along with greater flexibility and agility in supply chain responsiveness. Today, this can lead to higher expenses, especially when it comes to electronics manufacturing reshoring.
Mitigate Costs With Corning Data
The COVID-19 pandemic has highlighted how unexpected disruptions at manufacturers and supply chain partners can cause production halts and inventory shortages for purchasing businesses.
And while lower labor costs are an attractive incentive, contract manufacturing reshoring will result in manufacturing executives incurring higher costs than expected.
Reshoring is one way to reduce risk by moving suppliers closer to the final market – and Corning Data can help.
For 40 years Corning Data has been providing professional I.T. & consulting services and is a leading partner for world-class ERP technology providers, such as JD Edwards, Oracle, and IFS.
Unlike most ERP consulting companies, we offer a full service of support – from consulting and staff augmentation to comprehensive project management.
Looking for greater visibility into your assets? Corning Data can help you boost the productivity and reliability of your high-value assets so that you can ensure their success.
Get in touch with us today to learn more.