Reshoring Alleviates Supply Chain Issues – But It Needs Tech to Control Costs

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In the post pandemic world of skill shortages, supply chain disruptions, and geopolitical issues, manufacturers are struggling to operate at full capacity. In a bid to tackle these issues, manufacturers and logistic providers have sought solutions nearer to home – they have “reshored” operations.

Reshoring’s primary goal is to regain control over the entire end-to-end supply chain—it’s about manufacturing products on local soil, and it’s a process that’s been gaining traction from companies worldwide.

From a North American perspective, the picture is no different. Many U.S. companies have begun the shift away from globalization as default, with research suggesting that nearly 350,000 jobs were re-shored to the U.S. in 2022—a notable increase when compared to the 2021 figure of 260,000.

The movement has also seen companies become less reliant on China. Now, many economies, including the U.S., India, and the European Union, are looking to establish a roadmap that will balance supply chains and increase resiliency. The China Plus One Strategy is an approach adopted by a number of businesses looking to include sourcing from other destinations. Already, numerous companies have turned to Vietnam and India as alternatives, with both countries reporting an uptick in investment from U.S. companies that have built plants there.

According to the Reshoring Initiative IH 2022 Data Report, supply chain gaps, the need for greater self-sufficiency, and a volatile geopolitical climate are major factors driving reshoring. The report found that 69% of companies cited supply chain disruptions as the primary reason for reshoring.

There is now movement on a national level to strengthen supply chains and promote domestic manufacturing with the introduction of the bipartisan National Development Strategy and Coordination Bill in December 2022. This bill highlights the importance of manufacturing reshoring to national economic development going forward into 2023.

Sustainability and Tech in Reshoring

Recent research commissioned by IFS, polling senior decision-makers working for large enterprises globally, found that 72% have increased their usage of domestic suppliers, compared to international suppliers.

From a sustainability perspective, there are huge benefits to be gained. In fact, reshoring is giving manufacturers a golden opportunity to look hard at their manufacturing processing and how they can develop more sustainable processes.

For example, it can minimize CO2 emissions as transport is reduced and spur a deduction in wasteful overproduction as supply chains are brought closer together. As the whole world strives to act more sustainably in the race to net-zero, environmental benefits will play a huge role in driving new sourcing strategies.

However, the raw materials, components, and products that they source from suppliers are likely to become more expensive, especially as inflation continues to gather pace globally. As a result, 53% have considered increasing the proportion of materials/components they produce in-house. But again, these measures and others like them that organizations are now taking to mitigate risk are likely to add cost, complexity, and waste to the supply chain.

Therefore, reshoring is not the silver bullet to mitigating supply chain disruption entirely. Often, companies underestimate the sheer level of effort, costs, and logistical planning required to make reshoring a success.

But for many U.S. companies, the extra costs to manufacture within the country are definitely outweighed by the savings in customs and shipping costs and the additional sustainability benefits associated with offshore operations.

It’s here organizations need the helping hand of technology—in fact, it can be a key facilitator for solving supply chain, labor, and production challenges associated with reshoring.

For 94% of respondents in a recent McKinsey study, Industry 4.0 helped keep operations running during the COVID-19 pandemic, with another 56% claiming Industry 4.0 technologies had been critical for efficient responses.

A new IDC InfoBrief, sponsored by IFS and entitled Shaping the Future of Manufacturing, shows an active correlation between digital maturity and profit. According to the research, manufacturers reporting an optimized level of digital transformation saw profits increase 40%, while those with less advanced digital transformation maturity suffered bigger reductions in profit in the last fiscal year.

Tech has been quick to respond to the call to deliver the agility and fast “Time to Insight” (TTI) that manufacturers need to better forecast demand and provide a more detailed view of sustainability across product supply chains. Exceptional supply chain management will be a vital part of the move to reshoring. The IFS study showed supply chain management was now seen by 37% of respondents as one of the top three priorities their organization is trying to solve through technology investment.

Reshoring in Action: Will the Benefits Be Worth It?

In a recent Kearney index on manufacturing reshoring, 92% of executives expressed positive sentiments toward reshoring. And that’s no surprise when you consider the additional benefits on offer. As well as a more protected supply chain ecosystem, there are also positive societal benefits from the move to reshoring.

According to the U.S. Reshoring Initiative, in 2021 the private and federal push for domestic U.S. supply of essential goods propelled reshoring and foreign direct investment (FDI) job announcements to a record high.

From a broader perspective, there are many profitable and supply chain benefits at stake for manufacturers. For example, research found that 83% of consumers in the U.S. are willing to pay 20% more for American-made products, with another 57% claiming that the origin of a product would sway their purchasing decision.

From a management standpoint, control over operations has significantly increased. Bringing operations all to one centralized location gives businesses tighter control over processes. Manufacturers will also benefit from shorter supply chains as much of today’s manufacturing is spurred by IoT, AI, and machine learning capable of performing monotonous tasks around the clock.

On a day-to-day level, on-site teams will experience increased collaboration as reshoring drastically reduces the time difference between headquarters and the manufacturing plant.

Tech Needs to Drive Reshoring

It’s easy to see why the appeal of reshoring is prompting a move toward U.S.-based manufacturing initiatives. By addressing reshoring now with the right technology, efficiently and cost-effectively, manufacturers will put themselves in a great position to not only survive but also thrive long into the future.

Of course, as with any major transformation, there are hurdles to overcome. But the long-term results of reshoring, from increased employment to tighter manufacturing control, look as though it’s a journey worth embarking on. As more and more companies around the world look to reshore operations on home soil, manufacturers will need the guiding hand of a flexible and agile software platform to make reshoring a reality at scale.

About the Author:

Maggie Slowik is the Global Industry Director for Manufacturing at IFS.