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Getting Real about Reshoring

Posted By Jeff Moad, October 01, 2013 at 11:46 AM, in Category: Manufacturing Advocacy

In the discussions, conference calls, and face-to-face meetings we conduct regularly with members of the Manufacturing Leadership Council, top executives tell us they want to focus on a fairly consistent range of issues and concerns such as how to achieve breakthrough operational and cost improvements, how to close the skills gap, supercharge innovation, and develop the next generation of manufacturing leaders.

At the MLC, we have endeavored to capture these top-of-mind topics—we call them Critical Issues—and use them to guide our agenda.

But rarely if ever do I hear manufacturing leaders identify “reshoring” as a discrete, core challenge or goal for them or their companies. Sure, manufacturing leaders, like all of us who are concerned with the course of our economy and who have an abiding fondness for manufacturing, tend to root for more production --and more production-related jobs--to return to the developed  countries where we live.

But most manufacturing leaders don’t call urgent meetings with their teams to discuss their companies’ reshoring strategies. Instead, they are preoccupied with how they can fashion more demand-driven supply chains, how they can reduce costs, establish collaboration cultures, raise the quality levels of their products and services, and, importantly, serve customers in local and regional markets.

To the extent that manufacturing leaders reevaluate or change where their companies make their products, they almost always do so in order to achieve one or more of these core objectives: lower cost, better quality, more responsive supply chain, or closer proximity to customers.

And manufacturing leaders are having these discussions about where to locate production all the time. Even if they are not deciding to close a plant and move its production to another country, they are continuously adjusting production plans and schedules, moving production—constraints permitting—to the plants that can best serve customers at the lowest cost.

But reshoring is not typically a goal itself, just a means to an end. And reevaluating where production should take place is nothing new. It is a constant business issue for manufacturing executives.

But this perspective is in contrast with much of what we read about “reshoring.” In increasing numbers of blogs and articles, reshoring is portrayed as a new, emerging trend. Researchers and writers argue about how real the reshoring trend is, and how many jobs it will create.

On the “reshoring is real” side, for example, is the Boston Consulting Group which last week issued an updated survey showing that 54% of manufacturers say they are at least considering relocating some production from China to the U.S. BCG said this was a big increase over the percentage who said the same thing 18 months ago. But I think  this finding—and the weight attached to it—is a bit odd, since manufacturers are constantly considering and reconsidering where production should take place. It’s not known if BCG asked manufacturers if they were, at the same time, considering moving some production from the U.S. to China.

BCG and other reshoring proponents seem to suggest that some sort of tipping point—based on wage parity—has been achieved, making reshoring an inevitable trend.

An example on the “reshoring is not real” side was a recent Bloomberg article that cited a few isolated cases of manufacturers offshoring manufacturing to China as proof that reshoring has “fizzled.” Higher corporate taxes and other costs in the U.S. are undermining the reshoring trend, says this article.

So who’s right? In a way, they both are. Since decisions about where production should take place are, in fact, driven by strategic goals such as reducing costs and boosting supply chain responsiveness, whether a given company reshores production or offshores production depends on a number of variables that, in most cases, are tightly linked to that company’s products and business model. So, for example, the same company might chose to reshore production of one product that can be made in a highly automated way while offshoring production of another that has a growing customer base elsewhere.

It’s true that some factors such as labor cost trends, current automation levels, and transportation costs may be causing some manufacturers to choose to look closer at reshoring production of some products. But it’s dangerous for manufacturers to think of reshoring as some sort of inexorable trend with which they must comply. The relative costs of labor, and the relative levels of automation in the U.S. and China—as well as transportation costs—will continue to shift. Smart manufacturers will continue to view reshoring—when appropriate—as a means to an end. And the end is to improve productivity and serve customers better.


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Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit



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Comments

Posted on
Jeff, Great summary. There are other non direct operational considerations that need to be considered when evaluating where to manufacture a product. I just listened to a TV advertisement for Stihl equipment that stresses "Built in America with Quality". You can also find this phrase prominent on their website. Sales and marketing decisions driven by customer perceptions and preferences can also play a significant role in overall business decision making. Other critical long term business considerations are innovation and intellectual property rights. These are some of the areas that may not have been properly considered or weighted in the off-shoring decision process. We have started a BOARD on our Pinterest page that deals with ReShoring http://www.pinterest.com/mfgstories/reshoring-to-usa/ Another website dedicated to how best to make the ReShoring decision is http://www.reshorenow.org/ Harry Moser, of ReShoreNow, is an authority on this topic and will be the keynote speaker at the Governor's Advanced Manufacturing Summit in NH on October 10, 2013.
Posted on
Thanks, David. I agree that impact on innovation and IP protection are two additional issues that must factor into most outsourcing/reshoring decisions. And, while we are seeing more "Made in America" branding--WalMart's buy American committment is an example of this--I'm not sure most US-based manufacturers would consider this a key outsourcing/reshoring consideration. B2B suppliers would have less opportunity to promote this branding. And those selling to consumers would need to consider whether a "Made in America" label would make a significant enough impact on customers' buying decisions. Have you seen examples where this has made a big difference?
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