More and more companies are beginning to reshore. Here’s why.
What a difference a decade can make.
Manufacturing jobs are returning to the U.S. at an ever increasing rate, due to a combination of reshoring and foreign direct investment, yet it wasn’t that long ago that the economy was hemorrhaging 220,000 manufacturing jobs per year to offshoring.
And while companies are still transferring manufacturing overseas, last year saw a net gain in U.S. manufacturing jobs. In fact, job loss in 2015 from offshoring was completely cancelled out as reshoring and investment added 67,000 manufacturing jobs to the economy, outstripping job loss from offshoring, and continuing the trend that began in 2014.
More and more companies – from GE to Google – are returning their manufacturing to the U.S. from foreign shores, and the factors they cite for doing so are consistently the same.
The top 10 reasons that companies reshore include:
- Shorter lead time – Customers expect shorter lead times and more agility in modifying the production process to their changing needs. Establishing manufacturing closer to the customer shortens lead times and facilitates a more collaborative working relationship with suppliers.
- Lower cost – The global marketplace is not as attractive as it once was. The rising cost of labour and raw materials, in addition to the expiry of foreign tax incentives, have significantly cut into profits and competitive pricing.
- Higher quality and consistency – North American manufacturing has a long history of commitment to internationally recognized quality standard systems, and is far less susceptible to vulnerabilities from inconsistent product quality.
- Offshore wages – Overseas workers expect and demand higher wages, increasing the cost of production abroad. In China, the introduction of annual minimum wage increases has raised salaries 50% since 2011.
- Skilled workforce – A skilled workforce is instrumental to manufacturing growth. The U.S. has a higher level of education and training for its workforce when compared with China, and is a demonstrably stronger source for this type of talent.
- Rising shipping costs – The strengthening Chinese yuan, the weakened U.S. dollar, coupled with rising fuel and freight container costs, cuts into profits when shipping products around the globe. Volatile energy costs contribute to extreme cost disparities in shipping from Asia compared to within North America where energy costs have dropped.
- Image of ‘Made In USA’ – The selling power of brands with a homegrown ‘Made in USA’ image is something that appeals to the customer who places value on products produced domestically under American labour and environmental laws.
- Lower inventory levels – A lot can go wrong when a supplier is half a world away, and the way to combat that uncertainty is usually with higher inventory levels. By manufacturing closer to the point-of-sale, unforeseen disruptions to the supply chain such as extreme weather, product abnormalities, port strikes, customs issues or transportation disasters are eliminated or minimized. Lower inventory levels are best served by regional centers when the supplier is nearby.
- Minimal intellectual property risks – The U.S. is a world leader in innovation, and as such, is a vigorous defender of intellectual property rights. It is a secure environment for the sharing of intellectual property, with extremely infrequent patent and trademark infringement, and consistent enforcement under the law when compared to other markets.
- Local tax incentives – As foreign tax incentives expire, state and local governments are eager to recruit manufacturers with competitive tax rates and enterprise zones.
These days, many manufacturers are reassessing their overseas production and sourcing locations with an eye towards reshoring. Offshoring decisions are largely based on price, resulting in a 20 to 30 percent miscalculation of actual offshoring costs. For some manufacturers, the past decade has been a learning curve in offshoring’s total cost of ownership.
What a difference a decade can make.
For more information about reshoring, and to generate your own unique and customized analysis of your current or potential supplier, be sure to check out the Total Cost of Ownership Estimator®.