Over the past five years, supply chain shocks have been prevalent, with events like COVID shortages, the war in Ukraine, and rising global inflation dominating headlines. It's challenging to predict what the next 5 to 10 years might hold. As a result, we believe it's crucial for every company to consider the potential advantages of reshoring for manufacturing success.
In previous blog called 'Should My Company Re-shore?', we explored the various factors and complexities involved in reshoring manufacturing operations. Today, we'll delve deeper into the top 5 benefits of bringing your manufacturing operations back home.
5 Benefits of Reshoring Your Manufacturing
1. Control and Accountability of Production
Manufacturing in-house allows for greater control and accountability of production. You know where your production is at all times and can react to shortfalls far quicker and more efficiently than using offshored production.
Quality problems can be identified immediately rather than when a product arrives in your warehouse 4 to 8 weeks later. We have seen companies receive shipments where 50% of the product is unusable. Of course, many manufacturers will take that product back, but it is still costly in terms of lost time and possible lost sales.
There is the matter of intellectual property as well. More companies realise their intellectual property is more important than saving money with cheaper labor and lower regulation. Reshoring to a country with better IP production (and managing the production yourself) is the best way to protect your valuable ideas and innovations.
2. Reduced Lead Times
Lead times are becoming longer and more unstable. Any number of things could cause critical delays; COVID shortages are just one example that could be disastrous to your supply chain. For example, a spike in fuel prices, an unexpected war, typhoons, and earthquakes can throw off the best-laid plans. While reshoring does not eliminate the risk of delay, it does mitigate them. Reshoring reduces the lead time from production to the sale, which increases cash flow since the product is not sitting on a boat waiting to be sold.
3. Better Reaction to Customer Demands
Reducing lead times also means that you are more responsive to customer demands. More and more products are customised to customer needs. Reshoring allows you to receive orders, customise them, and send them to customers with little downtime.
For example, suppose a customer orders a bicycle with specific requirements (paint selection, accessories, size, etc.). In that case, the fulfilment time could be a matter of days if both are in North America. That would include receiving the order, assembling the product, and shipping it to the customer. Therefore, it is reasonable to believe that the customer could go from ordering to receiving the product in a week.
If the product came from Asia, it would likely have to go through additional ordering processes with the local factory, verification, and then sending by ship or plane. If sent by ship, the process could take 4 to 8 weeks. If sent by plane, it would take a few days but would be prohibitively expensive. Customer expectations help provide better services and quicker turnaround times.
4. Risk Management of Global Instability
“May you live in interesting times” is an apocryphal Chinese expression, yet the sentiment is apt for the current age. Interesting times are marked by significant political, environmental, and economic uncertainty. The disruption risks from these uncertainties grow the farther the production facility is from the market and the more vulnerable to forces outside your and your country’s control.
5. Labor Availability and Predictability
Offshoring usually occurs to reduce labor costs, so you might ask how labor is an advantage to reshoring. The answer is surprisingly simple: times and production tools change.
While it is true that Chinese and Vietnamese labor is cheaper than American labor, both are rapidly rising in cost and at a fast rate. As pointed out in our blog on moving your factory to Taiwan, Chinese labor prices are rapidly climbing. It will still take years to reach the same level as the US, but low labor prices no longer offset the lower productivity. American (and Canadian) labor has remained relatively stable over the past two decades despite the recent inflationary spike. North American labor costs are more predictable.
Additionally, there is a higher rate of skilled labor in North America and a more reliable source as more resources go to community colleges and hands-on training. Skilled labor is more valuable as more manufacturing is automated, and labor is a lower consideration for overall costs. Equipment and utilities are often more important than labor.
Why Reshoring is a Smart Move for Manufacturers in 2023
Reshoring offers companies greater flexibility and agility, allowing them to respond quickly to changing customer demands and supply chain disruptions. It also helps to protect valuable intellectual property and ensure the quality of the end product. These are all attractive factors for manufacturers who desire to step into the private equity manufacturing environment. By bringing manufacturing operations back home, companies can reduce their exposure to global risks and create more stable and predictable supply chains.
In short, reshoring is worth considering if you're a manufacturer looking to improve your bottom line, reduce risks, and enhance your overall business performance. By investing in your production capabilities and leveraging the strengths of your local labor force, you can achieve greater control, higher quality, and more efficient operations. So why not take the plunge and start reshoring today?
