As the COVID-19 pandemic continues to devastate global supply chains, many businesses have begun reshoring their operations. This trend is particularly prevalent in manufacturing, although reshoring rates have started to rise throughout the industrial sector in recent weeks. In fact, the Thomas Industrial Survey for April found that 64% of manufacturers are now considering reshoring, compared to only 54% who were thinking about reshoring in March.
Why People Are Reshoring
Rising Labor and Transportation Costs Offshore
In the past, locating manufacturing facilities offshore had been a way to reduce the costs of production and labor. However, the past few years have seen a marked increase in global shipping costs. Reshoring can drastically reduce these outbound delivery and shipping costs, resulting in significant savings.
Need for Shorter Lead Times
As digital technology has advanced, customers have grown accustomed to receiving products rapidly, and a reduction in lead time is an excellent method of boosting customer satisfaction. Reshoring makes it much easier to do this, as goods have a shorter distance to travel before they reach their distributor. Shorter lead times also speed up the sales process and enable more rapid forecast responses.
Desire to Avoid Offshore Risks
The COVID-19 pandemic is having unprecedented effects on the global supply chain, forcing companies to consider what actions will best protect their business. Reshoring is a way to mitigate risk in these unpredictable times and makes it easier for businesses to receive federal aid.
The Future of Reshoring Trends
Although sparked by a crisis, the rapid and efficient response of U.S. manufacturers during the pandemic demonstrates just how much potential local manufacturing has. Of the companies featured in the Thomas Industrial Survey, 15% reported that they had shifted their focus to producing supplies for COVID-19 relief efforts. Notably, the automotive, agricultural, and healthcare industries have focused on producing PPE.
The admirable local manufacturing response bodes well for the future of reshoring trends, and manufacturing as a whole—although 41% of manufacturers predict a temporary decrease in demand, 91% express confidence that the sector will recover. As more companies begin the reshoring process, local economies will continue to reap the benefits.
Additionally, manufacturers are now likely to give more consideration to risk management within their supply chains. Offshore manufacturing may well remain a viable option, but many businesses will begin to place more emphasis on diversification, outsourcing some aspects of their manufacturing, and performing others locally.
Overall, the pandemic has clearly demonstrated a need for more flexible local supply chains. As manufacturers continue to adapt, they will benefit from rebalancing their local, regional, and global assets. We are likely to see an increase in smaller, more local factories that can produce multiple products, thus resulting in more supply chain resilience.
Risks of Offshoring
While risk is unavoidable in business, we should aim to understand and minimize the risk as much as possible. With that in mind, it is beneficial to consider a few of the most significant risks of offshoring.
In the past, countries such as China and India attracted manufacturing companies based largely on their low hourly rates. However, current foreign wages have increased; this, combined with other added costs such as transportation and shipping, means that offshoring is not always a cost-effective option.
Manufacturers who depend heavily on an offshore supply chain experience increased shipping costs and slower deliveries, as the products take time to get to port before the manufacturer can ship them to their final destination. Global events like the current pandemic also lead to unpredictable and costly delays.
Even prior to the COVID-19 pandemic, institutions such as customs and the FDA had imposed a number of compliance requirements for all products entering the United States from foreign countries. These requirements are likely to become even more stringent after the current pandemic.
Reshoring With Rodon
As one of the largest family-owned and operated plastic injection molders in the country, Rodon is on standby to assist anyone who wants to begin sourcing their plastic injection molding in the United States.
We have manufactured billions of American-made products since 1956, and are proud to offer stateside quality and value without the risks. Our turnkey manufacturing solutions include high volume parts manufacturing, mold building, and mold design. To learn more about reshoring with Rodon, contact us today.