Reshoring, Why is it being Considered today, and What Does it Involve?
What is reshoring? How does it work?
Why do companies consider reshoring strategies? Here is everything you need to know about it!
In Brief
- The Covid-19 pandemic has caused significant disruptions, forcing companies to reconsider their business approaches and supply chain techniques.
- Diversification and relocation have gained substantial momentum as these strategies aim to decrease dependency on overseas supply chain companies. Reshoring is an excellent way to regain control over supply chain activities.
- Successful reshoring requires placing global suppliers and partners with domestic companies. It requires transforming organizations and external groups, encouraging them to work together
- Reshoring allows for better visibility, data-driven insights, and quick access to valuable information, allowing companies to make informed and real-time decisions.
Table of content:
Reshoring has become an integral component of companies in various industries. It returns the production or manufacturing of products and goods to an organization’s original country.
Reshoring, also known as back shoring, inshoring, or onshoring, has become popular in recent years. The Covid-19-induced supply chain disruptions, the Russian-Ukraine war, sanctions on Russia, and other factors have it a hot topic.
Reshoring differs from offshoring because the latter focuses on manufacturing processes of goods overseas to reduce manufacturing and labor costs. For example, if a business has moved partial or complete production operations overseas, it has adopted an offshoring strategy.
On the other hand, reshoring refers to bringing partial or complete products back home or to the original country where the company resides. Bear in mind that offshoring and reshoring may not always yield optimal outcomes. Therefore, companies must perform thorough research to determine whether reshoring is the correct option. Read on!
Why do Companies Consider Reshoring?
Some companies work with international suppliers, which makes sense in various ways. Outsourcing parts of your supply chain can reduce costs, decrease lead times for specific components, and boost access to raw materials.
Therefore, outsourcing is an excellent strategy for businesses to leverage the experience, expertise, and specialization of specific facilities with improved capabilities and skills.
Although outsourcing offers a wide range of benefits, the Covid-19 pandemic has caused significant risks, preventing companies from outsourcing their projects. Likewise, the global supply chain has strengthened interconnectivity, meaning disruption in one region will cause problems in another area.
As a result, it significantly affects consumers. Problems, such as the Covid-19 pandemic, and trade disruptions, like the Suez Canal, hinder operations and negatively affect all companies in the network.
Considering these facts, executives make substantial efforts to redesign their supply chain strategies. The purpose is to face the new urgency levels and risks and make efforts to reduce them.
Leaders in the supply chain industry must evaluate all aspects of their operations and look for new methods to improve internal capacity constraints, on-hand materials, inventory, and order management.
In addition, supply chain companies must empower external partners and streamline collaboration with businesses outside the internal supply chain. So, in that case, reshoring offers a unique solution to help companies overcome these problems. Thus, it is an effective alternative to outsourcing for companies in various industries.
The Importance of Reshoring
Businesses have made significant efforts to move their manufacturing and related operations offshore during the last two decades. The primary objective is to cut costs related to manufacturing.
Companies have chosen this strategy to maintain low labor costs in countries such as China and India. These countries have helped companies in the U.S to achieve higher profit margins.
However, the manufacturing sector has experienced a significant shift toward reshoring in recent years. The reason is that offshoring projects and operations are no longer profitable for companies due to increased labor costs and uncertainties regarding customs.
The Covid-19 pandemic has increased the risks associated with offshoring projects and operations. So, companies have realized that disruptions in offshore operations can negatively affect the global supply chain.
Because the pandemic has affected countries like China and India, companies in the United States that operate in these countries faced significant challenges even before the Covid-19 pandemic arrived in the U.S.
Therefore, businesses have realized that offshoring can risk their operations. On the other hand, they have adopted a reshoring strategy to streamline their processes and prevent disruptions in the coming years.
High-Quality Products
Overseas manufacturing offers affordable solutions on the market, such as cheap technologies, tools, labor, and processes. However, companies focused on more offshoring about two decades ago. Today, it is no longer trending in the industry.
Consumers in the U.S do not want products manufactured in countries like China and India. These countries have lax manufacturing laws. On the other hand, consumers have shown interest in quality and valuable products. That’s why American-made products rank high on the market.
Accurate Goods Distribution
Companies that produce or manufacture products overseas ship them across the ocean to the United States. These companies deliver manufactured or shipped products to warehouses, businesses, stores, and consumers.
We believe this transportation method and delivery strategy is costly, lengthy, and risky. On the other hand, reshoring is an excellent way to reduce costs. American-made products have simpler distribution processes because they don’t require costly overseas shipping.
In other words, this means less risk of damage to the products, reduced chances of delays, and mitigated risks of products/goods loss. That’s why companies consider reshoring to streamline their operations and generate value for consumers. At the same time, this increases brand reliability, recognition, and reputation, leading to higher revenues.
Prevents Costly Delays
Manufacturers are under massive pressure to complete and deliver orders at a stable speed because consumers demand faster delivery times. Digital technology has advanced, allowing consumers to place an order on an online platform with a single click.
Technology advancements, including fast-speed internet, IoT, and real-time data analysis, allow companies to deliver products quickly. At the same time, customers are accustomed to receiving goods/products/services rapidly without delays.
In that case, reshoring makes it easier for companies to avoid delays. In addition, it enables manufacturers to achieve higher client satisfaction rates. For example, when products have a shorter distance to travel, they effectively and reliably reach distributors, mitigating the risk of delays and supply chain problems.
So, shorter lead times can help improve sales, allowing companies to streamline forecasts and improve results. Thus, manufacturers can accelerate sales and optimize order placement and delivery.
No Communication Barriers
Language and culture barriers are the most significant operational issues experienced by companies when outsourcing their manufacturing processes to businesses in foreign countries. Although employees in other countries have a good command of English, it is their second language, meaning communication problems can arise.
For example, many colloquialisms and phrases common in the U.S and U.K. may confuse employees in countries like China, Japan, South Korea, and India. These communication barriers slow down the manufacturing process and increase the risk of errors in production, making the finished products unusable or low quality for consumers.
In contrast, companies reshoring their manufacturing to factories in the United States can benefit from a highly skilled workforce without experiencing language, culture, and communication issues.
Increased Control Over Production
Outsourcing your production capacity means relying on another company to meet your quality standards and protocols. The problem is that overseas businesses rely on cheap labor, low-quality equipment, and tools to manufacture products and services. So this leads to significant quality issues.
On the other hand, reshoring manufacturing capacity in the United States allows you to gain more control over the production process. For instance, people working in these manufacturing plants and production facilities report to you, not to a foreign company.
Similarly, these workers have high-quality equipment, resources, and tools to meet production needs and maintain the quality of manufactured goods. American manufacturers make substantial efforts and follow a step-by-step approach to streamline the entire project and meet your expectations.
Skilled Workforce and Management
Reshoring allows companies to access millions of talented, experienced, and skilled workers. Instead of offshoring operations to China and India, reshoring your production capacity to companies in the U.S means high-quality products and increased profits, thanks to the skilled workforce and management strategies.
Businesses with overseas production plants usually experience a wide range of risks, discrete costs, and organizational management challenges. These companies often fail to improve and update their processes and systems, leading to problems.
On the other hand, reshoring simplifies, streamlines operations, and reduces costs. Companies in the U.S and Canada have skilled and well-trained workers who use quality tools and work under the guidance of expert managers to ensure they deliver quality goods/products.
Reduces Risks and Maintains Competitive Advantage
Reshoring means operations are closer to the home country. It reduces the complexity and risks in supply chain operations. So this enables you to minimize risks and maintains a competitive edge regarding shipping and customs.
You can immediately access all the steps required for high-quality production. Consumers attract to goods/products/services produced locally. Simply put, consumers are more likely to purchase products with labels “made locally.”
Reduce Lead Times
Reshoring is directly proportional to reducing lead times because it involves experienced, skilled, and relevant stakeholders. Products and goods don’t spend weeks and months in transit crossing oceans or get stuck in ports due to massive container or shipping shortages.
Reshoring enables businesses to work with supply chain companies in nearby time zones, allowing them to mitigate risks and resolve problems quickly, efficiently, and reliably. It is due to synchronous communication and collaboration in real-time.
Restores Control to Supply Chain Managers
Instead of relying on foreign supply chain companies and focusing on how and when companies overseas manufacture products, you can reshore operations and leverage the opportunity of working with high-quality suppliers.
The other reason is that you can select the suppliers based on your needs. So this enables you to regain control, and your supply chain managers can easily streamline the entire process.
Moreover, your company’s supply chain managers can engage more closely with external partners and remove communication barriers to produce compelling and optimal outcomes even in uncertain times.
Reduces Environmental Footprint
Reshoring produces a much smaller carbon or environmental footprint, unlike outsourcing. It reduces lead times and prevents long transits, allowing your company to reduce the energy required for moving products between supplying companies and distributors.
So, reshoring is the epitome of green transits and sustainable operations, allowing companies to fulfill their environmental, social, and governance practices. Not only does this improve the economy, but it also benefits all stakeholders.
Final Words
Companies must increase visibility across the supply chains and improve collaboration with external partners to leverage reshoring. Higher visibility, reliability, and transparency allow leaders to make informed decisions, reduce disruptions, and optimize supply chain operations. Until Next Time!
Sources:
- https://ideasforleaders.com/Ideas/the-cost-advantage-of-reshoring/
- https://www.xometry.com/resources/procurement/what-is-reshoring/
- https://www.manufacturing.net/supply-chain/blog/22288864/reshoring-as-a-supply-chain-strategy-the-pros-and-cons
- https://www.jacksonlewis.com/publication/reshoring-trending-choice-manufacturers
- https://www.dw.com/en/why-us-companies-are-reshoring-their-business/a-60054515
- https://www.arizbank.com/business-insights/manufacturers-harness-reshoring-combat-inflation
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