The fragility of global supply chains has never been more evident. The need for supply chain resilience has become painfully clear after the COVID-19 pandemic, the war in Ukraine, semiconductor shortages and other disruptions. The reshoring of manufacturing will play a crucial role in fostering that flexibility.
Outsourcing production to foreign nations has been the standard in manufacturing for years due to cost benefits. The industry is shifting since organizations have experienced firsthand disruptions from outsourced manufacturing.
The Current Wave of Manufacturing Reshoring
Reshoring and foreign direct investment (FDI) job announcements surpassed 360,000 positions in 2022, an all-time high. That’s 53% higher than the previous record, which the manufacturing industry set just one year earlier in 2021. Reshoring led this growth, accounting for 58% of these new positions.
Nearshoring has also grown, though not as rapidly. U.S. companies nearshored roughly 10,000 jobs to Canada and 40,000 to Mexico between 2010 and 2022. Those figures will increase as supply chain resilience initiatives grow, but reshoring will likely remain the more popular strategy.
When asked about their reasons for reshoring, most manufacturers cited government incentives. The availability of a skilled workforce and reducing supply chain disruption risk came as the second and third most popular answers, respectively.
How Reshoring Can Build Supply Chain Resilience
Even if companies’ primary reason for reshoring manufacturing isn’t to boost resilience, they still experience it as a secondary benefit. Businesses that reshore or nearshore production build strength through several means.
Shorter Transit Times
The reshoring of manufacturing’s most direct impact on supply chain strength is shortening transit times. In these strategies, manufacturers become physically closer to their downstream supply chain partners, making them less prone to disruption and more likely to withstand unexpected delays.
Sudden demand shifts and inventory distortion are less impactful when companies receive goods in less time. Even if it takes domestic manufacturers just as long as foreign alternatives to increase output, lead times are still shorter because there’s less ground to cover between facilities. Faster shipping times also reduce risk factors related to transportation costs.
