Reshoring is not a decision supply chain managers can make in a vacuum. Does moving production or prioritizing local suppliers make sense in the larger context of the business? A variety of factors come into play, from customer desire to risk mitigation to total landed cost.
Supply chain managers have considered these elements since long before the coronavirus pandemic, and many started to transition toward reshoring as China’s wages increased and tariffs took effect, Mark Hermans, managing director at PwC, told Supply Chain Dive. “[COVID-19] in some ways has acted as more of a catalyst.”
What’s reshoring, what’s nearshoring and where are supply chains going?
Reshoring is the process of bringing manufacturing and part or all of the supply chain back to the home country from a foreign country. Nearshoring is a similar process, but refers to a location near the home country. In the case of U.S. businesses, nearshoring most often means sourcing from or manufacturing in Mexico.
In some cases, a firm will reshore its entire operation and supply chain, from raw material to finished product. “Nothing has to be global by nature,” said Lisa Morales-Hellebo, co-founder and general partner at Refashiond Ventures and co-founder of The Worldwide Supply Chain Federation. She said the U.S. has the infrastructure and components to host full supply chains.
Your most critical supplies absolutely are being reshored. And rightfully so.
But more often due to labor costs, reshoring means bringing final assembly and perhaps the tier-one supplier to the U.S., but tier two, three and beyond may still be foreign.
Simone Ross, COO of supply chain management software company Setlog, gave the example of apparel companies that found tier one suppliers outside of China, mostly in southeast Asian countries. Nations such as Bangladesh do not have large swaths of raw material resources and continue to rely on China for those imports. So even though tier one moved, tier two remained in China. “We’re still stuck to the country,” Ross told Supply Chain Dive.
Hermans said most companies are considering or already using a hybrid model for their supply chains. A portion of production and suppliers may remain in Asia, while another part of production and some vendors are in Mexico and others in the U.S. “The combination gives you the flexibility to balance production based on customer needs,” he said.
John Beattie, principal consultant at Sungard Availability Services, a disaster recovery and business continuity firm, said some organizations describe their sourcing strategy as “within market”— developing suppliers and standing up production geographically close to the customer.
“If your largest consumer base is not the U.S., put it where it is,” Morales-Hellebo said. “If it’s South Africa, build it up.”
Local suppliers allow businesses to come closer to their partners, Ross said. “Deep collaboration is helpful in times of crisis.”
Who’s reshoring, and who’s not?
Reshoring indices indicate the trend began to pick up last year.
Kearney’s reshoring index found a 98 basis point increase in manufacturing import ratio for 2019. The Coalition for a Prosperous America’s reshoring index reached 59 last year, indicating growth in U.S. manufacturing output and the largest positive move since 2002 (except for the recession year 2009).
The Reshoring Initiative lists more than 1,800 companies that have reshoredparts of their operations as of Jan. 1, 2019, including 3M, Apple, Dillard’s, GM, KitchenAid, Oracle, Pfizer and Stanley Black & Decker.
