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Onshoring is the process of sourcing or relocating a business’ production operations within domestic national borders.
Until the 1980s, onshoring was the status quo, with most companies keeping their manufacturing operations at home. During the years of globalization, many companies outsourced or moved their production overseas to benefit from cheaper labor and material costs.
Recent years have seen a return to onshoring or reshoring as a way to increase supply chain control, avoid rising foreign production costs, and help domestic economies grow.
What Are the Differences Between Onshoring, Reshoring, and Nearshoring?
The term onshoring is often used interchangeably with “reshoring,” but there are some subtle differences.
- Reshoring – Applies to businesses that already have manufacturing operations overseas and are in the process of transferring production back to their domestic nation.
- Onshoring – Referring to companies that don’t already have overseas operations, onshoring is the process of setting up production within national borders.
- Nearshoring – This is the process of setting up production close to your national borders, often within the same region or continent. For instance, a company based in the U.S. may nearshore their manufacturing plant in Mexico or Canada.
Offshoring is the opposite of all three process types listed above and is the act of moving production operations to an overseas location.
Onshoring and reshoring production can apply to service providers as well as manufacturers of physical goods. In this case, the onshoring process is generally much easier, as the transition of large production plants is not necessary.
The best option for a specific company depends on the type, scale, and running costs of the business.
What Are the Advantages of Onshoring?
Companies may benefit from onshoring in several ways:
- Cost-saving – The days of cheap overseas labor and resources are coming to an end. Asia used to provide plentiful, affordable labor, but as countries like China and India continue to rapidly develop, the cost of wages and materials increases. Onshoring and reshoring can also stimulate national economies, so some countries may offer financial incentives for companies to keep their operations onshore.
- Easier to meet regulations – Production standards and regulations vary across the world. By maintaining domestic manufacturing operations, it is easier for businesses to meet quality demands, material standards, and to retain intellectual rights to things such as product design.
- Simplified supply chains – Rather than shipping goods across the globe, everything can be done and managed in one place using domestic partners, making the supply chain shorter and easier to manage.
- Political advantages – A lean toward protectionism in the U.S. and Europe means that companies increasingly prefer to trade inside their borders or with their closest neighbors.
Examples of Industries and Businesses that May Benefit from Onshoring
The following manufacturing industries can benefit from onshoring or reshoring:
- Manufacturers of parts for automotive, aerospace, and engineering.
- Specialist manufacturing processes such as CNC machining and plastic injection molding.
- Complex manufacturing processes such as electronics or intricate mechanical assemblies.
- Steel and aluminum production.
There are many other industries and businesses that could benefit from onshoring or reshoring. The following questions will help companies decide whether or not to onshore their operations:
- Are there local or national financial incentives in the specific industry?
- Is there a good choice of third-party production sites to handle the manufacture of specific goods?
- Are materials readily available locally?
- Are there enough skilled people to work in production sites or factories?
- Are there opportunities to optimize the supply chain?
- Will onshoring reduce or increase costs over the long term?
How Will COVID-19 Impact Onshoring?
In May, Thomas conducted a survey that indicated 64% of manufacturers say that they’re likely to bring manufacturing production back to North America.
These statistics serve as a stark warning to manufacturers who are weighing up the benefits of onshoring and reshoring versus offshoring. Ultimately, with black swan events having the potential to heavily impact production, cost reduction should not be the sole driving factor for offshoring.
As organizations look for ways to mitigate supply chain risks, a rise in onshoring and reshoring is expected, particularly among industries generating high-profit margins.
To offset the higher cost of manufacturing in the U.S., it’s likely that the adoption of robotics will accelerate. “The COVID-19 pandemic will fundamentally redefine how industrial companies approach their supply chains and will further advance the digital transformation of manufacturing,” says Tony Uphoff, president and CEO of Thomas. Today, U.S. manufacturing output is higher than ever before, which is largely thanks to automation.
Image Credit: donvictorio / Shutterstock
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