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Ann Clark

Management

Why Reshore?

Speed, reliability, partnership, and innovation

Published: Monday, July 20, 2020 - 12:03

Reshoring is the trend of bringing manufacturing from overseas back to its local origin—to here, the United States. The tariffs on Chinese, Canadian, and European imports were levied both to level the global-trade playing field and incentivize U.S. companies to bring manufacturing back to America. Now it seems that the Covid-19 pandemic may have accelerated this trend.

Supply-continuity risk, rapid innovation, responsiveness, and technological collaboration are now critical considerations for sourcing, as are costs, quality, and lead time. Changing consumer behaviors demand rapid and iterative innovation, which can be more effectively achieved by shortening supply chains and bringing producers closer to final consumers.

U.S. companies like Franklin Bronze offer speed to market and close collaboration—an advantage for those looking to reshore. Automation and in-house processes, from tooling to machining, allows Franklin Bronze to deliver parts quickly. Same-shore manufacturers and customers are able to partner for joint design development and can customize projects to meet specific needs. Franklin Bronze also leverages 3D printing for rapid innovation and small-lot production.

The movement’s origins: offshoring to reshoring

Outsourcing, or offshoring, started to trend during the 1970s when corporations moved production to foreign factories. By the 1990s and 2000s, China became the epicenter for this outsourcing. Lured by cheaper labor and operations, manufacturers were able to lower production costs and maximize profits.

However, in the years following the 2008 recession, companies began to reassess their production locations, and many were attracted to come back to the United States. This created jobs for unemployed Americans. Benefits such as shorter delivery times, higher quality, and responsiveness to customers made reshoring attractive. Remarkably, between 2010 and 2017, 757,000 manufacturing jobs were moved from overseas back to the United States In 2018, a record level was seen with 145,000 jobs returning from 1,389 different companies. The increases are largely based on greater U.S. competitiveness due to corporate tax and regulatory cuts, rising wages and prices overseas, and increased recognition of the total cost of offshoring.


The Reshoring Initiative estimates that nearly 60 percent of reshore jobs during 2010–2016 came from China. (Credit: Reshoring Initiative)

Reshoring today

Bringing back domestic manufacturing
About one in two North American manufacturers (47%) are now looking to source domestically due to the disruptions caused by the recent coronavirus outbreak. This is in addition to the United States’ ongoing trade dispute with overseas partners; the heavy use of tariffs has caused more reshoring on the part of companies wanting to produce or source within the U.S. tariff walls.

The Covid-19 pandemic has disrupted complex global supply chains in everything from logistics (closed borders, idling ships, and reduced routes) to operational capacity concerns. These all impact production schedules and order fulfillment. Manufacturers are looking to secure their supply chains through simplification, diversification, and localization.

Patrick Van den Bossche, from the global manufacturing consulting firm, Kearney, sums up the offshore-to-reshore movement and its influences. “Three decades ago, U.S. producers began manufacturing and sourcing in China for one reason: costs,” he says. “The trade war brought a second dimension more fully into the equation―risk―as tariffs and the threat of disrupted China imports prompted companies to weigh surety of supply more fully alongside costs. Covid-19 brings a third dimension more fully into the mix­, and arguably to the fore: resilience―the ability to foresee and adapt to unforeseen systemic shocks.”

Kearney’s seventh annual Reshoring Index, released in April 2020, revealed a dramatic reversal of a five-year trend: Domestic U.S. manufacturing in 2019 commanded a significantly greater share vs. the 14 Asian low-cost countries (LCCs), as tracked by the index.

The CPA Reshoring Index (CRI) reports that the share of American-made manufacturing goods consumed in the U.S. market jumped significantly in 2019. The CRI focuses on the success of manufacturing in winning or losing share in the U.S. market. The CRI hit 59 last year, its first positive jump since 2009. This reflects a growth in U.S. manufacturing output of 0.8 percent in 2019, with manufacturing imports falling at the same time by 1.0 percent. Since America’s gross manufacturing output is worth $6.3 trillion, even small percentage changes like these translate into significant overall effects for individual industries, employment, and the U.S. economy as a whole.

Made in America
About 78 percent of Americans prefer products that are made in the United States, with 60 percent willing to pay extra for these products. Many cited their reasoning to retaining American jobs and keeping manufacturing strong on the global front.

Domestic products are also synonymous with quality, and U.S. manufacturers are able to pick up on quality issues and packaging flaws before shipment.

Total cost of ownership (TCO)

Key to successful reshoring is to perform comprehensive total cost of ownership (TCO) calculations, which reveal the true cost of offshoring.

TCO analyses help manufacturers see the benefits of bringing jobs back to the United States, especially when compared to rising shipping costs and wages overseas, and the resurgence in popularity of American-made goods.

The Reshoring Initiative offers a free TCO calculator, so you can aggregate cost and risk factors into one cost.

When factors such as shipping costs, timeliness of delivery, and reliability of sourcing are also considered, the decision to bring parts-sourcing closer to home often can be demonstrated.

“When evaluating a local supplier, companies should look at total cost, including transport, duty, freight, carrying cost of inventory, quality, and delivery, rather than simply labor costs, as happened during the 1990s offshoring wave,” explains Kevin Weaver, the industrial sales manager at Franklin Bronze. “Having suppliers close to home eliminates much of this ‘extra’ cost and logistic headache—and provides opportunities to customize products.”


Impact of total cost of ownership (Credit: Reshoring Initiative TCO User Database)

Interestingly, the International Maritime Organization (IMO) is implementing a new emission-reduction initiative to reduce the shipping industry’s greenhouse gas emissions by 50 percent from 2008 levels by 2050. They will do this by banning ships using fuel that has a sulfur content of 0.5 percent or higher. This change is estimated to cost the shipping industry an additional $60 billion per year, about a 25-percent increase in fuel cost. The cost will more than likely be passed onto the customers—i.e., manufacturers shipping product.


Influencing factors for reshoring + foreign direct investment (FDI), 2010–2018

Attracting reshoring partners

Customers want a responsive local partner to collaborate with to meet the market challenges of rapid innovation and product development. “Here at Franklin Bronze, we offer speed to market and close collaboration with our customers, an advantage for those looking to reshore,” explains Weaver. “With robotic processes, in-house tooling, and castings machining, we are able to react and deliver parts fast. By working with customers close to home, we are able to technically support designing and developing parts that are manufacturing-friendly to minimize cost and maximize performance. 3D printing is available to produce prototypes as well as small-lot production in the shortest time possible.

“With highly qualified engineers on staff, we work in partnership with our customers for joint design development, flexibility, and customization. We pour nonferrous investment-cast components, up to 30 pounds (13.6 kg) in an array of alloys from stainless steel, nickel, brass, and bronze. Our in-house metallurgical engineer can propose alternative metals and treatments that minimize cost without compromising the function or performance of the component.”

Discuss

About The Author

Ann Clark’s picture

Ann Clark

As vice president, Ann Clark leads marketing and communication for Wall Colmonoy, parent company of Franklin Bronze Precision Components. Clark is constantly exploring, assessing, and proposing opportunities to achieve the business’ objectives and ambitions.