Reshoring to America: Why companies are moving from offshore manufacturing to reshoring

OTTO Motors

In the past four years, there has been a 250% increase in North American manufacturers reshoring their operations to American soil. A change in the industry to this degree has not occurred since the offshore manufacturing trend in the 1990s. Labor, productivity, quality, and policy changes are forcing manufacturers back onshore to stay competitive and the North American landscape is changing as a result. Now is the time that manufacturers must think critically about the future of their operations, and understand how these factors are going to create disturbance and also opportunities to their corporation.

Offshoring may not be the competitive answer

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In the 1970s, manufacturers were focused on the principle of lean; it was the core objective in business operations and adopted for productivity. By the 1990s offshoring had trended upward, taking advantage of low foreign labor markets; it had become the fastest way to increasing the bottom line of an operation. Offshoring, however, uncovered a new set of challenges - many of which could be attributed to a more complex supply chain. Today, the advantages of offshoring are shrinking rapidly. Labor rates continue to rise globally, product quality is suffering, and policy changes within the U.S are changing the local landscape. Meanwhile, technology and digital advancements for the factory floor are providing compelling reasons to bring operations back onshore.

Rising costs in foreign markets relating to labor, land prices, electricity, fuel costs and overhead rates are changing the economics of offshore production. In addition, a growing market demand for product quality and subsequent investment weaken the profitability of offshoring. As well, factors such as logistics inventory costs, ease of doing business, and risks associated with operating an extended supply chain weigh heavily in executives’ decisions to bring operations back onshore.

When to reconsider reshoring in American manufacturing?

An article in Industry Week reports that among 106 large U.S. manufacturers surveyed by the Boston Consulting Group in 2012, 70% said that sourcing in China is more costly than it looks on paper. By 2015, manufacturing executives reported that the increase in reshoring is already underway with some 17% of respondents reporting that they were already actively reshoring production, an increase of 250% since 2012.

With the drastic changes in the manufacturing landscape, offshore manufacturing doesn’t necessarily provide the competitive edge that it once did. Is your operation a candidate for reshoring operations to North America? Which questions need to be considered in order to determine if your business will benefit from offshore production?

Discover which factors are fueling the onshore movement, from rising labor costs to Trump’s plans for policy changes, and why now is the time to evaluate if your operation should manufacture onshore. Download the ebook here.

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