Reshoring has marked its significance in the manufacturing industry. For the past couple of decades, manufacturers have outsourced labor costs overseas. Being that it’s faster and cheaper, offshoring became popular and still is today. Unfortunately, the downside of this was local job loss. Since 1979, over three million manufacturing jobs were lost due to offshoring in the USA. But, in 2010, a group of manufacturers formed the Reshoring Initiative to help bring back manufacturing jobs to the local market.
So how is reshoring today? In this blog post we’ll explore some ways that it benefits businesses and how it affects other sectors of the industry.
Over the years, data reports from the Reshoring Initiative have shown that reshoring has brought back jobs to the U.S. The transportation sector has seen the most growth, with the addition of 134,000 more jobs within recent years. Though these numbers sound pretty good, overall, reshoring isn’t spiking in numbers. Though many businesses have benefited from it, it’s not happening at an exponential rate.
Reshoring has been a key player in the manufacturing industry as of recent due to a couple of factors:
- Risk: Having manufacturing efforts overseas is risky because of external factors. Things like politics, natural disaster and even poor infrastructure can all affect cost and efficiency. As well, international tariffs and taxes are a concern too. There are government efforts that provide incentives to companies to promote local manufacturing. For example, tax breaks. Many companies are choosing to bring back manufacturing efforts for that sense of security. Ultimately, this makes it easier for forecasting and management.
- Reputation: Consumers look for quality, and often they don’t associate that with a “Made in China” tag. Now more than ever, shoppers are becoming more conscious of their purchases. Shopping locally has many benefits, not just to manufacturers, but to the overall economy. As well to have that made locally stamp (i.e. “Made in America”) can go a long way in terms of authenticity.
Why isn’t everyone reshoring?
Everything has its pros and cons and reshoring is no exception. Though there are a number of benefits, here are some reasons some businesses from do not make the move:
- Higher labor costs: From an ethical standpoint, offshoring is often cheaper because of the cost. Due to living standards and differences in human rights laws, companies don’t have to pay workers as much as they would if manufacturing was happening locally. For example, Canada’s minimum wage is about $10-14 CAD per hour. In contrast, Bangladesh’s minimum wage can be as low as $19 per month.
- Starting over: Relocating your manufacturing is a big investment. Local infrastructure may not be readily available for reshoring. Therefore, companies, in a way, have to restart with establishment.
- Skill gap: Part of starting over also applies to your employees. Since there will be less available workers, retraining and rebuilding your team will also be something that needs to be taken into consideration. The skill gap is a problem that many companies face, as the supply and demand for the labor force varies drastically geographically.
How does it effect supply chain?
Manufacturing’s impact on the overall supply chain is huge. It influences pricing, supply/demand and more. So where does reshoring fit in? Well, it can do as much as completely change your entire operation. Overall, there are many benefits and it can help your company in the long run. Things like a tighter streamline on your supply chain and cheaper transportation costs. However, it can potentially be expensive and requires careful planning.
Even though current trends show that there aren’t too many companies reshoring, it is still steady and has been on an upward trend for the past few years. It seems that there is a continuous effort in doing so.