You may have noticed that reshoring has become a hot topic in the manufacturing industry in recent years, due in large part to the global pandemic disrupting global supply chains and leaving many manufacturing suppliers scrambling to fulfill their customers’ orders.
Is now the right time for your company to join others in bringing supply chains back home to America? Keep reading to find out what you have to gain from reshoring.
Domestic and Global Manufacturing: A Brief History Lesson
To fully grasp why precision machine shops are calling for reshoring efforts, it might be helpful to briefly recap historical trends in domestic and global manufacturing.
The United States quickly became a global manufacturing hub after the Industrial Revolution, and that prosperity lasted through World War II. By the war’s end, America was responsible for half of the world’s wartime industrial production.
Then, in the late 1970s, American public companies began sending manufacturing work overseas to save money on labor costs. Foreign territories had fewer restrictions and regulations than the United States, and workers’ wages were much lower—unethically so, in some cases. Still, outsourced manufacturing had become cheaper and more accessible than domestic manufacturing, and companies jumped at the opportunities in front of them.
Now, 50 years later, many US manufacturing companies are championing the return to localized manufacturing as they recognize the many benefits of reshoring manufacturing operations.
Why Reshore Manufacturing Operations?
Here’s how reshoring manufacturing operations can benefit you and your organization:
1. Gain better control of the manufacturing process
When US companies bring manufacturing work back to domestic soil, they have increased ownership of various aspects of the manufacturing process, including:
- Intellectual property (IP). The US has higher regulatory standards for IP rights than many foreign countries. In fact, there are currently no valid international trademarks or patents. So when you outsource to an offshore manufacturer, your IP isn’t nearly as protected as it is domestically.
- Relationship management. Vendor partnerships are much easier to manage when both parties are in the same country. There are no major language barriers or time zone differences to worry about, and suppliers are typically much more responsive to issues. In-person meetings are also a possibility when the need arises.
- Government compliance. When you send your manufacturing orders overseas, you risk working with a partner who might not be well-versed in US regulatory measures. In contrast, you can be confident that an American precision machine shop will comply with all necessary regulations.
- Global politics. The pandemic demonstrated that all countries react differently to crises. For example, China’s zero-COVID policy has resulted in lengthy shutdowns and caused significant disruption. American business owners don’t have any rights or power to influence a shift in a foreign government’s approach, but here in the US, they can work with government representatives to create strategies that accommodate everyone involved.
2. Save money
While it may not have been the case years ago, it is becoming increasingly clear that reshoring saves customers money. Here are some factors to consider:
- Freight costs. Freight costs, gas prices, and inflation contribute to the total cost of ownership of a part. Each of those factors has seen massive price increases in recent years—first when the pandemic impacted transportation in every country worldwide and again with the onset of the Russia/Ukraine war.
- Tariffs and incentives. Approximately 50% of all industrial goods that enter the United States have an additional tariff levied on them. This cost must be considered when looking at total cost of ownership for the manufacturing supply chain. Additionally, government incentives continue to provide reimbursements and tax breaks for research and development, manufacturing equipment, and other costs that are incurred domestically.
3. Experience faster lead times
Shipping has become increasingly unreliable, and foreign-made parts that must cross oceans and clear customs encounter longer lead times. There are also fewer modes of transportation available due to labor shortages and waitlists, causing further delays.
While lead times are also a challenge in the US, the problem is compounded over longer distances. The painful truth is that today, many companies working with foreign suppliers don’t know when they’ll receive their parts.
4. Access a skilled, high-tech workforce
American manufacturing companies are investing in Industry 4.0 capabilities such as digitization and automation, giving the US workforce a competitive edge.
Domestic workers are smart, skilled, and tech-savvy; they are set to lap foreign countries that have not adopted automation as quickly. By the time foreign workforces get on board, the US will be that much farther ahead.
And believe it or not, companies supporting reshoring efforts can rest assured that they’re not overspending on labor costs, even for a highly skilled workforce. While foreign labor was more cost-efficient decades ago than the domestic workforce, the pay gap has narrowed as minimum wages have risen around the globe.
5. Support the US economy
There is a current emphasis here in the United States on supporting local businesses. As farmers witness a heightened interest in their products and consumers shift to buying products from American-made brands, this overarching trend of supporting the US economy is inevitably crossing over into the manufacturing industry. Marketing products as “made in the USA” has the potential to impact customer decisions and brand loyalty more than before.
How a Small Part Caused Massive Problems When Made Overseas
Here at Reata Engineering, we understand that, in some cases, offshoring is still the right decision for a customer. For example, a foreign shop could be the best available partner to fulfill a very large order of simple parts. But if you need complex, precision parts—our bread and butter—partnering with a local precision machine shop is the better choice.
Recently, we won back a job that we’d previously lost to a foreign supplier. The reason? An overseas option was less expensive—or so it seemed.
The customer wanted tiny components for systems that measure particulates in a clean room environment. These parts are the size of a thumbnail and made using complex CNC machining techniques. Achieving the intricate details (including tiny slits on the sides of the part that are as thin as a thumbnail!) required steadfast precision. When the customer outsourced the job overseas, they found themselves scrapping 30% of every lot they received!
What’s more, as the cost of overseas labor increased, the cost of the parts did as well. That was the final push. Our customers didn’t want to pay the new, higher rate for inconsistent parts. Instead, they decided that if they were going to pay a little more, it would be for top-quality precision parts made to their specifications the first time. They brought their job to us and haven’t looked back.
Are you looking to reshore some of your manufacturing work? We’d love to partner with you! Get started today by requesting a quote.