In today’s globalizing economy, demand for low prices has moved many corporations to seek out the lowest bidder for production. Offshore factories and global supply chains have become commonplace, even expected. But as economies around the world begin to bounce back from the recession and advancing technologies allow businesses to operate smarter, the offshoring trend seems to be losing its grip.
Production in the States is beginning to pick up steam, with September and October each seeing a 0.2 percent increase in domestic factory production. Though these gains are modest, the outlook for expanded domestic business is very positive: last month an index for future business reached its highest level since January 2012, and capital expenditure is at its highest in over two years.
One factor behind this increase in domestic production is the return of global manufacturers to our shores. What is behind this current onshoring trend, and what might a domestic manufacturing revival mean for local markets and domestic partnerships?
Why we are Seeing Growth in Onshore Manufacturing
There’s no question about it: production facilities are moving to the US. According to the Boston Consulting Group (BCG)’s third annual “Made in America, Again” report, 16 percent of US-based manufacturers are currently reshoring to the United States, and 54 percent are considering reshoring – up nearly 50 percent since 2012. What’s driving manufacturers to reshore production to the States?
As you can see in the BCG chart above, regionalization, a strong workforce, a more reliable supply chain and quality control are major drivers of this transition.
A Skilled Workforce
According to the BCG study, 74 percent of manufacturers who reshored last year cited a skilled workforce as a strong factor in their decision to reshore, most likely due to expertise in advanced manufacturing equipment and technologies.
Advanced Onshore Manufacturing Technologies
Advanced manufacturing technologies, along with the capacity for automation, are helping manufacturers using in-country production reduce costs, gain a competitive edge and decrease supply chain risks. 71 percent of manufacturers believe that advanced manufacturing technologies will improve the economics of localized production. As automation costs decline, the U.S. stands to benefit from regionalizing manufacturers.
A Reliable Supply Chain
For US-based manufacturers selling to customers based primarily in the U.S., regionalization makes sense. For this reason McKinsey forecasts that manufacturing of products to be consumed by in-country customers is set to grow faster than any other category of manufacturing.
Regionalization and the benefits it brings to the supply chain are a large contributing factor to the current onshore manufacturing trend: 79 percent of manufacturers are looking to shorten their supply chain by reshoring to the U.S., 78 percent aim to reduce shipping costs and 69 percent want to be closer to their customers. The latter is especially important for manufacturers of high-end products whose end goal is to produce goods that are high quality rather than dirt-cheap.
Control over the onshore manufacturing process and the quality of the output is another major factor behind the onshoring trend. 75 percent of onshore manufacturing is taking place due to increased control, and 74 percent of manufacturers are onshoring in order to improve quality and increase yield.
In general manufacturing executives expect a 7 percent rise in manufacturing capacity in the U.S. and 5 to 21 percent decreases in China, Western Europe and Mexico.
How to Onshore Your Production
Are you interested in onshoring manufacturing? Aditya Pande, principal at McKinsey, recommends these three tips:
1. Choose Your Location Wisely
Talent pools and government incentives vary widely from state to state and even city to city. When deciding where to locate your new domestic production facilities, choose wisely. “Make sure you’re the first company to move in, and look closely at the number and quality of local colleges: can they provide enough graduates who have the skills you need?” Pande writes.
2. Make Sure Your Onshore Manufacturing Makes Sense
Before you decide to onshore production, keep your business’s long-term survival in mind. Onshore only when your production requires special skills available in the U.S. workforce and when it makes financial sense.
3. Invest in Your Workers
Onshore manufacturing is likely to increase your labor costs. Offset these costs by establishing a well-rounded employee retention program. This will minimize wage pressures over time. Benefits like unlimited vacation time, overtime pay, flex policies and company retreats can go a long way to increase employee happiness and retention.
Onshoring Is Revitalizing Local Markets and Partnerships
With the implementation of onshore manufacturing in order to gain skilled workers, a more reliable supply chain, advanced manufacturing processes and better quality control, local markets are in line for a big boost. As more manufacturers set up shop across the States and offer high quality jobs to the American workforce, new industry hubs will pop up, sparking local business growth and more partnerships between domestic firms.
Featured image by Belvoir Integration