Factors for Deciding to Reshore, and Ways to Make It Easier
There has been increased talk about the risks of doing business with China, and the recent pandemic has shown a spotlight on the need for less dependence on supply lines from the Far East. Even larger corporations that had pioneered the move to China are starting to rethink things and increase manufacturing in the U.S., bringing some of the outsourced production home.
Disadvantages Come to Light
Although it was well known that offshore sources ran a greater degree of quality and manageability risk, the lower labor and operating costs in developing countries made the move offshore a very attractive proposition. For many years, companies followed the trend and just dealt with the product recalls and overall quality issues. But there were many other consequences to offshoring that were not immediately apparent.
A frequently cited problem with sourcing offshore was not just the quality of products being sourced overseas, but also the quality of the supply chain, including ongoing problems with supply chain disruptions and delivery issues, as well as communications, only heightened by the COVID-19 pandemic.
Changes to product lines and changing market trends can also have consequences. If a U.S. company decided to close its factory in China due to changing product lines, they may still be liable to pay the factory’s employees until the end of their employment contract, which customarily lasts up to two years. This has resulted in a costly surprise for many U.S. companies.
Product design and manufacturing intellectual property is not protected as it is under confidentiality and non-disclosure agreements as it is in the U.S. Even if U.S. companies take the time to register their patents and brands in China, production methods and raw materials are not always protected. Once the Chinese factory acquires the technology and designs—and learns how to make their product—they are likely to produce the same product under a different name. We have all heard the stories of counterfeit products appearing on the shelves or online, alongside the “real thing.”
Further Impact from COVID-19
There are many recent examples of disruptions to the overseas supply chain due to factory closures caused by the COVID-19 pandemic. As we work through this global crisis, these factors will continue to plague overseas manufacturing and transportation. But the current pandemic has brought to light just how global crises can affect overseas supply chains and intercontinental logistics. From natural disasters to political and economic upheavals, there are many potential crises that could seriously threaten a global supply chain. The current crisis is not the first, nor is it likely to be the last that could disrupt business worldwide.
As pressure increases with China and the global trade wars, we are likely to see more difficulty in doing business offshore. And as we have seen in the news, hostilities could arise which threaten to limit our opportunities to do business overseas.
Outsourcing of manufacturing to foreign countries with fewer restrictions on fossil fuels and greenhouse gas emissions has had significant environmental repercussions. With increasing pressure from environmental groups demanding more be done to prevent climate change, companies need to reevaluate their relationships with manufacturers that rely heavily on dirty energy. China still depends on coal—the dirtiest fossil fuel—for about two-thirds of its energy. As a result, the air in some Chinese cities contains as much as seven times the particulate pollution of the international standard, according to the World Health Organization (WHO).
The Way Forward
With the ongoing COVID-19 pandemic and heightened global trade tensions, many companies have a new-found urgency to find more localized, domestic suppliers and create resilient and more stable supply chains. According to Thomas survey data, 69% of North American companies “are likely to bring manufacturing production and sourcing back to North America,” especially in the face of recent disruptions.
According to a recent Gartner survey of industrial leaders, 55% of respondents said their supply chains will be resilient within two to three years. The report also showed that 33% of surveyed leaders said they had already moved sourcing and manufacturing out of China or planned to do so within the next two to three years.
Some benefits to Reshoring include:
- Shorter lead times for parts and sub-assemblies
- Reduction of inventories and the associated carrying costs; reduction of stock-outs
- Reduction of logistics costs and times
- Protection of IP
- Better supply chain management
- Reduced carbon footprint
- Lower travel costs and less restrictions to travel
Customer demand is another factor. With product being exported worldwide, including Korea, Canada, and even China, made-in-America brands have real value overseas.
Although the past trend to send manufacturing offshore decimated the manufacturing industry in the U.S., the good news is that those companies that have survived have learned how to reduce costs by investing in more automation and technology, and found ways to produce more for less, done so by incorporating lean initiatives throughout their operation.
American manufacturers have shed the labor-intensive, sweat-shop methods of the baby-boom era and have embraced modern manufacturing and quality assurance techniques. U.S. manufacturers make product to some of the highest quality standards. If you visit today’s U.S. manufacturers, you will find a completely different landscape from that of 20 or 30 years ago. Clean, organized facilities with modern equipment, efficient workflow, and data-driven production control are the earmarks of a modern American manufacturer.
These surviving U.S. companies are eager to increase their business and develop domestic partnerships. They are likely to become some of the most trouble-free partners in your supply chain. They are also willing to work with customers cooperatively to bring new and improved products to market in a timely manner, and most will work with their customers to create a vendor-managed inventory program which would reduce delivery times and inventory to a minimum.
Finding Your Source
Although vetting new domestic suppliers can be a daunting task, there are ways to ensure you are bringing a reliable source into your supply chain. The best vetting process still will not guarantee you will not have any start-up issues or minor delays now and again, as things can happen beyond anyone’s control. But it will certainly provide some assurance that you have placed your product in capable hands that have a system in place to logically and nimbly adjust to your production needs with consistency while maintaining high quality.
About Larson Tool & Stamping Company
Since its inception in 1920 in Attleboro, MA, Larson Tool & Stamping Company has been making a difference as a valued supplier of precision metal stampings and assemblies to hundreds of companies in the United States. Larson provides high-quality, cost-effective solutions with its wide range of capabilities that include forming, stamping, deep drawing, assembly, brazing, painting, coining, and more. Through significant investment in leading-edge manufacturing equipment and the loyal support from customers and co-workers, Larson perpetuates the commitment made by its founders to do whatever is necessary to meet and exceed customer expectations.
Helping You Choose
We have given a lot of thought to what would make the best supplier and what criteria to base your decision on. See our article, 6 Top Considerations for Choosing a Precision Metal Stamping Supplier for ways to make your selection process easier, as well as our free download, Supplier Interview Checklist, to help you vet suppliers in a virtual business model. Larson Tool has experience reshoring product from overseas, including integrating existing tooling when available. We are fully capable of working with you cooperatively to make your reshoring initiative as seamless as possible. If you’re ready to explore your options now, contact us and we’re happy to discuss your situation.