In 1965, manufacturing made up 53% of the U.S. economy. Today that number hovers around 12%. Offshoring over the last 50 years made the iconic “Made in America” label much harder to find. People may soon see it more frequently as U.S. companies reshore their manufacturing facilities. The historically cheap costs of overseas production are changing; so is the mentality that the United States is great for manufacturing ideas, not products.
As of September 2021, the Reshoring Initiative® projected more than 1,300 companies bringing 138,000 jobs back to the U.S. by yearend. When combined with U.S. jobs created through foreign direct investment, the number jumps to nearly 225,000. That is a 38% improvement from an already strong 2020 and makes it the highest rate ever recorded.
The pandemic accelerated the move to bring manufacturing back to America. Rising prices abroad have U.S. companies reevaluating their total landed costs, so the margins aren’t what they once were. With price differences less of a barrier, other reshoring benefits are opening the door to a U.S. manufacturing comeback.
#1 Shorter Lead Times
As we all know, the pandemic wreaked havoc on the global supply chain. Shipments from China to the U.S. West Coast now average more than 100 days compared to less than 50 in 2019. Most Americans have experience the results with longer lead times for online orders and empty store shelves. The supply chain delays have billions of dollars tied up in inventory. The monthly inventories-to-sales ratio hit a near five-year low to close out 2021. The inaccessible inventory sitting on ships has companies refinancing and is tripling the amount of working capital needed to run our companies.
Reshoring shortens the supply chain as companies can source materials for production more quickly. Just-in-time manufacturing allows businesses to minimize their inventory carrying costs and expedite the sales cycle. Reshoring also supports the move for “within market” manufacturing. This puts suppliers and production facilities in the same market as their consumer. Local vendors can better support manufacturing sites, thus minimizing the long wait times and carrying cost of transcontinental sourcing and shipping.
#2 Better Quality and Security
While overseas manufacturing may still cost less, businesses often get what they pay for. Foreign quality issues frequently plague U.S. companies. Product defects can go unnoticed until their arrival in the U.S.—losing companies valuable time and money. Time zone differences and communication barriers make ensuring a product is manufactured to spec difficult. Different standards of quality between overseas manufacturers and U.S. companies can render large batches of products unusable without a good way to recoup the expense. Reshoring improves this by making manufacturing facilities more accessible to their customer. They are better able to produce to the specification, can accommodate more frequent inspections, and must abide by U.S. regulations for safety and quality.
A heavy reliance on foreign manufacturing also is a national security issue. Consider the start of the pandemic. Personal protective equipment (PPE) was in critically short supply. Most PPE came from international facilities. This created long wait times and left the U.S. competing with every other country for materials. As a result, the U.S. government and its corporations have worked together to produce more of this critical equipment domestically. The same is happening in the pharmaceutical industry to keep more drugs closer to home.
#3 A More Skilled Workforce
While labor in China and India historically cost U.S. companies 30-40% less than domestic employees, that is changing. Wages are on the rise internationally, which makes a largely unskilled labor force less beneficial. The U.S. enjoys one of the world’s most skilled workforces. As the move toward technology-based advanced manufacturing takes hold, having a highly educated and skilled workforce helps facilities be more specialized and nimble in their product methods and processes. A better labor force also allows companies to invest in automation so they can do more with less.
#4 Customer Responsiveness
In the U.S., the customer is king. Long lead times and a lack of quality control abroad make meeting evolving customer needs difficult. Plus, the “Made in the USA” label carries cachet. A survey of Americans found that 70% prefer products labeled as made in the U.S. and 83% indicated they would pay a 20% premium for them. That cost differential may be just the margin companies need to move production back to the U.S. Domestic laws around environmental protection and labor regulations also align with the macro trend of a more conscious consumer who spends money according to their values.
Unlock More Benefits Through Langham
Manufacturers need a best-in-class logistics provider to help unlock the full benefits of reshoring. At Langham Logistics, our highly skilled team builds efficient warehousing and transportation processes that improve cost and quality. We help manage every aspect of the supply chain from consulting to compliance. Discover why many of the nation’s biggest reshoring companies look to Langham for 360-degree logistics support.