BDO: 22% of companies plan to reshore to US
While optimism is returning to the economy, 83% of U.S.-based chief financial officers (CFOs) expect their company to take up to a year to recover, according to the 2021 BDO Manufacturing CFO Outlook Survey.
Of the 100 CFOs polled for the survey, 24% also said they plan to relocate their supply chains to another country in 2021, with the U.S. topping locations manufacturers saw as the most stable market to source materials.
The survey was conducted in September, polling 100 manufacturing industry CFOs for companies with revenues ranging from $250 million to $3 billion.
Chicago-based BDO USA LLP is a professional services firm providing tax, financial advisory and consulting services to a range of publicly traded and privately held companies.
Eskander Yavar, national leader of BDO manufacturing practice, said every manufacturing subsector experienced at least some disruption due to COVID-19 during 2020.“Industrywide supply shocks were felt at the onset of COVID-19 due to the wide array of businesses throughout the supply chain that are at least partially dependent on China for production,” Yavar told FreightWaves.
Yavar, who is also a board member of the National Association of Manufacturers, said the degree to which a manufacturer experienced disruption depended on several factors, including labor shortages, demand spikes and whether it had to temporarily close some or all of its facilities.
“According to the survey, 82% of manufacturers across subsectors experienced production halts in the last six months at some or all of their locations,” Yavar said. “As a result of this disruption, just 10% of these manufacturers say their business will recover within a year, compared to 50% of manufacturers who had no locations close.”
Not all companies lost business during the pandemic. Market share for Wisconsin-based Stoughton Trailers LLC increased over the last year, said CFO Sue Vanderbilt, in the survey.
The company is a manufacturer and supplier of semi-truck trailers, and has several facilities across Wisconsin.
“Our market share has actually increased. But that doesn’t negate the impact of the pandemic on our people’s daily lives,” Vanderbilt said. “We recognize that balancing work with new responsibilities at home has never been harder—and we have to do that much more to help our employees stay engaged and acclimate to change.”
Among the key survey findings:
- 51% of manufacturing companies will invest in supply chain technology, and 50% will identify alternative or backup suppliers.
- 49% say the pandemic enabled faster decision-making, 38% say it led to product or service innovation, and 34% say it accelerated digital transformation/Industry 4.0 adoption.
- 44% will introduce new aftermarket services; 42% will pivot to new products.
- 34% said the pandemic improved workforce culture and unity.
- 24% view Europe as the most stable sourcing location outside the U.S., followed by North and South America (not including the U.S.) at 14%.
- 22% of manufacturers surveyed said they will reshore their firms to the U.S., with many saying supply chain stability is the factor most critical to the recovery of the manufacturing industry.
R.J. Romano, supply chain practice leader of BDO Consulting Group, said Europe ranked second as a stable sourcing location for multiple reasons.
“Since 2019, Europe has been a front-runner in moving sourcing production out of China, especially in the apparel industry,” Romano told FreightWaves. “The driving forces have been their advancements in manufacturing, their extensive focus on nearshoring and the increased costs of manufacturing in China due to tariffs and rising labor costs.”
The cost to manufacture in China is still cheaper than in Europe, according to Romano, “but due to the pandemic and shift in consumer expectations,” companies’ supply chains want sourcing options that are closer to home.
“These factors have set up Europe as not only a stable option that will continue to advance and grow, but it is providing U.S. companies with less risk exposure and less disruption to their supply chains,” Romano said.
Romano said one of the unexpected findings of the survey were CFOs who ranked meeting higher customer expectations more important than supply chain risk mitigation.
“This was actually a surprise for us to see and is not what we are hearing from our clients right now in the market as it relates to their supply chain needs,” Romano said. “Although supply chain risk is still a hot topic and may decrease as the year goes along, there has been one consistency even prior to the pandemic and that is the rising customer expectations.”
“The scarier part for companies is they know they will potentially have to be very aggressive with their supply chain and actually sub-optimize to ensure for faster delivery to customers while absorbing more costs to make it happen,” Romano said.
According to the BDO survey, 30% of manufacturers plan to pivot to a direct-to-consumer (D2C) e-commerce model in 2021.
Many customers shifted to shopping online during the pandemic, giving manufacturers an opportunity to ramp up their e-commerce operations, Yavar said.
“There are several factors to consider when determining whether you should shift to a D2C e-commerce model: Assess the potential for revenue growth, and whether you would be able to handle the marketing, fulfillment and logistics aspects of a D2C pivot,” Yavar said.
Yavar said companies that embraced Industry 4.0 “will be better positioned to be successful in pivoting to a D2C e-commerce business model.”
Industry 4.0 has been defined as a new phase in the Industrial Revolution that focuses heavily on interconnectivity, automation, machine learning and real-time data.
Yavar said early adoptees of Industry 4.0 “may have advanced demand forecasting capabilities, an existing B2B e-commerce platform that could be repurposed, or even the ability to collect and synthesize data throughout their operations for greater insights into their new customers.”
Another major trend to watch in 2021 is how the administration of President Joe Biden will affect companies’ thinking on reshoring to the U.S., according to the survey.
“President Biden’s recent ‘Buy American’ executive order could potentially incentivize companies to reshore some of their production to the U.S., but it’s too early to tell,” Yavar said. “Based on Biden’s recent executive order and what was said on the campaign trail, it’s safe to assume his administration will push for more policies aimed at strengthening U.S. manufacturing. It would likely translate to legislation that encourages or incentivizes the nearshoring or reshoring of supply chains to the U.S.”
Yavar said potential legislation could prioritize reshoring products considered critical to national security, such as medicine and medical devices.
“Companies that rely on, produce or source products that are likely to be classified as integral to national security should be especially attentive to policy proposals this year and consider how they might qualify for reshoring incentives based on their own supply chain plans,” Yavar said.
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