Why are reshoring efforts accelerating?
With the ongoing COVID-19 pandemic and heightened global trade tensions, companies in North America are working to reshore and find more localized supplier partners to create resilient supply chains. For manufacturers, service companies, and distributors in the United States & Canada, this means there will be an increase in the number of opportunities that become available in the form of supplier evaluations from new buyers.
According to Thomas survey data, 69% of companies across the manufacturing and industrial sectors “are likely to bring manufacturing production and sourcing back to North America” in the face of recent disruptions.
Which specific conditions are accelerating reshoring efforts in 2020?
There are many examples of disruptions that are driving supply chain and procurement managers to seek out more localized supplier partners. These disruptions can occur in the form of an overseas factory closure due to the COVID-19 pandemic or the inability to source raw materials from nations in a cost-effective manner due to challenges from tariffs or trade restrictions. Challenges like these are creating a sense of urgency for supply chain and procurement professionals who need to “future proof” their operation and create resilient supply chains.
According to data from a recent Gartner survey of industrial leaders, 55% of respondents said their supply chains will be resilient within two to three years, meaning they will have good visibility paired with the ability to shift their sourcing, production and distribution efforts quickly when disruptions occur.
The same report 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.
According to March 2020’s Thomas Industrial Survey with 1,073 qualified industrial respondents, COVID-19 supply chain disruptions had resulted in an acceleration of appetite for locally-sourced materials and services, specifically:
Fabricated materials, electronic components, raw materials (metals, wood, textiles, etc.), machining tools & parts, and PPE are all especially in demand from buyers who are working towards finding reliable, local sources to keep their supply stable.
How have the major drivers of reshoring changed?
Historically, the most frequently cited reason for reshoring was the quality of products and services that were being sourced overseas. These quality issues not only included the products or services themselves but also the quality of the supply chain including challenges with communication and disruptions/delivery issues caused ongoing issues for buyers and supply chain managers. A Thomas Industrial Survey conducted in February 2020 revealed that 35% of manufacturers saw incidents of offshore factory suspension and/or production restrictions and 8% report that the coronavirus outbreak has caused their cost of goods to surge.
“The impact has been severe and recovery will take many years, but over time manufacturing will get back to pre-coronavirus levels. One tailwind will be the transition of the supply chain to North America from Asia which will boost manufacturing and logistics capabilities,” says one of Thomas Industrial Survey participants, a water sanitization manufacturer from Minnesota. There is also strong support on building local talents and career pipelines. “We need to reshore manufacturing and supply. It will increase high paying, skilled jobs, and create an exponential number of support jobs,” said another participant from a metal stamping company in Connecticut.
Companies engaging in offshoring were accepting a greater degree of quality and manageability risk in order to take advantage of the cost tradeoff that came from lower labor and operating costs that could be more easily found in developing countries. With these reduced labor costs came increases in quality costs in the form of more product recalls and overall quality issues that created issues for quality control departments.
With the massive disruptions in today’s market stemming from ongoing trade tensions and the COVID-19 pandemic, these issues have been compounded to a point where supply chain and procurement managers are being forced to reexamine these tradeoffs & reevaluate their acceptable level of risk. While supply chain and procurement managers closely review what processes and supplier activities they bring back to North America, they are additionally exploring which activities they had historically outsourced to see what they can recreate closer to home through onshoring. This compounds the amount of incoming opportunity for suppliers in the United States and Canada.
What opportunities does reshoring create for manufacturers in North America?
Supply chain managers are developing more resilient supply chains by modifying their supplier base to include more localized suppliers and service providers in areas that offer more stability and simplicity.
This creates selling opportunities for North American manufacturers who may have been overlooked in the past as buyers favored products and services from suppliers located in developing countries with less expensive labor.
The interest in reshoring has only intensified as the crises mentioned above have persisted. In June 2020, 69% of companies surveyed by Thomas stated they were “likely” to “extremely likely” to reshore, compared to only 54% in February. Agricultural, Energy/Utilities, and Food & Beverage companies were the leaders in reshoring interest. Year over year increases in the supplier evaluation activity presented in the data below from Thomasnet.com® confirms that companies are taking time to review their current supply chains and are seeking out new suppliers in North America that will help them better manage their resources and grow their supply chain’s resilience.
Below are Q2 growth stats in regards to year-over-year increases of buyers and engineers searching Thomasnet.com for suppliers in North America:
- 40% Increase in Buyer Visits
- 139% Increase in Verified RFI Submissions
- 28% Increase in Supplier Evaluations
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In addition to creating selling opportunities for manufacturers, the push towards reshoring can also directly benefit their own business operations by creating diverse supplier portfolios that allow them to future proof their ability to acquire raw materials, individual components, and finishing services