Reshoring, or the reverse trend of offshoring, increased in the last decade but was really put under the microscope with the advent of the pandemic. With many supply chains temporarily disabled due to the global lockdown, it became obvious diversifying the supply chain was more than a back-up: it was a necessity.
Offshoring Has Become Less Enticing
Long before the pandemic, offshoring was beginning to look less attractive. A SIKICH article noted several previous advantages in the business conditions in offshore communities had evolved, making it increasingly difficult to operate. With increased cost, more complex regulations, and intellectual property risks, it began showing more drawbacks than in the past.
“I’d say fundamentally, it’s all about cost, risk, technology, and innovation,” Morris Cohen had theorized about the turn toward reshoring even several years ago in a Knowledge@Wharton panel.
“Volatility in foreign exchange and other financial aspects can wipe out the profit of a global company overnight,” he stated. “If companies have different sources to go to and different options available to them as conditions change, companies can shift and adapt to these changes much more easily, provided they invest up front and planned for change.”
Cohen’s panel mate, Scott Staples, stated the trend toward reshoring was also partly due to financial aspects like labor costs no longer being the driving force in offshore manufacturing. “Another key factor,” Staples said, “is that the cost of outsourcing or offshoring has increased to a point where it doesn’t make as much sense. It makes a lot more sense at this point to do some work here in the States but continue to do some work offshore as well and get that balance right.”
Staples later noted there was now more to calculate when considering offshoring versus reshoring: “Companies are looking for additional things such as value-add, productivity increases, and speeding up time-to-market. There’s more than just labor arbitrage in this equation.”
How Technology Drives Reshoring
Investing in technology could advance and change the way manufacturers execute their work especially with automation becoming an increasingly popular option. For example, robots can now do everything from help map factory floor plans to control warehouse operations.
In addition to lower-cost reliable automation, advancement in cloud technology could also be optimized to operate in reshoring. Investing in reshoring technology via the cloud has the potential to simplify reshoring initiatives and mitigate potential problems. If done correctly, the cloud would be able to set up a business management infrastructure where modern enterprise resource planning and customer relationship management could be used through the system.
All of this cannot be done without trained and well-equipped staff. Talent in the tech field is needed to create and sustain automation. What Staples said continues to ring true: “The biggest factor influencing reshoring is the increasing size of the talent pool in the U.S. and the new jobs in the tech space that are opening up.”
The Flip Side: Some Things Cannot Be Controlled by Reshoring
Although the cloud-enabled and customized technology can mitigate the offshoring process, there is one general caveat to reshoring: lack of physical resources. Many companies offshore to make the means of production closer to the physical resources necessary to manufacture.
Cobalt, which is primarily harvested in the Congo, is used to make the technological components companies rely on in the reshoring process. Often, cell phones, laptops, and other electronic devices that utilize lithium-ion batteries cannot be made to function without cobalt. According to the Washington Post, 60% of the world’s cobalt is harvested from the Congo, makes its way to seaports in South Africa or Tanzania, and is then transported to China where it is processed and made into the batteries that power the technology the world uses.
To reshore an industry that is reliant on a raw material available most readily elsewhere may appear as a ludicrous decision to some. But according to Supply Chain Dive, while reshoring may mean relocating all elements of manufacturing back to the United States, most often, it suggests creating a hybrid manufacturing model, by moving only some manufacturing elements back to the United States and continuing to gather raw materials elsewhere.
Technology Will Continue to Change the Way the World Does Manufacturing
Though the human element will never disappear from manufacturing, technology has become just as important in considering the way business is handled. With more and more businesses considering reshoring amidst the pandemic, technology will not only influence the decision behind it, but it may also steer the course entirely.