Over the last few decades, our hunger for low-cost goods has led us down a path of offshoring, fueling rampant economic growth. But at what cost? We’ve lost good quality jobs, damaged the climate, and become reliant on foreign nations that might not have our best interests at heart.
However, the pendulum has swung in the opposite direction in recent years. Reshoring–bringing manufacturing back to the US from overseas–is rising. It’s creating jobs, lowering emissions, and boosting the resilience of supply chains.
This blog looks at the key drivers behind manufacturing reshoring, and the digital transformation strategies manufacturers must implement to offset increased labor costs in the United States.
- Manufacturing Reshoring: The Numbers Behind the Trend
- What’s Really Driving Manufacturing Reshoring?
- Digital Transformation Is Making Reshoring Economically Viable
- COVID-19 Has Forced Many Manufacturers Back Home
- The “Asian Century” Has Caused Us to Reconsider Our National Interests
- Demand for Sustainably Manufactured Products is Growing
- Additive Manufacturing Is Fuelling Localized Microfactories
- Digital Transformation Strategies to Revitalize American Manufacturing
- Automating the Shop Floor
- Reshoring Is a Vital Element in Revitalizing American Manufacturing
Manufacturing Reshoring: The Numbers Behind the Trend
The trend towards manufacturing reshoring is generally up and to the right. Kearney’s 2021 Reshoring Index (released in 2022), which tracks trends in manufacturing returning to the United States from China and other Asian countries, shows:
- 92% of manufacturing executives feel positive about reshoring.
- 79% of the US manufacturers reliant on Asia have either begun the reshoring process or plan to do so in the next three years. 15% of the remainder are evaluating similar moves.
According to research from the Reshoring Initiative, published in IndustryWeek, manufacturing reshoring restored 224,313 jobs in the United States in 2021. Most of these jobs came from the transportation equipment industry (25%), followed by chemicals and electronics (both at 17%).
The positive trend toward manufacturing reshoring isn’t entirely linear. There have been dips. The current rate of reshoring is lower than at its peak in 2018–2019 when the US-China trade war and endless tariffs tipped the scales in favor of a return home for many manufacturers.
But with companies like Walmart committed to spending an additional $350 billion through 2030 on supplies from the United States, and the White House actively promoting reshoring to strengthen supply chains and revitalize manufacturing, most analysts foresee an increase in reshoring over the coming decade and beyond.
What’s Really Driving Manufacturing Reshoring?
When it comes to the drivers fueling manufacturing reshoring, there’s a combination of macroeconomic, social, and political forces at play. These include:
Digital Transformation is Making Reshoring Economically Viable
Cost economics, particularly cheap labor, is the principal reason American manufacturers started offshoring their facilities in the 1970s. Much has changed since then, but the wage gap remains. The average salary in Beijing (the wealthiest region in China) is currently $24,386 compared to $51,916 in the US.
But the cost of labor is no longer the deciding factor it once was. Automation has made manufacturing far less labor-intensive and will continue to do so. Technologies like AI, machine learning, IoT, autonomous vehicles, AR, and VR are supercharging manufacturing productivity, and robots are replacing workers.
US manufacturers that invest in the right technology can offset the higher labor costs associated with operating in their home markets. They can increase product quality and still compete on price with foreign rivals. As digital technologies get better and cheaper over time, automation will have an even greater impact and become accessible to companies of all sizes.
COVID-19 Has Forced Many Manufacturers Back Home
Strict lockdowns in China and other Asian countries necessitated a move for some manufacturers back to their home countries. Hugely challenging, many of these companies are loathed to reverse the change and are happy with their re-localized supply chains.
Even more important than lockdowns, COVID-19 revealed how hopelessly reliant we have become on foreign nations whose interests are rarely aligned with ours. Hostile countries can restrict trade overnight and cause economic damage. Europeans are currently witnessing the fallout from Russia invading Ukraine in the form of severe disruptions to oil and gas supplies.
Many US manufacturers, not to mention the US government, have started to factor improved stability and supply chain resilience into their costs. They’ve concluded that all risks considered, manufacturing reshoring makes better economic sense.
The “Asian Century” Has Left Us Reconsidering Our National Interests
Since 2008, one-third of all world GDP growth has occurred in China. In 2020, China became home to the largest number of Fortune’s Global 500 companies. We’re witnessing the dawn of the Asian Century, and the United States can no longer compete with the large-scale capital investment and productivity growth that’s going on over there.
The Chinese economy is growing at breakneck speed. But China will not take the United States along for the ride. Government policies, notably Dual Circulation, clearly set out China’s commitment to increasing domestic demand and reducing dependence on the outside world.
Make no mistake; the United States can no longer afford to rely on China to fuel its economy long-term. We need to revitalize manufacturing at home to defend our national interests and create good jobs.
Demand for Sustainable Products is Growing
Manufacturing accounts for 24% of greenhouse gas emissions, primarily from fossil fuel consumption but also from the chemical reactions used to convert raw materials into finished goods. 24% is unacceptable for consumers demanding sustainable products and the regulators clamping down on polluters
There’s a new generation of buyers for whom price isn’t the primary factor affecting their purchasing decisions. They care more about where their products come from, how long they will last, and the conditions under which they were produced than just how much they cost. Consumers are prepared to pay more for that “Made in the USA” label.
Sustainability has become good for business. Manufacturing reshoring gives American companies the control and agility they need to produce products more sustainably. Not only does it attract more customers, but it attracts top talent at a time of skilled labor shortages and creates partnership opportunities with other leading brands.
Additive Manufacturing (3D printing) is Fueling Localized Microfactories
3D printing is finally set to go mainstream. It’s a $13 billion industry with a 22% annual growth rate, and its rise is so exciting and closely coupled with reshoring that it deserves its own subheading in this list of drivers.
Right now, additive manufacturing is commonly used for making prototypes and models as well as jewelry, machine parts, and novelty goods. Soon, however, manufacturers may be able to use the same technology to “print” anything, from entire cars to houses, in just a few hours.
Regional manufacturers can’t compete with large, established companies when it comes to mass production. But 3D printing levels the playing field. Smaller companies and startups can afford to build incredibly efficient, automated, localized micro-factories thanks to additive manufacturing machinery’s relatively low cost, weight, and footprint. They can pump out smaller batches of custom products aligned to the tastes of their local market and niche online communities.
In a world where consumers want personalized products, sustainably sourced and delivered at Amazon-like speeds, additive manufacturing is the ideal solution. It promises super-fast production, reduced logistics costs, and the agility to respond overnight to changing consumer tastes and market conditions.
Digital Transformation Strategies to Revitalize American Manufacturing
Despite accounting for 11% of the nation’s GDP, US manufacturing remains an under-digitized sector. This means there’s enormous scope for boosting efficiency, productivity, and profitability for manufacturers that bring their factories home.
So, what strategies can manufacturers implement to make reshoring the more profitable option?
Automate the Shop Floor
Manufacturers can reduce labor costs and redirect staff to more valuable work by implementing digital technologies that automate shop floor operations. Chief among these technologies are:
- IoT: Manufacturers can leverage the internet of things–driving autonomous production and predictive maintenance–by placing smart sensors inside everything from machines to vehicles and even workers’ uniforms.
- Cloud computing: With cloud computing, manufacturers can scale their IT resources, increase agility, share data internally and externally, lower costs, and improve security.
- AI and Machine Learning: Manufacturers can leverage AI algorithms and machine learning to bestow machinery with the “intelligence” necessary to carry out tasks autonomously.
- Augmented Reality: With AR, manufacturers can overlay computer-generated imagery onto real-world settings, making assembly, quality control, and training quicker, increasing productivity.
Make Data the Lifeblood of Your Business
Creating a single source of truth for data is an essential first step in driving automation and efficiency while reducing costs. Manufacturers can use data to integrate people, systems, and processes, weaving a digital thread across their organization that breaks down silos, enhances communication and information sharing, and improves collaboration and creativity for onsite and remote teams.
Fragmented companies struggle to adopt and adapt to the new technologies required to drive automation. But ata integration shrinks the number of human touches needed to connect a customer to the sales and engineering department and ultimately to the shop floor. By putting data at the heart of their organizations, manufacturers can automate their entire engineer-to-order workflow and provide seamless self-serve customer experiences.
Reshoring Is a Vital Element in Revitalizing American Manufacturing
It’s no longer a case of “if” manufacturing reshoring will happen but “to what extent.” The strategy has almost unanimous support from manufacturing executives as well as politicians on both sides of the aisle.
The drivers behind manufacturing reshoring vary from national security to a demand for sustainable products and the fallout from COVID-19. The biggest driver, however, is the rise of digital technologies that have transformed manufacturing by automating processes on and off the shop floor.
Manufacturers that reshore their operations must focus on digital transformation to remain competitive with foreign rivals who can access cheap land and labor. This means investing in the right mix of technologies and putting data at the heart of their operations.