Table of Contents
Though certainly not a new concept, reshoring came into recent prominence following the supply chain disruptions of the COVID-19 pandemic that were later exacerbated by various weather-related disasters and logistical logjams. More recently, geopolitical disruptions such as the conflicts in Ukraine and the Middle East have brought uncertainty, while shipping lines are under siege in the Suez Canal and Red Sea. Faced with these and other challenges, U.S. companies are increasingly seeking ways to solidify their reliability of supply by bringing manufacturing closer to home.
According to Redd Brown last year, “American firms’ mentions of nearshoring, reshoring and onshoring — synonyms for moving manufacturing back or closer to a company’s home country — grew by an average of 216% year over year since the start of 2022, data compiled by Bloomberg showed.”[1]
The reshoring trend was bolstered in recent years by specific challenges, and it is clearly not going to diminish any time soon as U.S. companies discover wide-ranging benefits beyond strengthened supply security. Bringing manufacturing back to the U.S. enables domestic companies to capitalize on sentiment and preferences related to “Made in the USA” and job creation while also limiting or even eliminating trade with countries that have problematic relations with the U.S. (e.g., China).
In addition, a shorter supply chain generally leads to a reduced carbon footprint. This is an attractive story to tell in support of sustainability initiatives and can set a company apart from its competition in the eyes of U.S. consumers, who, according to the Reshoring Institute, prefer domestically produced products and are often willing to pay more for them.[2]
While I use the general term reshoring here for simplicity’s sake, keep in mind that several scenarios may be viable depending on your company’s resources and specific goals:
- Reshoring/onshoring – moving manufacturing from a foreign country back to your company’s headquarters country
- Nearshoring – moving manufacturing to a country that’s closer to you than its current location
- Friendshoring – moving manufacturing to a country with better or closer ties to yours
Regardless of the type of move, myriad factors need to be fully analyzed in order to achieve long-term, profitable reshoring success. I’ll briefly highlight a few key issues, including financial feasibility, choice of location, staffing, and of course supply chain.
Financial Feasibility
Government incentives resulting from the Infrastructure Investment and Jobs Act (2021), the CHIPS and Science Act (2022), and the Inflation Reduction Act (2022) can help offset some of the costs of a reshoring initiative. However, it is imperative that you first perform a complete financial feasibility study on your potential investment.
You must fully understand potential capital expenditures, including factors such as costs related to construction, the land and buildings, and new equipment. In addition, take operating expenses such as labor, utilities, and raw materials into account.
You’ll need to ensure that a move is viable and aligns with your company’s profitability expectations and long-term strategy. Include your accounting or controlling department in the process to ensure you have all of the necessary (and accurate) financial figures. Perhaps most importantly, get buy-in from top management and company ownership before you get too far along in the exploration and planning process.
Geographic Location
When deciding where specifically to locate your reshored facility, simple proximity to key suppliers is not the only consideration. It’s certainly important, but think about where your customers are located as well. You’ll need to incorporate concepts such as freight and customer service levels into your analysis.
For example, an inexpensive region might present an attractive opportunity to keep costs down. If the remote location negatively impacts your on-time delivery rate, however, you run the risk of disappointing or even losing customers.
Availability and reliability of transportation and logistics varies widely and must also be considered before choosing a site location. Will your facility need to be located near a port or have rail access? Is local warehousing available? Make sure the facility is located on a good routing point that enables you to efficiently receive materials and supplies while optimizing your ability to deliver to customers in a timely fashion.
Once you’ve narrowed down the best options, consider reaching out to the local government and community groups to better understand the region and available resources. Would your facility be welcome there? Is it a growing and viable area? What specific tax incentives or other benefits might be available?
Staffing
Access to a skilled workforce is an absolute necessity in today’s specialty chemicals industry, which requires engineering and other technical labor resources to support innovation and ensure long-term success. Get your human resources department involved in the planning process by assessing the reshored facility’s anticipated workforce needs and providing details regarding the skills required to properly fill those roles.
Reach out to the local community, perhaps through the chamber of commerce and similar organizations, to gauge the overall education and skill level of the available labor pool. Identify any potential training requirements, and explore government subsidies or other programs that may help contribute to your workforce training and development efforts.
Supply Chain
In addition to the logistics and transportation issues discussed previously, a reshoring project provides the opportunity to truly optimize your supply chain management. Explore ways to use data to drive consistent supply chain planning and processes, such as enterprise resource planning (ERP), material requirements planning (MRP), and other tools related to inventory management, demand forecasting, production scheduling, consumer behavior information, production throughputs, working capital management, and so on.
Consider integrating your supply chain strategy with your suppliers through a just-in-time approach, when appropriate, or linking them into your MRP system. Explore warehousing and inventory management options in partnership with your suppliers as well. If you are able to take a lean approach to your warehouse, for example, perhaps your supplier(s) would agree to house certain products and release them in line with your MRP process.
Of course, use the reshored facility as an opportunity to explore additional or alternate sources of raw materials and other supplies necessary for your production. Perhaps the new site will enable you to partner with a supplier that wasn’t feasible in the past due to your respective locations.
Planning for Long-Term Success
Whether reshoring efforts involve shifting manufacturing to the U.S., North America, or a specific state, a new facility provides U.S.-based companies with the opportunity to simplify their supply chain while developing best-in-class operations. In addition to striving for optimal productivity, companies considering a reshoring strategy should be sure to plan for long-term scalability.
When designing the reshored facility, analyze the market, including relevant trends and drivers, to anticipate future growth. Consider using external forecasting, possibly through a third party such as ChemQuest that specializes in independent and objective fact finding. Reach out to your customers and study the commitments they’re making to you (formally or even informally) to gauge their future needs.
Armed with this information, consider how the facility will develop in five years, 10 years, and so on. Plan how you’ll allow for future modifications or capacity upgrades as needed over time. Reshoring a manufacturing operation is not a simple undertaking, but proper planning and insightful execution will help ensure long-term profitable growth.
To learn more, reach out to info@chemquest.com.
References
1. R. Brown, “‘Made in USA’ Revival Sparks Building Boom, 506% Rally in Value,” October 7, 2023, Bloomberg, https://www.bloomberg.com/news/articles/2023-10-07/-made-in-usa-revival-sparks-building-boom-506-rally-in-value?leadSource=uverify%20wall.
2. “Survey Says: Americans Prefer ‘Made in USA,’” Reshoring Institute, https://reshoringinstitute.org/wp-content/uploads/2020/09/made-in-usa-survey.pdf.
Read in PPCJ.