We have spoken a lot about reshoring over the past few years. Since the massive supply chain disruptions of COVID (it was so difficult to get my hands on a Switch in 2020), many American companies started looking at reshoring. Nearly every client that MTG has engaged since COVID has at least asked about reshoring to the United States.
When asked if it is a good idea to reshore we always give the same answer: maybe. It depends on the product and your goals. We advise our clients not to take the decision to reshore lightly. Companies should carefully consider what their goals and the costs associated with the move. A robust comparison of the various options and the risk/reward analysis will show if reshoring is right for your operations.
There are general observations about types of products that make more sense to reshore and the types that do not make as much sense to reshore.
Five Product Types to Reshore
Here are more products that are good candidates for reshoring; however, we are focusing on the underlying manufacturing challenges rather than tax incentives like those granted by the CHIPS and Science Act of 2022.
Automotive parts
Raising tariffs on steel and aluminum as well as the needs of just-in-time supply chains means that domestic auto parts are a good candidate for reshoring. A lot of companies are placing RFQ (request for quotes) for auto parts with the manufacturers we work with.
Medical supplies
COVID-19 highlighted the need to have more local suppliers for medical supplies. There is a significant demand for domestic medical supplies and many can be made efficiently at scale.
Highly elastic consumer products
Highly elastic consumer products are products whose demand can fluctuate quickly and without warning. A good example is the Bath and Bodyworks reshoring in Ohio. It is nearly impossible to tell which products might become popular, so the company needs to be ready to quickly change direction based on customer demand.
High end consumer products
Customers put a premium on “made in America” products and producing them in the United States provides more quality control and a stronger relationship with their customers. These advantages can be greater than the additional cost.
Large products
Some large products, especially those that are B2B, such as transformers, power stations, etc. are best produced closer at the end user. Transportation prices are still higher than in the pre-COVID era so reducing the shipping costs can offset the higher production costs.
Five Product Types Not to Reshore
Some products do not make sense to reshore even with higher tariffs. The price differential and the existing supply chain are too difficult to replicate.
Labor intensive products
Textiles and apparel are the most obvious examples here. These types of products often chase the lowest cost countries in a way that other industries do not. These products are much more labor intensive and require only two things to set up: sewing machines and large amounts of inexpensive labor.
Lower margin consumer goods
Lower margin consumer goods were some of the first products to be moved to low-income countries and are not likely to go back. Examples of these products are toys, standard household goods, and other simple items. China has a strong supply chain for these products and the thin margin makes the transition to a new manufacturing area cost prohibitive.
High-volume low-cost electronics
The iPhone is a good example of this. To be successful, the iPhone needs massive economies of scale and strong manufacturing systems and supply chains to achieve its production needs. The Shenzhen area has become the center of electronics manufacturing with no clear rival. Apple tried to reshore some of its manufacturing to India with mixed results.
Products with complex and well-established supply chain
One thing that China, as a country, has done very well is to establish deep and efficient supply chain operations. The result is that companies can rely on the interconnected supply chain to manufacture their products. There will be a company to supply every component. It is a significant barrier to reshoring because if the primary manufacturing facility is relocated, the supporting supply chain is not. Most companies are not able to relocate their entire supply chain so need to stay where the supplies are.
New low-volume products
Reshoring for start up companies can be difficult as these companies often produce a low volume high mix that makes setting up new manufacturing difficult. No other country besides China possesses the industrial capacity to quickly start manufacturing new products
Is Your Company a Good Candidate for Reshoring?
Is your business a good candidate for reshoring? Maybe. The information shown here provides a good starting point, but the decision must come from you after carefully considering your goals and the trade offs that you are willing to or must take. We are happy to help you with this decision and analysis to understand not only if reshoring is right for you but how to best do it.
What can MTG do to help you improve your operations?
