Reshoring is the transfer of business operations back to its country of origin. The term is usually associated with manufacturing but it applies to any business operation.

The trend of reshoring back to the US from China began about a decade ago when some businesses realized costs in China (including labor and compliance and also transportation) were rising. Meanwhile automation was changing the cost equation for some business operations, making reshoring decisions easier. Over the last decade, tarrifs due to unfair practices and persecution of ethnic minorities added new motivation to reshore. The pandemic and China’s zero covid policy and resulting shutdowns of industry and transportation in China has now build an even stronger motivation to reshore, and the war in Ukraine has proven to any doubters the importance of having supply chains free of influence of totolitarian nations. The trend of reshoring will clearly accelerate.

The issues above are major drivers of reshoring. But there are many other benefits from the business operations perspective, including:

• The ability to operate with reduced inventories
• Reduced lead-times from order to delivery
• Potential improvements in quality
• Reduced management overhead
• Speedup of innovation
• Reduced compliance risk and complexity
• Reduction of total costs

There are other benefits to society that should translate to better government policies to encourage smart reshoring, including:

• Improved overall economic health
• Better food security
• Improved supply of pharmaceuticals
• Reduced support to totalitarian nations
• Reliability of weapon supply chains
• More efficient resource management
• Improving job market

The benefits of reshoring are strong, but like any other major change, reshoring can be done wrong. Failures in reshoring are not widely examined. Our research points to one major publicly examined case study of a failed reshoring effort in the last decade. This should make planners nervous. Drawing conclusions from one major failure a decade ago could lead to concern over issues that are not relevant today (that old widely studied failure is the famous Otis Elevator reshoring effort of 2013/2014 which cost over $60 million and came with many issues).

Study of use cases informed our views, but so does our perspectives of best practices in corporate governance and our assessments of the future of technology and geopolitical trends.

Recommendations:

• Ensure a disciplined approach to reshoring planning that includes input from all lines of business and support functions including technology, security, and cybersecurity. Aim for a detailed roadmap that has broad input by the leadership team and can be understood and acted upon broadly.
• Continuously seek to better understand geopolitical risks, globally. Reshoring to the US is a major trend, but there are other open societies where stability and good access to resources and energy will support reliable partners and lower tier suppliers.
• Planning should be informed by detailed assessments of current supply chains including all partners providing any material to the manufacturing process. Based on geopolitical risk assessments and other factors your analysis may reveal, the supply base to the supply chain may need to be encouraged to relocate as well. Know where all suppliers and tier 2 and tier 3 manufacturers are and plan accordingly.
• Understand the penalties and other consequences that may arise by shutting down foreign operations. There could be fines and penalties the leadership is not aware of.
• Ensure plans are made with awareness of current manufacturing technology. Manufacturing planning capabilities from firms like Siemens will be informed by the current state of the art, but ensure your technology team is also looking at the startup world and the automation capabilities being created relevant to your sector. This will help build in agility to your manufacturing capabilities.
• Seek insights into hidden costs which could include uncertainties about future energy and water costs.
• Analysis of new locations should include awareness of access to workforce and transportation of both inputs and transportion of final product.
• Be sure that goals are resourced to enable realistic accomplishment. Track reshoring efforts closely to ensure change is managed. Continuously look for issues and fialure points.
• Look for new ways to leverage advanced IT to smartly accelerate reshoring. If the move to reshoring was done 20 years ago, planning would have had to be done with just PCs and lots of email and microsoft excel/microsoft powerpoint. But today plans for reshoring can leverage incredible SaaS applications, super scalable cloud computing, great collaborative platforms, and data analytics platforms capable of understanding entire supply chains.

Concluding Thoughts:

The trend towards reshoring has been building steam for a decade and will soon accelerate. Organizations that reshore should do so with access to as much ground truth data on the supply chain and geopolitical environment as possible.

Companies in the services and IT sectors should evaluate offerings and adjust to ensure the reshoring trend is being supported.

Governments should seek to encourage sharing of best practices and lessons learned in reshoring, and should take steps to reward those businesses that are working to reshore the supply chain.

All should remain informed of geopolitical, technological and cybersecurity risks and opportunities. OODA will continue to seek actionable insights into these topics both for our OODA Daily Pulse and in special member reporting. We also expect this to be a continued topic of our monthly member meetings.

 

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