During the darkest days of the COVID-19 pandemic, the supply chain was nearly broken for many industries.
From baby formula and computer chips to ketchup and cars, shelves were bare in some spots as manufacturers and suppliers struggled to get on the same page. And although the pandemic was considered a supply chain anomaly, the tide has been slowly changing for several years.
Geopolitical tensions with China have resulted in new tariffs and ongoing trade wars. Rising labor costs have cut into the cost savings companies saw years ago, while the need for more domestic control over the product manufacturing process is bringing jobs back to North America.
The push for production closer to home isn’t simply a case of home-country pride, either. Companies across nearly every industry were rattled by supply chain nightmares, but bringing manufacturing closer to the United States reduces risk.
Today, a growing number of products are produced in the U.S., Canada, and Mexico, including automobiles, computer chips, steel, defense supplies, appliances, and more.
For decades, offshore companies, usually in Asia, were critical to production and manufacturing.
Although labor costs are less than they would pay in the U.S., these companies lose some control of the process, potentially leading to low-quality items or long manufacturing lead times exacerbated by language barriers and time zone issues. They also contend with concerns about intellectual property (IP) theft, security and compliance issues, and the ongoing perception of taking away manufacturing jobs.
But labor costs have been rising in the regions traditionally used to offshore production, making them less attractive. Combined with a maze of tariff regulations and political issues, it creates a headache not always worth the cost savings.
“The only thing helping imports is that ocean freight is way down,” says Marcus Tagliaferri, Supply Chain Director for Kris-Tech. “Container pricing is significantly down year-over-year, but with tariffs and everything else in place, it’s offset by more interesting options, including domestic manufacturing.”
So, how do companies maintain the integrity of their supply chains?
More manufacturers are investing in facilities closer to the United States for all or part of the production process. Depending on where they relocate, it’s called nearshoring or reshoring.
Nearshoring is when companies manufacture products in a nearby country, for example, Mexico. This allows them to move closer to their target markets or where their raw materials are. Reshoring, on the other hand, is when a company brings manufacturing back to its home country. An example might be bringing automotive manufacturing back to the U.S.
Both emphasize shorter supply chains, shorter travel and shipping distances, and fewer language barriers than offshoring.
One lesson we learned during the pandemic and subsequent recovery is that the further away things are from each other, the harder it is to keep everything operating smoothly.
Low-cost labor is wasted if finished products can’t reliably get where they’re going. Nearshoring and reshoring eliminate some risks associated with offshore production while providing several upsides.
Logistics matters a lot when it comes to the supply chain.
Sourcing raw materials or shipping finished goods from a nearby facility in the same time zone is a huge benefit, as it tightens the supply chain. It opens the door for faster go-to-market strategies and lets companies quickly replenish products without long lead times.
A shorter, more compact supply chain also gives companies better control and reaction times when problems occur. Forecasting and supply chain models also improve with more insight into manufacturing and production operations.
Shorter routes offer more flexible shipping methods, especially when the facility is on the same continent as the end users.
Unlike products from overseas, there are likely to be fewer shipping delays as goods can come in by air, rail, truck, or ship. There’s also less dependence on countries on other continents, creating more supply chain resilience.
Additionally, with fewer cultural and language barriers, it’s easier to communicate with employees, operators, and others when adjustments need to be made.
One of the benefits of nearshoring and reshoring operations is more than the company itself sees improvement.
When companies bring operations closer to home, especially back to the U.S., it means paying local workers good wages. When those workers make more money, it strengthens the local and regional economies. Localized labor also makes tracking production easier, helping maintain high-quality standards.
Although the long-term benefits of nearshoring and onshoring are apparent, companies face some short-term drawbacks.
For example, there are high upfront costs associated with investing in new factories, finding the right manufacturer, hiring and training skilled workers, and developing new supply chains. Not to mention, it has to occur while the current workflow is still in place.
Outsourced labor is also typically much more cost-effective than hiring and training American, Mexican, or European employees. Those costs are factored into the final price of goods and services. If nearshoring, the company may still have to contend with potential delays and shipping challenges caused by cultural holidays and language barriers.
More products are being made in America and other North American countries, strengthening the supply chain and streamlining logistics for everyone.
When companies can meet customer demand, forecast for the future, and quickly respond to issues, the supply chain works much more smoothly. But outside of the business benefits, a ripple effect carries through the workforce and the overall economy.
Better supply chains powered by local labor are good news, and it’s a trend we’re excited about.
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