The old adage is true: history repeats itself! Domestic manufacturing is now attractive to many Original Equipment Manufacturers (OEMs) asking U.S.-based manufacturers to produce goods domestically – so what’s driving the resurgence?
Over the past ten years, we’ve seen steady growth in U.S. manufacturing jobs, with a sharp increase in 2017. In 2017, reshoring efforts (which is the process of returning the manufacturing of goods to a company's original country) were in vogue and manufacturing job growth grew at the fastest rate in decades. Below are five reasons you should consider reshoring.
- Favorable Regulatory Environment
- Global Consumer Demand
- More Efficient Technologies
- Responsivity Times
- Transportation-Related Concerns
Several tax and regulatory changes have reduced the economic disadvantages of producing products in the United States. While there may be a few offsetting factors (such as those involving the heavy use of specific raw materials), products that fall within a broad scope, such as technology-oriented products, can see a boon when reshoring.
Worldwide demand for new products is strong, taxing the capacity of many manufacturing facilities domestically and abroad. As a result, OEMs that have not committed to high volumes up front are no longer receiving the same attention from overseas suppliers as they would have in “normal” or slow times. This phenomenon presents new opportunities for domestic-based manufacturers and assembly services, which are proving to be more flexible and increasingly competitive in ramping up capacity.
With the advent of more technology-oriented means of manufacturing, we have seen the impact of direct labor costs significantly decrease. More efficient processes in manufacturing have reduced the impact of labor cost differentials across the globe, benefiting U.S. manufacturing facilities – and the folks they employ.
Today’s short product life cycles and rapidly changing technological demands make it necessary for manufacturers to move swiftly, in order to respond to market pressures and new technology opportunities. Overseas manufacturers may be optimized for consistent high-volume production, but they struggle with high-demand volatility and frequent fluctuations. It may be harder for an overseas manufacturer to scale if volume unexpectedly rises or if market opportunities do not ramp up as rapidly as expected, reducing flexibility. U.S.-based supply chain partners are often more agile and responsive to quick changes.
Companies manufacturing products in Asia are impacted by several transportation factors, the primary being speed, flexibility, and price. In rapidly changing markets, shipment via sea may be the cheapest option, but it substantially reduces speed and flexibility. Only the smallest, lightest items can be shipped via air, which is cost prohibitive at larger volumes. And with transportation costs rising, even shipment via sea will take its toll on the bottom line.
Encouragingly, companies based in the U.S. have been opting in for domestic manufacturing. Pricing must be competitive, but in some scenarios, the cheapest option does not always win the deal. There is now more widespread recognition of the significant cost of doing business with overseas partners.
The factors above, and several others, are driving manufacturing back to the U.S. and we have a feeling the trend is here to stay!