The Great Supply Chain Reset: Navigating the Reshoring Surge
The global pandemic, geopolitical tensions, and policy changes have combined to create a perfect storm for manufacturing operations, propelling the industry towards what is being called the Great Supply Chain Reset. The implications of these changes are becoming increasingly clear, with reshoring at the forefront of strategic considerations for manufacturers.
“In a sign of American manufacturing resurgence, 82% of executives polled said they’d either moved overseas factories back home or were in the process of doing so.”
The Driving Forces Behind the Shift
Several key factors are driving a major shift towards reshoring and nearshoring in supply chain management. The COVID-19 pandemic exposed the fragility of lengthy global supply chains, leading companies to consider more localized operations. Geopolitical tensions, including the conflict in Ukraine and disputes in the South China Sea, along with US policy incentives like the Inflation Reduction Act and the Chips and Science Act, have further encouraged domestic manufacturing. Additionally, increased shipping costs and unpredictability related to events like the Houthi attacks in the Red Sea, and very recently the closure of the Port of Baltimore underscore this trend. A Forbes article highlights that 82% of executives are moving or planning to move factories back to the US, indicating a significant pivot towards strengthening domestic production capabilities.
Overcoming Domestic Challenges
However, this shift is not without its challenges. Manufacturers face labor shortages, high interest rates, and rising material costs in the US. At TBM, we believe that reshoring success depends on five critical areas to navigate these obstacles: Technology, Labor availability, Manufacturing fundamentals, Process optimization and Strategic sourcing.
- Technology: A Double-Edged Sword
Leveraging automation effectively is key to balancing the competitive scales between higher-cost domestic production and regions with lower labor costs. Despite the financial incentives aimed at encouraging the Supply Chain reset, managing labor costs remains a challenge. Implementing automated systems in manufacturing processes can significantly address this issue. However, improper implementation can dilute or negate expected benefits, leading to costly miscalculations. It’s crucial to carefully choose which processes to automate and to determine the appropriate level of automation. Over capitalization can create bigger issues than those we are trying to solve. We assist our clients in identifying the most value-add use case and suitable processes for automation, developing a comprehensive process framework that benefits from automation, and establishing an organizational support structure to ensure continued operational excellence post-implementation.
- Labor Availability: More Than a Numbers Game
While automation can help reduce the need for additional staff, the real key to a company’s success lies in its workforce quality. Labor shortages and increased wages challenge manufacturers’ ability to meet demand. To address this, we emphasize employee retention and strategic hiring. A significant concern is leadership effectiveness; a Gallup poll indicates 80% of employees who leave their jobs do so because of their manager. Many leaders lack the skills required for their roles, often thrust into positions without adequate training, leading to poor job satisfaction and high turnover rates among their teams. To improve shop floor performance and employee retention, we believe in the importance of robust Operating Management Systems and developing competent leadership. Our Management System and Supervisor Academy training and mentoring programs aim to enhance the abilities of both operational and leadership personnel, focusing on the crucial impact points for business success.
- Manufacturing Fundamentals: The Bedrock of Success
When I reflect on the hallmarks of successful sports programs, it’s their enduring excellence and consistent performance that stand out, not fleeting triumphs. This principle applies equally to manufacturing, where the most successful companies excel in the foundational, day-to-day “blocking and tackling” in manufacturing operations. However, the allure of the latest technological advancements has led many firms to prioritize investments in automation, robotics, and other advanced technologies at the expense of core operations. While these innovations can boost efficiency, they often result in overlooking and underinvesting in the fundamental initiatives such as process improvement, employee development, and stringent quality control. An essential fundamental in manufacturing success is metric selection—those that align with strategic goals and have a significant impact on performance. But the advent of technology has facilitated the monitoring of countless metrics in real-time, which becomes overwhelming, leading to “paralysis by analysis” rather than actionable insights and improvements on critical areas of the business. We tell our clients to focus on the critical few that move the needle for the business.
- Embrace Evolution: Keep Momentum in Process Optimization
Process optimization is essential for reshoring manufacturing due to its role in enhancing efficiency, reducing costs, and improving quality—key for competing in global markets. It helps mitigate higher labor and regulatory costs associated with domestic production by streamlining operations and maximizing productivity. This optimization is critical for ensuring domestically produced goods meet high quality standards and achieve production efficiencies comparable to or better than offshore operations. Moreover, by continuously adapting processes to meet changing market conditions, companies can ensure their operations are responsive consumer demand and regulatory requirements, securing a competitive edge. In essence, process optimization equips businesses to address the complexities of reshoring, rendering domestic manufacturing both economically feasible and strategically advantageous. This leads to enhanced supply chain robustness, quick adaptation to market needs, and capitalization on the appeal of “Made in the USA”.
- Strategic Sourcing: Keep Suppliers Local
Strategic sourcing is critical for reshoring manufacturing due to its ability to enhance cost efficiency and supply chain resilience. By partnering with domestic suppliers, companies can tackle higher labor and operational costs in the U.S. and minimize risks from global supply chain disruptions. This strategy also promotes reliable material supply, crucial for steady production. Additionally, local sourcing accelerates product development, supports the economy, and meets regulatory and sustainability standards. It shortens supply chains, improving quality control and customer satisfaction with products made in the USA. Ultimately, strategic sourcing is foundational for firms looking to establish flexible, efficient domestic operations responsive to market and societal needs.
New Growth Opportunities Await
The Great Supply Chain Reset goes beyond simply moving manufacturing facilities; it requires a fundamental rethinking of manufacturing strategies to adapt to worldwide changes. This involves a focused push towards technological innovation, workforce skill enhancement, and a commitment to essential manufacturing practices. It highlights the critical roles of local sourcing, workforce training, and continuous process and quality improvements to outperform competitors. As the manufacturing sector evolves, it aims to create supply chains that are stronger, more efficient, and sustainable, positioning itself to effectively navigate the Reset. This sets the stage for a future characterized by flexible and enduring manufacturing capabilities.
