By Gary Hoover
In the previous episode, we explored the driving forces that turned the tide on reshoring operations back to the United States and some real examples of what success looks like.
In part 2 of our podcast, we explore the current themes within manufacturing sub-sectors that are at the leading edge of reshoring, and those encountering challenges in this endeavor.
Listen to the full podcast or read the summary of our discussion below.
Deciphering Industry Dynamics
Our conversation begins by dissecting the challenges and opportunities faced by different sectors within manufacturing. For major players like OEMs such as General Motors or GE, convincing them to pay more for reshoring presents immediate P&L challenges. However, the value lies in survival and customer retention, especially during adverse times. On the flip side, supply chain companies experience significant value through a potential 20-30% increase in volume and a substantial increase in profitability.
Material Choices and Strategic Considerations
Material choices have a profound impact on reshoring decisions. Plastic emerges as a strategic choice over steel due to cost differentials (steel in the U.S. is 10-20% higher than other countries). Whereas plastic resin tends to be more cost effective in the U.S. due to the use of shale gas. The discussion also touches on the influence of tariffs on costs and the strategic considerations influencing the choice between the U.S. and Mexico for production.
Factoring Company Size in Your Reshoring Strategy
Considering the size of companies, the discussion unfolds the dynamics between the smaller supply chain companies and larger OEMs. Smaller companies, often part of the middle market, find enthusiasm for reshoring, but face challenges in making automation investments. Larger corporations are fixated on quarterly profits, while in contrast, smaller privately owned companies take a more long-term view. This approach is inspired by Germany’s success using the “Mittelstand” model where small- to mid-sized companies invest in sustainability, hiring, and training for long-term success.
Acceleration Drivers of Reshoring
Over the years, manufacturers have recognized their vulnerabilities and their inability to navigate quickly and effectively around unexpected or challenging economic or global events. Independent of government influence, companies are realizing the need for increased security in profitability and shareholder security and are adopting a more assertive stance towards producing or sourcing in the United States. In certain cases, Mexico might be a preferable choice over the U.S. due to lower wage rates (approximately 30% less than China), reduced duty, freight, and inventory costs, along with mitigated challenges like time zone and language differences. This strategic decision-making process aims to enhance overall security and profitability for companies.
Conclusion:
It’s evident that reshoring is not a one-size-fits-all solution. From big players navigating immediate P&L challenges to mid-sized companies embracing a longer-term view, each decision influences the future of manufacturing. Stay tuned for more engaging discussions and insights as we continue to explore the dynamic world of reshoring.
Coming Soon: Tune in to Part 3 of the Reshoring series where Harry and I discuss productivity and operational challenges that could impact the success of a move back to the U.S.
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