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This is the first post in a two part series on our update on Reshoring. We first started writing about and featuring reshoring content back in September of 2013, and have since added 10 more reshoring related posts in our reshoring blog category. We wanted to provide a general update on the state of reshoring, first starting with what are the motivations to reshore and then sharing an update on all stats related to reshoring. We will continue the series tomorrow talking about the future outlook, the current issues, and how we can all help stimulate reshoring.

Motivations and Stats on the State of Reshoring in 2015

Many off-shore manufacturers have returned to the U.S., a move known as reshoring. And, according to a Boston Consulting Group (BCG) study, 54% of companies with above one billion in revenues are now considering reshoring. Off-shored producers are finding that the benefits of foreign operations are not what they had anticipated. Obscure costs and risks were overlooked by many in the rush to operate off-shore. Contributing to the reshoring movement is the fact that economics of off-shore operating have changed significantly. Those changes, along with high costs of transporting materials and finished goods to and from overseas locations, make the value of reshoring likely to become a compelling financial reality for many manufacturers.

Causes of Off-shore Migration

U.S. manufacturers hurried to produce off-shore, believing significant cost reductions and huge profits would follow. Many were eager to secure market share in regions of India, China, and other countries where they expected to stimulate demand for their products. Some anticipated incomparably low labor costs would enable them to flood the global market with cheaply produced goods. And, some companies just instinctively followed the corporate crowd toward outsourcing.

31 Motivations for Reshoring Driven By Risks & Consequences of Offshoring

benefits of made in usa Reshoring benefits

Terence Burton, President, Center for Excellence in Operations, Inc. details obscure off-shoring risks often overlooked by hasty manufacturers who experience typical outcomes of failure to evaluate all cost factors and risks of outsourcing. Some of those risks and consequences tend to go away or are reduced, offered by Burton and others, make reshoring increasingly attractive (Note: We have updated some of the following thanks to Harry Moser, President and Founder of The Reshoring Initiative):

  1. Obscure costs of outsourcing can range from nominal expense up to 300% of production cost.
  2. 70% of manufacturers indicate that volatile energy costs are a major concern. U.S. energy costs have dropped. Natural gas and oil expenses contribute to extreme cost disparities in shipping from Asia to the U.S., for example, compared to shipping state-to-state.
  3. Manufacturing in Chinacurrently affords only 5% total cost savings over the U.S when the product is made in China and then shipped to the U.S.
  4. Transportation and freight costs are reduced.
  5. Brand risks due to quality problems are reduced.
  6. Competing against knock-offs is reduced.
  7. Engineering isn’t disconnected from manufacturing.
  8. Supply chain risks are reduced.
  9. Excessive time-to-market delays due to overseas transportation issues are eliminated.
  10. Flexibility for responding to variable needs of consumers improves.
  11. As many as 58% of manufacturers say insufficient legal protection against intellectual property theft (technology pirating, etc.) in China and elsewhere, is a serious deterrent from operating there.
  12. Errors in interpretation of product specifications, shipping documents, and other critical instructions, due to language barriers are reduced.
  13. Coordination and various third party costs are eliminated.
  14. Dangerous products causing illnesses and deaths are reduced risks. The U.S. F.D.A. and Department of Commerce impose stricter safety standards than those applied to foreign-made products, Customers are safer, and companies are protected from liability.
  15. Reshoring production raises U.S. employment rates, broadens the tax base, and helps the global economy.
  16. Most U.S. consumers want to support the American economy and U.S. jobs.
  17. Cost-cutting by offshoring has drawn widespread disapproval due to bad working conditions in off-shore facilities. Public opinion is motivating some producers to upgrade standards for off-shore operating and for selecting suppliers.
  18. Wages have increased in some foreign markets much faster than in the U.S. For example, the Chinese have seen a 320% increase in unit labor cost in USD, adjusted for changes in productivity since 2000. Overall, from 2001 to 2008 average wages in countries like Japan and Hong Kong increased 7.1-7.8% per year, and currently meet or exceed U.S. wages. Since 2005, U.S. manufacturing wages have dropped 2.2 adjusted for inflation%.
  19. Over the past decade, labor costs, adjusted to reflect productivity gains, shot up 187% at factories in China, compared with 27% in the United States. The value of China’s currency has risen more than 30% against the U.S. dollar over the past decade.
  20. With wages rising abroad, automation, a.k.a. “botsourcing” is significantly reducing production costs. Foxconn, for example, announced plans to reshore in Pennsylvania, investing $40 million for a mostly automated plant. Automation yields savings even in the first year. A machine can increase productivity up to 70% at a cost of merely one year’s wages for one employee.
  21. As many as 87% of industrial CEOs view environmental impact of their operations as a major concern, per a PwC report. Increased desire to manage environmental impacts may make the relatively strict EPA requirements less of a deterrent to operating in the U.S.
  22. Apple, Chrysler, and other U.S. producers are recognized for quality design and workmanship. Studies show that as many as 80% of consumers believe American-made products are comparably high-quality.
  23. As delivery speed is increasingly important, closer proximity to consumers, supply chain expediency, and convenience of doing business become priorities.
  24. Supplier accessibility, especially of OEMs needing long lead times, is essential to maintain efficient production scheduling.
  25. Professional time and travel for international business is costly.
  26. Reverse logistics (returns, warranties) are more manageable closer to market.
  27. Currency exchange issues are reduced.
  28. Obsolete and excess inventory carriage are more preventable.
  29. Cash-to-cash conversion cycle is shortened.
  30. Flexibility to respond to market shifts improves.
  31. Premium freight capacity improves.
resasons for reshoring
Britain Reshoring Facts; Very Similar to US

Reshoring Stats Since 2013

Harry Moser, Founder and President of the Reshoring Initiative, provides the following statistics of American reshoring:

  • 3d printing and logistics reshoringWalmart has committed $250 billion for U.S. made goods over the next decade, and has reshored 4,444 jobs back to the U.S. from abroad (mostly between 2010 and 2014, per Moser).
  • Ford, second only to Walmart in reshoring over the past five years, brought 3,250 jobs from Mexico to Michigan and Ohio to build F-650 and F-750 trucks, Fusion cars, and engines. Ford returned another 1,800 jobs to Tennessee to make Cadillac SRXs and build engines. General Motors also reshored 1,800 jobs from Mexico to U.S. plants.
  • 58 manufacturers of appliances, parts, and electrical equipment reshored a combined total of 9,240 jobs, per a Reshoring Initiative report. Of those, General Electric brought 1,900 jobs to New York, Ohio, and Kentucky to produce industrial batteries, lightbulbs, and appliances.
  • Caterpillar also returned about 1,900 jobs to Texas and Georgia to build construction equipment.
  • NCR (electronics), Boeing aircraft, Flextronics, Farouk Systems (hair products), and Made in America (office furniture) also all reshored numerous jobs back to the U.S.
  • 33 transportation equipment manufacturers reshored 13,823 jobs from abroad.
  • Machinery manufacturing returned 2,860 jobs. Computers and electronics brought back 3,483. Clothing and textiles returned 2,154. The food industry reshored 1,628. Fabricated metal producers reshored 1,721. And, wood products returned 1,028 jobs.
  • Other reshoring includes heavy equipment manufacturers, and upscale products for which frequent color changes or fluctuations in demand are typical.
  • Sectors reshoring under 1,000 jobs include medical equipment, office products, construction, home and kitchen, rubber and plastics, and hobby supplies.
  • For additional information about companies reshoring to the U.S., see the October publication of Business Climate.

Tomorrow we will continue our look and update on the Reshoring Movement by talking about the future and what Reshoring looks like in the coming years, what are the current issuses and problems still needed to be worked out, and how we can all help stimulate more Reshoring to increase quality, reduce costs, and create more jobs in America. What are your thoughts on Reshoring? Let us know in the comments section below!