It’s Time to Take Reshoring Seriously
The American manufacturing sector has entered a period of reinvention, fuelled in part by the escalating instability of global supply chains. Since the onset of the Covid-19 pandemic, manufacturers have been grappling with persistent disruptions when it comes to part sourcing and transportation, pushing them towards reshoring their production lines.
Alongside the shift toward localization and self-sustaining manufacturing, there is a growing interest in “Industry 4.0” technologies, including artificial intelligence (AI), robotics, and additive manufacturing (AM). Recent research from McKinsey, in collaboration with the World Economic Forum, estimates that manufacturers and suppliers who embrace these technologies could unlock up to $37 trillion in value creation by 2025. Industry 4.0 innovations offer manufacturers two key advantages: they aid in the effort to localize production, while also granting a technological edge against the global competition.
The reshoring effort is not without its challenges. Changes in government administrations, along with rising climate change events and a growing wave of labor strikes, make it difficult for companies to anticipate the future of American manufacturing. This begs the question: how can manufacturers adapt to these circumstances? How can they prepare in the face of uncertainty, and how can they stay competitive in the global market?
The significant wage disparity makes reshoring manufacturing a tough challenge, as consumers look towards cheaper imported goods over higher-priced American-made products. In the United States, the average hourly wage for manufacturing workers ranges from $25 to $30 USD, while in China it’s a fraction of that—just $5 to $7 USD. Even closer to home in Mexico, wages remain far lower at $2 to $6 USD per hour. It’s clear that the US won't be able to outbid these countries when it comes to labor costs; instead, to remain competitive, US manufacturers must focus on adopting disruptive technologies that enhance efficiency and drive down production costs.
Strengthening Supply Chains: Enhancing Resilience and Streamlining Processes
Vulnerabilities and Risks
For many businesses in customer fulfillment or consumer goods, maintaining smooth operations in today’s global climate is challenging. Global supply chains that once offered companies a way to save on production and labor costs are now more susceptible to interferences and delays. Consider the blockage of the Suez Canal in 2021; a container ship had run aground in the Suez Canal waterway resulting in a six day complete blockage of access. In only six days, at least 369 ships were waiting to transit the canal, leaving approximately $9.6 billion (USD) in trade stranded. This incident is one of many recent examples that illustrates the fragile state of global supply chains. Whether it be extreme weather events, dock worker strikes, or global conflict; these disruptions pose serious risk for the businesses that rely on them.
Most manufacturing companies depend on overseas spare parts to keep their lines running smoothly and efficiently. Keeping machine operations safe and functional is crucial, but relying on external vendors for spare parts can introduce complexities. For example, insufficient backstock of components required to maintain consistent production can lead to downtime and associated capital losses; conversely, storing a large inventory of spare parts can also be extremely costly.
It’s typically one factory, one place in the world that makes one end product that we place a purchase order to, three, four, five months in advance and keep our fingers crossed that it sells. And we have never … got the target right.
– Bill McRaith, Former chief supply chain officer, PVH (CNBC)
Tariffs and trade barriers add an additional layer of complexity and create a financial strain on companies that rely on those vendors. The 25% tariff on steel and 10% tariff on aluminum imposed in 2018, for example, directly raised the cost of raw materials and components that manufacturers depend on. These measures led to a trade war between the two countries, and have influenced some companies to consider localizing their supply chains in order to mitigate the additional costs.
China’s manufacturing success has been helped by the dense web of easy-to-find vendors of all kinds of components of manufactured products. Finding suppliers can be challenging in many countries. In some categories, American-made products simply cannot be found. A company that can bring product assembly into the US but still needs nuts and bolts from Chinese or Taiwanese suppliers has not solved its supply chain problem. (Forbes)
Government incentives like the CHIPS and Science Act, implemented by the Biden-Harris administration, promote reshoring to counter China’s dominance in global manufacturing. With $39 billion dedicated to expanding semiconductor production in the U.S., the act provides financial support and tax incentives to boost domestic capabilities, enhance supply chain resilience, and create jobs in the tech sector.
As he approaches a second term, President Trump has indicated a desire to implement additional tariffs and protectionist policies, particularly as it pertains to China. During the election cycle, Trump's campaign signaled intentions to impose a 10% blanket tariff on all imports, with increased rates of up to 60% on goods from China and up to 100% on goods from Mexico. These strategies are designed to encourage reshoring, aiming to reduce dependence on foreign manufacturing, especially from global competitors.
It’s clear that in order to lower the risk of downtime and keep costs at a minimum, American manufacturers need to strive for greater self-sufficiency. Yet, the process of reshoring can be arduous, and may feel daunting due to the numerous factors involved. For instance; the cost and availability of skilled labor in the United States is at the forefront of employers' minds. The manufacturing sector in particular is suffering from a severe shortage of workers; there is a growing disparity between the aging workforce and the trainees and recent graduates that are needed to replace them.
In response to this issue, manufacturers are increasingly looking for digital solutions, which could reduce the amount of skilled labor required in everyday operations.
Embracing Automation: Increasing Throughput and Maximizing Real-Time Data
Automated manufacturing processes are not a new concept. Over the past century, these systems have become integral to American manufacturing. Recently, Industry 4.0 technologies like internet of things (IoT), advanced data analytics, and additive manufacturing have revolutionized this landscape, making processes smarter and more interconnected. While the foundations were laid over a century ago, rapid evolution continues today.
A remarkable 69% of manufacturers are reshoring their operations, spurred on by tech advancements and the opportunity of having greater security within their supply chains, without the hefty price tag which used to be associated with onshore production. And it's just the beginning, as manufacturers embrace AI and automation, with the promise of not just surviving but thriving in the shifting economic tides.
– Don Holm, Global Vice President, Value Consulting (Medius)
Leveraging advancements in technology is crucial for securing the future of the industry – American manufacturers that do not make significant strides to improve their overall efficiency may struggle against their foreign competitors.
Innovations can enhance production efficiency and maximize the use of real-time data in research and development (R&D). Automated systems, such as additive manufacturing, allows for quick iteration and testing of designs, enabling R&D teams to develop prototypes faster. This rapid prototyping accelerates the design cycle, allowing companies to bring their products to market faster. When combined with technologies like AI and machine learning, additive manufacturing can analyze vast amounts of production data to optimize processes further. This integration allows for continuous improvement in both manufacturing and product development, increasing throughput and maximizing real-time data.
According to Dr. Mark Cotteleer, research director at Deloitte, manufacturers that adopt additive manufacturing have shown an increase in productivity. “In consumer products ranging from shoes to motorcycles, we see time-to-market reduced by up to 90%, and on a cost side, we see per prototype cost falling from nearly $2,500 in some cases to as low as $50 in specified applications” (Additive Manufacturing for Business). This improvement is often enhanced by integrating AI technologies, which optimize production processes, reduce waste, and ensure higher quality in the final products.
However, the value of additive manufacturing extends far beyond prototyping. It can be used to enhance production schedules, enable greater customization and flexibility, and deliver real-time data that significantly accelerates time to market. For instance, General Motors (GM) has implemented 3D printing to produce complex tooling, such as jigs and fixtures, which are used on the assembly line. By using additive manufacturing, GM can rapidly produce these tools in-house, significantly reducing lead times compared to traditional manufacturing methods. This allows for faster adjustments and improvements in the production process.
A Critical Crossroads
American companies are increasingly recognizing the growing potential of automation to drive efficiency and innovation. Though some hesitations remain—such as concerns about perceived social impacts, production line disruptions, and the initial investment costs—many businesses are beginning to see the overarching value in embracing new technologies. While it’s true that automation reduces the amount of manual work required, this shift can free up skilled workers to focus on higher-value tasks and, in the process, increase a facility's overall throughput. This will be critical to challenging the low cost of labour in competing countries.
Consumer demands are constantly growing in scope and complexity, and American manufacturers have consequently found themselves at a critical crossroads. In order to adapt to the current state of the world and keep up with foreign competitors, they must invest in innovative technologies that aim to fortify, modernize, and localize their production lines. Reshoring allows American producers to leverage their enormous advantage: the U.S. is the largest consumer market in the world. Additionally, by moving their supply chains closer to the point of need, manufacturers can better protect themselves from political, economic, and environmental fluctuations, ensuring they remain open and profitable in the face of uncertainty.
About Mosaic
Mosaic is reshaping supply chains with scalable solutions powered by additive manufacturing. Our factory-connected products slash total cost per part by combining reliable automation with intelligent software for enhanced, lights-out manufacturing. As a strategic partner, Mosaic accelerates the deployment of digital on-demand inventory systems, simplifying operations, minimizing labor, and improving responsiveness to market demands. Our patented 3D printing technology provides a significant edge over traditional logistics for a more streamlined and sustainable future.
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Infographic
Manufacturing in the United States, National Association of Manufacturers
United States Manufacturing Facts, National Association of Manufacturers
US manufacturers plan to increase reshoring to get better value and more security, Medius
How additive manufacturing applies to your business, LinkedIn Learning
Article
Firms are bringing production back home because of the Ukraine war, China’s slowdown — and TikTok, CNBC
Port strike ends as workers agree to tentative deal on wages and contract extension, CNBC
Five years into the trade war, China continues its slow decoupling from US exports, Peterson Institute for International Economics
U.S. Manufacturers Reshoring, But It Will Take A Long Time, Forbes