Will the global supply chains snap?
Covid-19 has demonstrated how exposed we can be to fluctuations in delivery from overseas manufacturing locations. The recent Suez Canal blockage emphasised this when more than a tenth of the world’s trade was stuck in a bottleneck at sea for a week.
Nothing has interrupted international trade and global supply chains more than Covid-19, which shut down factories and closed ports worldwide.
The PPE shortage highlighted the consequences of distant manufacturing, which forced governments to find alternative manufacturing solutions that did not entirely depend on international suppliers.
It was a perfect illustration of the benefits of Reshoring, the name given to manufacturing production that has been brought back to the country where the products will be sold.
Can Reshoring reduce manufacturing costs?
Reshoring (or at least Near Shoring), the return of manufacturing production from overseas, can reduce costs in several ways.
· Production management is more agile, with lead times dramatically decreased
· Packaging, shipping, and delivery costs are slashed
· Warehousing requirements and costs are massively reduced
· Exposure to exchange rate fluctuations is minimised
· Supply chains are simplified and shortened, requiring less staff and resources
· Flexibility to respond to market changes is improved
· Responsiveness to customer demand for new product options is enhanced
As well as that, overall product quality increases, while the risk of intellectual property theft reduces.
Are there negatives for the cost of Reshoring?
Any change to a manufacturing process will generate some cost, and labour rates in the West are still higher than for their Eastern counterparts.
New factories may need to be built too. Tax differentials might also be a factor, although Western governments may offer incentives and subsidies to offset these.
But these concerns are offset by increased productivity, shorter lead times, and lower logistics costs. Not only that, but Reshoring fixes production costs, unaffected by fluctuating exchange rates or unexpected tariffs from foreign governments.
Reshoring – the new route to cost savings?
Manufacturing companies across the West are discovering the benefits of sourcing production within their borders once again.
When calculating the Total Cost of Ownership (TCO), assessing the multiple advantages of Reshoring demonstrates that low labour costs are just one factor amongst many.
Is manufacturing coming home? Reshoring offers more control and flexibility, saves time and reduces complexity.
For many, that might make all the difference to their calculations.