9 Benefits of Reshoring

Reshoring is the process of moving manufacturing or engineering operations back to their domestic bases from previously established foreign sites. Over time, many companies sent production or service operations to foreign locations to take advantage of lower labor and production costs. However, now the costs of offshore labor are rising, and technology is reducing the costs of domestic production. Reshoring jobs has many long-term benefits for industry and for the home country.

Listed below are nine benefits of reshoring production:

1. Simplifies Logistics Processes

Logistics is a complicated process with multiple possible points of failure. Reshoring can help minimize the total amount of transportation and coordination required for the manufacture and delivery of finished products destined for the domestic US market.

Resolution of disputes over defective products can also be complicated by logistical issues. If defective parts are shipped from a foreign production location, it will be a much bigger challenge to detect, reject, and replace the bad parts in a timely fashion. This scenario creates unhappy customers whose orders cannot be fulfilled as promised. 

2. Generates Openings To Construct Smart Manufacturing Plants

When a company decides to reshore a manufacturing operation, there may be no suitable production facility available. The factories that produced those parts before the original offshoring may have been shut down long ago, or even torn down. This apparent downside to reshoring can have big long-term benefits: it can spur the construction of more technically up-to-date “smart” manufacturing plants domestically. 

Smart plants are the result of what is often referred to as the “fourth industrial revolution.” They take advantage of highly automated and interconnected plant-wide sensor arrays, as well as data analysis based on machine learning and artificial intelligence, to monitor and respond to everything that happens in the factory. After the initial, high capital investment required to build such facilities, they often produce cheaper, higher-quality goods than the foreign plants they replace.

3. Offers Benefits to Reshoring Enterprises 

Reshoring can offer significant benefits to Reshoring Enterprises, such as third-party companies that help product manufacturers bring production operations back to the US. Work can be provided to reshoring consulting companies who can assist companies in assessing relevant cost and risk factors of these decisions and advise retailers, brands, and contract manufacturers. Researchers tracking reshoring and nearshoring activities argue that a move towards reshoring is indicative of and beneficial for a move towards reimagining and modernizing the supply chain. 

4. Decreases Time Zone Gap

Decreasing the time zone gap will boost communication between different points in the supply chain. Increasing communication resolves problems faster and more effectively by getting eyes on the process quickly, thus enabling quicker decision-making. A decreased time zone gap also affords the ability to solve the problem together in person, enabling better collaboration and subsequently a higher chance of a better outcome.

5. Minimizes Risk

Reshoring the supply chain reduces its complexity and therefore minimizes risk. By having a shorter and less complicated supply chain, lead times and time to resolve issues are reduced which will reduce risks associated with importing goods. 

6. Preserves a Nation’s Innovative and Competitive Edge

Reshoring production facilities means also reshoring manufacturing and product expertise that accompanied the product's original departure from US soil. Sometimes the expertise has to be rebuilt, sometimes it just has to be retrieved by restoring lost manufacturing employment opportunities. A vibrant and growing domestic manufacturing sector will produce a stable and skilled workforce and enhance national security. It will keep American innovation leaping ahead, and bolster America’s ability to outcompete other global players.

7. Improves Production Management Opportunities

Companies that reshore gain opportunities for better production management, as their operations are all local. For example, reshoring the fabrication of basic and intermediate components of a finished product makes the entire supply chain of the final product more accessible and controllable.

8. Produces Local Job Opportunities

According to Reshoring Initiative® data, c. 350,000 jobs would have been repatriated to the US in the year 2022—the highest rate since 2010. This can reduce unemployment and spur economic growth. These 350,000 jobs that have been reshored have increased the US manufacturing labor force by roughly 3% and are jobs that do not require a college education. This, therefore, creates more economic opportunities.

9. Continuous Innovations

Reshoring is a contributing factor to the innovation opportunities for the American industry. This can lead to the growth of domestic industries and keep the global marketplace in a state of competition, which is beneficial for the consumer of the finished products. 

What Are the Reasons Why Companies Prefer Reshoring Over Other Outsourcing Models?

There are a number of reasons why a company may choose to reshore operations rather than set up offshore outsourcing contracts. Here are six of the most common reasons why businesses choose reshoring over outsourcing:

1. Eagerness To Enhance Domestic Economy

Reshoring creates more highly skilled jobs that can grow and enhance the domestic economy. in the US, manufacturing accounts for 20% of the country’s capital investment, 35% of productivity growth, 70% of business R&D spending, and 60% of exports. Data shows that restoring competitiveness and growth in key manufacturing industries has the potential to boost US GDP by over 15% up to 2030. A strong manufacturing economy can create advancement and employment opportunities. Reshoring operations can heavily contribute to creating a strong manufacturing economy. 

2. Shortens Delivery Time

The problem with offshoring has always been delivery times. For example, standard air freight from China to the US takes, on average, 8-10 days. Reshoring operations will cut down on these delivery times as there is a much shorter distance to cover. 

3. Enhances Supply Chain Control

Reshoring gives companies greater control over their entire supply chains. When every component of an assembly is made in the US, coordinating the logistics of incoming raw materials and outgoing final products is easier. This is because the entire chain is more accessible. Additionally, domestic transporters such as trucks and trains do not run the same risks as shipping containers crossing the ocean.

4. Stabilizes Workforce Expenses

Labor has traditionally been cheaper abroad. Recent figures, however, show there has been a sharp increase in wage inflation in offshore manufacturing countries, such as China where wages for industrial workers have increased by more than 2000% over the past 40 years. Data published by the PEW Research Center shows that labor costs in the US have remained relatively consistent for the last decade with little fluctuation. The same is true of Canada. Hence, reshoring operations back to the US can help stabilize workforce expenses. 

5. Enhances Availability of Skilled Labor

Companies can benefit from a highly skilled pool of labor once reshored. This can often be a reason companies decide to reshore as there isn't always the availability of skilled labor offshore. One study conducted found that more than 70% of companies surveyed cited better access to skilled labor as a reason for reshoring.  

6. Meets Legal Standards

Offshoring can become complex as products made offshore may be made to different regulatory standards than the products made domestically. This can create challenges around the safety of products that are imported for sale. Reshoring itself will ensure companies meet legal standards for the sources of component content as processing operations will be beholden to legislation in the country it will be sold. Products produced from a reshored production plant will automatically meet all of the regulations required for sale domestically. 

What Are the Disadvantages of Reshoring?

Not all of the effects of reshoring are positive. Listed below are its disadvantages:

1. High Overhead: The cost of labor in the US is usually higher than the cost of labor abroad, which is why a lot of industry was transferred overseas in the first place. This high labor cost can make it hard to be competitive with products produced abroad. However, this can be mitigated by making more effective use of automation in the process. 
2. Commitment of Resources: Successful reshoring takes time, attention, and capital investment. The initial phase of reshoring can lead to temporary delays in production, impacting the end consumer and delivery times and thus having cost implications. A commitment of resources would be required to mitigate these potential teething problems to ensure adequate planning and risk assessment take place to maintain continuity and minimize disruptions. 
3. Recertification: Different standards may apply to a product being produced domestically, compared to being imported given the varying standards required in different countries. For example, a domestic factory in the US may not be allowed to foul the water and air to the same degree as factories abroad. To reshore these operations and ensure compliance with US standards, therefore may require recertification, which may also require product modification. 
4. Availability of Resources: Reshoring operations will require the employment of domestic resources which can take a long time and be expensive. The recruitment and hiring process can take a long time and, once hired, the onboarding process can take a few weeks. Availability of immediate resources is therefore a potential disadvantage to reshoring. 

How Does Reshoring Work?

Reshoring consists of moving a manufacturing activity back from an overseas location to a domestic location where it had previously been performed. Normally, new, modernized domestic production facilities are opened to replace the volume that was previously shipped back to the US. The foreign plant may or may not be forced to close, depending on the availability of other manufacturing projects.

How Does Reshoring Impact Domestic Employment and Job Opportunities?

Reshoring will reduce domestic unemployment and expand job opportunities. For example, in the plastics product manufacturing industry, for every 100 directly related jobs, there are a total of 278.3 indirect jobs created as a direct result, made up of 167.3 supplier jobs and 111 induced jobs. By reshoring these direct jobs, it creates more job opportunities for the domestic market, thus increasing local employment. This is because not only does someone need to fill that job, but there must also be other jobs filled to support the new employee. For every job, reshored extra jobs may be created in leisure, retail, and travel industries as the newly employed have money to spend, and jobs may be created to support the activity at the newly reshored site including in logistics and public services. 

How Does Reshoring Address Concerns Related to Geopolitical Risks and Global Supply Chain Disruptions?

Reshoring addresses geopolitical concerns by moving the supply chain “in-house.” This means that if global trade is reduced due to the closure of transport links, then “reshored” supply chains are at a lower risk of being disrupted. Recently, global supply chains have been impacted by the invasion of Ukraine, the blockage of the Suez Canal by the container ship Ever Given, and the disruptions from the COVID-19 pandemic. It is possible that disruptions on this scale could occur again at major transport links including: the Suez Canal, Panama Canal, and the South China Sea. Reshoring supply chains reduce the risk of any major supply chain disruption. 

How Does Reshoring Change the Overall Cost Structure for Businesses?

Reshoring will change the cost structure of a business by altering the costs of logistics, labor, management, and facilities. The costs of labor, management, and facilities will rise, while the cost of logistics will be greatly reduced. This may not make reshoring an attractive option at present, however, reshoring can be considered an investment for the future of a business that will pay off in the long term. This long-term strategy of reshoring being a more lucrative option in the future is due to the increase of exported labor leading to growth in the laboring countries’ economy, and as it does so, workers will demand higher pay thus reducing the cheap costs of exporting labor. Over time, this will erode any benefit exporting labor has. 

How Does Reshoring Intersect With Advancements in Automation and Technology Adoption?

The adoption of new automated technologies tends to drive down the price of domestic product production by replacing expensive labor with machines that can produce high-quality, repeatable parts with little human intervention. The equipment needed to implement high levels of automation often represents a large capital investment. However, once modernized machinery, networks, and methods are online, they can rapidly produce large volumes of high-quality goods at a cost that is equal to or less than the cost of the same product made overseas and shipped back to the domestic market. Automation and the fourth industrial revolution have meant advancements in technologies, such as AI and additive manufacturing, are an important key to making reshoring more cost-effective. This intersectionality between reshoring and automation is crucial to making reshoring an effective, financially beneficial setup.  

Can Reshoring Rapidly Adapt to the Latest Technology in the Market?

Yes, reshoring initiatives can rapidly adapt to the latest technologies. Technology can help deliver agility such as quick Time to Insight (TII) for manufacturers to provide a detailed view of sustainability across supply chains and gain more accurate forecasting. According to an IFS study, 37% of respondents are prioritizing technology investment to solve supply chain management problems. New technology being developed under the blanket term “factory 4.0” is suited to creating automation for many labor-intensive tasks. These technologies include: agile and flexible software platforms, strong ERP solutions, and automation solutions such as MES/MOM (Manufacturing Execution and Operations Management Systems) software. 

What Is the List of Industries That Have Experienced Success From Reshoring Operations?

Listed below are the list of industries that have experienced success from reshoring operations:

1. Manufacturing and Transportation. 
2. Electronics such as Apple. 
3. Online Retail such as New Balance.
4. Aerospace.

What Is the Impact of Reshoring on a Nation’s Trade Balance and Overall Economic Growth?

Every time a company reshores products, more jobs are created domestically. As a result, unemployment falls and the economy grows. When the economy grows, the trade deficit shrinks.

What Role Does Government Policy Play in Encouraging or Supporting Reshoring Initiatives?

Data from the Reshoring Initiative® show that government incentives were a leading factor in the decision to reshore rather than invest in foreign countries for at least 1,594 companies between 2010-2021. For example, the life sciences manufacturer GRAM is investing $160 million in a project and will receive $120 million in support from US government contracts as it will enable the company to expand its capacity for manufacturing within the US. Government policy therefore acts as a large incentive for companies to reshore. One of the most prominent policies recently is the CHIPS initiative which will see investment in semiconductor chip manufacturers in the US. This initiative has a budget of $52 billion which, as of September 2023,  is yet to be spent.

Does Reshoring Have the Same Benefits As Other Outsourcing Models?

There are a variety of outsourcing models available to improve operations at a company without the need to hire additional employees and cover skills not present in the current workforce such as: professional outsourcing, IT outsourcing, process-specific outsourcing, and many others. Advantages of these models include: lower operating costs, reduced pressure on the current team, less office space required, and a wider talent pool. Reshoring can offer many of the same benefits to varying degrees. 

Does Reshoring Have the Same Benefits As Nearshoring?

Yes, reshoring may have some of the same benefits as nearshoring but not all of them. While reshoring is the movement of business activities from foreign markets to domestic locations, nearshoring is the movement of such activities from foreign markets to neighboring or nearby countries. Labor costs are a main driver for offshoring product manufacturing in the first place since foreign labor is typically cheaper than labor in the US market. It may be too expensive to consider reshoring production that has been carried on overseas for some time, but it may be possible to "nearshore" the activities, taking advantage of reductions in logistics costs while still benefiting from lower labor costs in countries that are closer to home. 

The benefits that reshoring and nearshoring have in common are: reduced logistics costs, shorter lead times, increased control of the supply chain, and minimized risk from transport disruption. It is important to note that these advantages associated with both reshoring and nearshoring offer varying degrees of benefit. 

Does Reshoring Have the Same Benefits As Offshoring?

Yes, reshoring can now have some of the same benefits as offshoring. Previously many companies would move jobs offshore to cut costs due to cheap labor. Now, however, the cost of offshore labor is increasing and, with the help of technology, domestic production costs are lowering. This means for the first time in a long time reshoring can have the same financial benefit (or better) as offshoring. Offshoring and reshoring will still have different benefits with access to skilled labor, and logistical complexities being two key factors when deciding to reshore or offshore. 

Does Reshoring Have the Same Benefits As Onshoring?

Yes, reshoring and onshoring both have the same benefits, as they are essentially the same action. Onshoring is the act of working with manufacturers within the same country as the products are consumed. Reshoring is the act of moving to work with manufacturers in the same country as the products are being consumed. This means that reshoring and onshoring have the same benefits. The only difference is onshoring is likely to require more investment than reshoring since onshoring implies that the operation had not previously been performed. Therefore, for reshoring, there is a chance that facilities previously used will exist. 

Summary

This article presented the benefits of reshoring, explained each of them, and discussed how each is a benefit. To learn more about reshoring, contact a Xometry representative.

Xometry provides a wide range of manufacturing capabilities and other value-added services for all of your prototyping and production needs. Visit our website to learn more or to request a free, no-obligation quote.

Disclaimer

The content appearing on this webpage is for informational purposes only. Xometry makes no representation or warranty of any kind, be it expressed or implied, as to the accuracy, completeness, or validity of the information. Any performance parameters, geometric tolerances, specific design features, quality and types of materials, or processes should not be inferred to represent what will be delivered by third-party suppliers or manufacturers through Xometry’s network. Buyers seeking quotes for parts are responsible for defining the specific requirements for those parts. Please refer to our terms and conditions for more information.