Reshoring Makes Sense, Could Drive Revival

Manufacturing work is coming back to the U.S. from overseas. We wouldn't have believed it several years ago, but a new study shows that it is happening. The extent to which it will continue is open to debate as are the long-term implications of reshoring.

Here's a new study on the subject from PwC:

"Consensus views on a U.S. manufacturing resurgence have largely centered on rising labor costs in markets such as China as the key driver of re-shoring back to the U.S. However, a new PwC US report, A Homecoming for U.S. Manufacturing?, reveals that while rising labor costs are part of the story, a range of factors—including transportation and energy costs and protecting the supply chain—could drive a sustained manufacturing renaissance in the U.S. beyond any cyclical recovery, potentially improving investment, employment, production output and research & development (R&D). 

 

 

PwC's new report identifies seven factors—including transportation and energy costs; currency fluctuations; U.S. market demand; labor costs; U.S. talent; availability of capital; and the tax and regulatory climate—as the primary catalysts influencing manufacturers' decisions to establish production facilities domestically and produce products closer to their major customer bases.  PwC's report also notes that localizing production can mitigate supply chain disruptions, which totaled $2.2 billion in financial impact for U.S. industrial products companies in 2011.  

 

"The reviving industrial manufacturing sector is instrumental to U.S. economic recovery," said Bob McCutcheon, PwC's U.S. Industrial Products leader.  "Beyond the cyclical rebound, however, a host of structural changes is emerging that may lead to the U.S. becoming an important location for basing production and R&D facilities for several industries.  In addition to trends in labor costs, other factors include the need to reduce transportation and energy costs; the emergence of the U.S. as a more attractive exporter and the relative attractiveness of the U.S. markets."

 

Relocating manufacturing production in the U.S. generally holds greater advantages for some industries over others.  When taking into account costs spanning labor, materials, transportation and energy, the PwC report shows that chemicals, primary metals and heavy equipment manufacturing industries stand to benefit most from maintaining or expanding facilities in the U.S. given opportunities and cost incentives to re-shore domestically.  Wood, plastic and rubber products companies could also benefit from changes in domestic costs, but lower net imports in these industries may limit the full economic benefits of on-shoring in the U.S. 

 

"Industrial manufacturers may increasingly rethink their U.S. strategies, including the merits of continuing to separate production and R&D and producing abroad and importing back to U.S. buyers.  Depending on the industry, there may be considerable benefits to establishing regionalized supply chains and R&D facilities in the U.S., such as reducing costs, shortening lead times, protecting intellectual property and mitigating many of the risk factors inherent in developing markets," added McCutcheon. 

Author's note:There are several great stories that wrap around this theme in Manufacturing Renaissance, my next book that is scheduled to be published this fall.

For more information on Last Chance Mile: The Reinvention of an American Community, the story of how Grand Rapids, Mich. has transformed itself for the 21st century, please visit www.rodkackley.com.