Reshoring U.S. Manufacturing: A High-Level Guide
“Reshoring presents a unique opportunity for smaller manufacturers to position themselves as key players in the rebuilding of domestic supply chains.” - Nathan Ginty
Introduction
Reshoring—the process of bringing manufacturing operations back to the United States from overseas—has gained significant traction among U.S. businesses. Companies are increasingly considering reshoring due to supply chain disruptions, rising labor costs abroad, trade tensions, and government incentives. By moving production closer to domestic markets, manufacturers can improve quality control, enhance supply chain resilience, and take advantage of technological advancements such as automation.
However, reshoring is a complex process that requires careful planning, financial assessment, and operational restructuring. This article provides a step-by-step guide to reshoring for U.S. manufacturing companies, considering variations for small, medium, and large businesses. It also includes resources for further research and strategic decision-making.
Step 1: Assess Feasibility and Strategic Fit
Before committing to reshoring, a company must conduct a comprehensive feasibility analysis to determine whether bringing operations back to the U.S. aligns with its strategic and financial objectives.
Key Considerations:
• Total Cost of Ownership (TCO) Analysis: While offshore labor may be cheaper, additional costs such as tariffs, shipping, quality control issues, and longer lead times can make overseas production more expensive in the long run. The Reshoring Initiative’s TCO Estimator (www.reshorenow.org) is a valuable tool to compare domestic and offshore production costs.
• Supply Chain Risks: The COVID-19 pandemic highlighted vulnerabilities in global supply chains, with shortages of essential goods and prolonged shipping delays. Companies should evaluate the stability of their current supply chain and assess whether a domestic supply chain would offer greater resilience.
• Regulatory and Trade Considerations: U.S. trade policies, tariffs on imported goods, and new domestic manufacturing incentives (such as the CHIPS and Science Act) may make reshoring financially attractive.
• Technology and Automation: Advanced manufacturing technologies, including robotics, AI-driven production lines, and 3D printing, have helped offset higher U.S. labor costs by increasing efficiency.
Example:
A U.S.-based automotive parts manufacturer previously outsourced production to China but faced significant delays due to port congestion and tariff increases. After conducting a TCO analysis, they found that domestic production—combined with automation—could reduce costs by 20% over five years while improving quality control.
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Step 2: Develop a Business Case and Financial Plan
Once feasibility is established, companies must develop a detailed business case that outlines the financial, operational, and competitive benefits of reshoring.
Key Components:
• Cost-Benefit Analysis: Quantify the financial impact of reshoring, considering costs for relocation, labor, equipment, and infrastructure.
• Break-even Analysis: Estimate how long it will take for the reshoring investment to generate returns.
• Customer and Market Advantages: Assess whether reshoring can improve customer satisfaction through faster delivery times and better quality control.
• Government Incentives: Explore federal, state, and local incentives for domestic manufacturing, including tax credits, grants, and workforce training programs.
Example:
A small textile manufacturer in North Carolina reshored production from Vietnam after securing a state grant for workforce training and taking advantage of federal tax credits for domestic investment. By emphasizing "Made in the USA" branding, the company was able to attract environmentally conscious consumers willing to pay a premium for locally made products.
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Step 3: Select an Optimal Location and Build a Supplier Network
Choosing the right manufacturing location is critical to a successful reshoring strategy. Companies should consider factors such as:
Key Factors:
• Proximity to Major Markets: Reducing transportation costs by locating manufacturing facilities closer to key customers.
• Availability of Skilled Labor: Identifying regions with strong manufacturing workforces, such as the Midwest or Southeast U.S., where industrial expertise remains strong.
• Infrastructure and Logistics: Access to reliable transportation networks, ports, and distribution hubs to streamline supply chain operations.
• Supplier Ecosystem: Rebuilding domestic supply chains by partnering with local raw material and component suppliers.
Example:
A mid-sized electronics manufacturer relocating production from Mexico to Texas benefited from Texas Enterprise Fund (TEF) grants and an established semiconductor supplier base in Austin. The move reduced logistics costs and improved production lead times by 30%.
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Step 4: Secure Workforce and Invest in Technology
Labor availability and skill development are major factors in reshoring. Companies should develop talent acquisition strategies and invest in automation to remain competitive.
Key Considerations:
• Workforce Training and Development: Partnering with community colleges, trade schools, and apprenticeship programs to build a skilled workforce.
• Investment in Automation: Implementing robotics, AI-driven quality control, and Internet of Things (IoT) technology to enhance productivity.
• Wage and Labor Cost Analysis: Balancing labor costs with productivity improvements to maintain competitive pricing.
Example:
A large aerospace manufacturer partnered with a local technical college to create a certification program for precision machining. This program helped fill high-skill positions quickly, reducing dependency on overseas labor.
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Step 5: Transition and Implementation Strategy
A structured transition plan ensures that reshoring is executed smoothly with minimal disruptions to existing operations.
Key Steps:
• Phased Relocation: Gradually shifting production in stages to test operations and resolve any issues.
• Lean Manufacturing Principles: Applying continuous improvement techniques to optimize efficiency and reduce waste.
• Regulatory Compliance: Ensuring compliance with U.S. labor laws, environmental regulations, and quality standards.
Example:
A consumer electronics company used a dual-sourcing strategy—initially keeping a portion of production offshore while scaling up domestic capacity. Over time, as U.S. operations became more cost-effective, the company fully transitioned to domestic production.
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Step 6: Monitor, Optimize, and Scale
Reshoring is not a one-time event—it requires ongoing evaluation and optimization to maximize benefits.
Key Considerations:
• Performance Metrics: Tracking cost savings, efficiency gains, and supply chain resilience improvements.
• Continuous Improvement: Implementing Six Sigma and Kaizen methodologies to refine production processes.
• Scaling Domestic Operations: Expanding facilities, investing in new technologies, and further integrating local suppliers.
Example:
A home appliance manufacturer that reshored to Tennessee initially struggled with higher labor costs but reduced expenses by optimizing workflows and automating repetitive tasks. Over five years, they achieved a 25% reduction in production costs and improved quality control.
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Variations for Small, Medium, and Large Companies
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Resources for Further Research
1. Reshoring Initiative – www.reshorenow.org
2. U.S. Economic Development Administration (EDA) – www.eda.gov
3. Manufacturing USA – www.manufacturingusa.com
4. National Institute of Standards and Technology (NIST) – www.nist.gov
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Conclusion
Reshoring presents significant opportunities for U.S. manufacturers looking to improve supply chain resilience, enhance quality control, and reduce long-term operational costs. By following a structured approach—assessing feasibility, developing a business case, selecting optimal locations, securing workforce, implementing a transition plan, and continuously optimizing—companies can successfully bring production back to the U.S. while maintaining a competitive edge in the global market.
Strategic Value+ Solutions Advisors
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We can help you achieve your reshoring objectives with agility, industry smarts, experience, and innovative thinking.
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NOTE: This article is also published in our LinkedIn U.S. Manufacturer Newsletter.