Offshoring vs. Reshoring in Supply Chain
Many argue that reshoring the supply chain is vital to economic recovery from COVID-19 – and even go so far as to say that reshoring can literally save lives. Others make a simpler, yet pretty solid argument:
Moolah. Dinero. Cost... However you wanna slice it.
I'm not here to sway you one way or the other; just to lay out a discussion on the pros and cons of each.
Supply Chain Management Review put out an excellent article this month describing reshoring and COVID-19’s impact on the supply chain, from which we’ve developed a quick list of pros and cons.
First, What is Reshoring?
Before diving in, let's define reshoring in supply chain.
Reshoring (aka, onshoring) is the reversal of the globalization of our supply chain… It’s bringing imported goods or materials back to domestic production so that organizations no longer have to depend on international deals, long-distance shipping and other considerations.
A Gartner Inc. survey of 260 global supply chain leaders in February and March 2020 found that 33% had moved sourcing and manufacturing out of China or plan to do so in the next 2-3 years. Survey results show that COVID-19 is only one of several disruptions that have put global supply chains under pressure. Source: SGBMedia
Reshoring is not some newfound concept. However, COVID-19 and recent political policies have brought the use of reshoring to a tipping point:
The ongoing trade war sent the Kearney U.S. Reshoring Index to a record high in 2019. The Index attributes this jump to a 17% decline in U.S. imports of manufactured goods from China.
Some believe offshoring never made sense to begin with:
“I’m a free-trade person. But I also am a believer in saying, ‘Wait a second, you cannot gut a bunch of communities in the U.S. and move to Bangladesh and then import all those goods back again and sell them at the local Dollar Store to all these people that now no longer have jobs.’”
-- Bayard Winthrop, CEO, American Giant, who bought a rural NC plant from Eagle Sportswear that was about to close down because of offshoring, according to a CBSNews video
So yes, producing more goods domestically means more unemployed people going back to work. It also means higher costs and complexities for businesses to consider.
I was hoping to find data on how much more it would cost manufacturers to reshore their production, but I was unable to find anything within the "Googling timebox” I set for myself.
Take a look at the pros and cons of reshoring; then you decide.
- Job creation and faster economic turnaround – millions of jobs brought back home to families in need; billions of dollars injected back into the GDP
- Streamlined supply chain and customer trust – shorter supply lines expedite production/delivery, leading to more predictable lead times and the ability to keep shelves stocked (profitably)
- Improved safety -- Reduce risk associated with offshoring, such as cybercrime, use of unapproved supplies/components, lack of quality control and poor responsiveness to problems with suppliers
- Reshoring can actually create cost-efficiencies that offset higher labor costs – lower transportation costs; quicker turns
- Tax savings and other financial incentives
This stat needs no explanation: 70% of decisions to buy imports are driven by price. By reshoring the supply chain, companies face:
- Drastic increases in both labor and retail costs
- Lack of skilled labor
- Complexity around having to start from scratch -- rebuilding teams and facilities; abandoning large offshore investments already made; extensive trade agreements; and damage to relationships with other foreign offshoring companies
So what are your thoughts?
Is reshoring the answer to reducing COVID-19’s impact on the supply chain? Is there anything you would add to the list?
Hit us up with your feedback. We’ll add it here!