Many companies have found that they aren’t realizing the cost savings they expected from their move overseas.
U.S. companies with international manufacturing plants have been re-evaluating the benefits of offshore jobs, and many of them are making the decision to move back home. In 2016, more jobs moved back to the states than left them, according to data collected by Reshoring Initiative.
Between 2010 and 2016, a total of 338,000 manufacturing jobs have been reshored. In 2016 alone, 77,000 jobs were relocated back to America.
Communities across the country have enjoyed the addition of new jobs, particularly in recent months. The Mid-America Business Conditions Index for May was 55.5, a slight decline from March and April’s 60.1 and 61.4, respectively, but still high enough to spark optimism among manufacturers.
“The overall index over the past several months indicates a healthy regional manufacturing economy, and points to healthy growth for both manufacturing and nonmanufacturing through the third quarter of this year,” explained Ernie Goss, a Creighton University economist who oversees the survey, according to U.S. News & World report.
Reasons for reshoring
The reshoring trend has slowly been building momentum over the past few years as companies compare the benefits of their international plants and potential domestic ones. Being close to one’s own consumers has numerous benefits.
Bali Padda, the executive vice president and chief operating officer for Lego, explained to Material Handling & Logistics that the company’s local manufacturing philosophy stems from its goal to reduce the company’s environmental impact.
” … By placing a manufacturing site in the region we reduce our environmental impact as we will reduce the need for transporting products from Europe to be sold in Asia,” he explained.
Many companies have found that they aren’t realizing the cost savings they expected from their move overseas. While direct labor may cost less, other expenses have eaten away at their hoped-for savings, Harry Moser, president of Reshoring Initiative, explained to MHL.
“Companies looked mostly at labor costs when deciding whether to move offshore,” Moser said. “They weren’t focused on other costs such as intellectual property, import/export costs and potential shortages against demand because of unpredictable variables like shipping.”
He went on to explain that some companies’ savings estimates may have been off by 20 or 30 percent. Moving back to the U.S. may actually be the most cost-effective option.
Then, there’s the matter of consumer perception. Companies are finding that the ability to advertise a product as made in the USA is one sales-boosting strategy. Additionally, having a manufacturing plant close to the customer means that lead times can be shortened – something everyone on the supply chain might enjoy.
Obstacles in reshoring
Though moving operations back to the U.S. is typically beneficial for the company, it’s hardly an easy process. Closing down operations at the plant overseas takes time, work and careful strategy. Then, there’s the matter of finding a new location in the states, outfitting it with the necessary equipment and hiring employees to run the facility.
“When companies move back to the states, they will need to invest in new equipment.”
For some companies, the prospect of opening a new manufacturing facility is a journey into a world completely unknown to them. The Philadelphia Inquirer reported that when Redman & Associates, a toy company in Arkansas,decided to move operations from China to the U.S.., the company’s executive team needed to come up with a solution for domestic manufacturing. For a group of people with extensive retail backgrounds and little knowledge of actual manufacturing, this was a tall task. It took strategic thinking and careful reverse engineering of their most popular products to make their move successful, but they were able to get their new plant up and running.
For a company like this – one that knows what it needs to produce, but isn’t quite sure how – finding a local supplier that can give it advice is helpful. When companies move back to the states, they will need to invest in new equipment, and may be seeking out new suppliers that are more suited for their new location. A company well-versed in manufacturing equipment may have useful advice that companies can use.
Some reshoring companies like their particular international facility, and in a perfect world, would be able to just pick the whole thing up and set it back down in the U.S. Of course, this isn’t possible. These companies will need to recreate their operation by investing in a similar building and precise machinery. Domestic equipment suppliers should be able to help companies meet these challenges as well. For example, companies moving jobs back to America have reached out to Enerquip with schematics of the shell and tube heat exchangers they use overseas. Enerquip’s engineers review the drawings and determine how they can recreate the equipment for the new facility’s needs.
Reshoring is a long process that requires a lot of hard work and careful strategy. But, done right, bringing operations back stateside could benefit a business and attract more customers.
If your company is looking into investing in equipment for a new facility,reach out the the engineers at Enerquip for any custom heat exchangers you will need.