What is reshoring?

Reshoring is the process of transferring product manufacturing from a foreign country back to the country where the products are sold or the company is based.
Reshoring is common in industries such as aerospace and vehicle production, component manufacturing, complex or intricate product manufacturing, steel and aluminum production, and electronics.
Reshoring is a practice many believe will increase in popularity. COVID-19 has exposed vulnerabilities in offshore manufacturing operations, while automation is also allowing businesses to reduce labor costs to a point where domestic production is viable.

Component	Description
Concept Overview	Reshoring, also known as onshoring or insourcing, is a strategic business decision that involves bringing back manufacturing or business operations to a company’s home country or a nearby location after previously outsourcing them to foreign countries. The aim is to regain control over critical aspects of production, quality, and supply chain management. It’s a response to the challenges and considerations associated with offshoring.
Implications	Reshoring has profound implications for businesses, supply chains, and economies. By shifting production closer to home, companies can enhance supply chain resilience, reduce lead times, and gain greater control over quality standards. This can lead to improved customer satisfaction and brand reputation. Reshoring can also contribute to job creation in the home country, which can have positive effects on the local economy.
Benefits	Reshoring offers a range of benefits. Firstly, it allows companies to reduce transportation costs and mitigate the risks associated with long and complex global supply chains. Additionally, it provides better access to local talent and expertise, which can be especially crucial in industries requiring specialized skills. Moreover, reshoring can result in increased market responsiveness, as shorter supply chains can adapt more swiftly to changing customer demands. From an environmental perspective, it can lead to a reduced carbon footprint due to shorter transportation distances.
Drawbacks	While reshoring has numerous advantages, it also comes with challenges. One of the primary drawbacks is the initial investment required to transition production facilities and supply chains. Companies may need to upgrade technology, retrain workers, and adapt to new regulatory environments. Skill gaps can also be a concern, as the workforce may need retraining to meet the specific needs of reshored operations. Furthermore, businesses might face limitations in market access strategies, especially if they previously relied on low-cost labor from foreign markets. Additionally, reshoring can expose companies to heightened competitive pressures from global rivals who continue to operate overseas.
Applications	Reshoring is a strategy applied across various industries. In manufacturing, it is used to regain control over the production process, improve product quality, and ensure compliance with local regulations. The automotive industry, for example, has seen instances of reshoring where companies bring back production of specific components to enhance quality control. In the services sector, reshoring is used to provide customer support and IT services in-house, increasing customer satisfaction. Technology companies may reshore software development to access local expertise. The pharmaceutical industry also utilizes reshoring to ensure the safety and quality of pharmaceutical products. For instance, the reshoring of drug manufacturing can enhance regulatory compliance and quality assurance.
Examples	Several notable examples of reshoring initiatives include: 1. Apple: The tech giant Apple announced plans to invest $350 billion in the U.S. economy over five years, including the construction of a new campus and the creation of 20,000 jobs. This move aimed to bring some of its manufacturing and component production back to the United States. 2. General Electric (GE): GE reshored the production of water heaters from China to the U.S. This decision was driven by the desire to improve quality control, reduce lead times, and meet the demand for its products more efficiently. 3. Ford: Ford Motor Company has reshored production of certain vehicle components to the United States, such as engine components and transmissions. This strategic shift aimed to enhance quality and supply chain resilience. 4. Reshoring Initiative: The Reshoring Initiative, a non-profit organization, assists companies in evaluating the financial benefits of reshoring. It provides tools and resources to help businesses make informed decisions about bringing operations back to the U.S. In conclusion, reshoring is a strategic business move with implications that extend from supply chain management to local economies. While it offers numerous benefits, including supply chain resilience and improved quality control, it also presents challenges such as initial investment costs and skill gaps. The application of reshoring varies across industries and is driven by factors such as the need for quality assurance and greater control over production processes. Successful examples from companies like Apple, GE, and Ford illustrate the potential benefits of reshoring for businesses and the broader economy.

Reshoring involves a company moving its manufacturing operations from a foreign country to the country in which it is based. The process is the opposite of offshoring, where manufacturing operations are moved overseas to access cheaper labor markets.

Table of Contents

Understanding reshoring

Reshoring is the process of transferring product manufacturing from a foreign country back to the country where the products are sold or the company is based.

Reshoring may seem counterintuitive at first – especially if the company will be subject to higher operating costs in its home market.

But there are several reasons why reshoring may be a worthy endeavor:

Increasing costs – when costs increase in an overseas market relative to the home market, it becomes a less attractive place to do business. Many companies discover that the small difference in cost is not worth the hassle of maintaining international operations.
Trade instability – geopolitical tension can also impact the viability of operations in other countries. China’s increasingly dominant global presence and the trade implications of Brexit are two examples.
Regulatory factors – when a business establishes a presence overseas, it may be impacted by various factors such as different materials standards and quality control issues. The country may also fail to recognize intellectual property rights. Reshoring means the company only has to conform to one set of rules or standards.

Industries where reshoring is common

Reshoring is common in the following industries:

Aerospace production.
Automotive production.
Component manufacturing – such as injection molding, die casting, and computer numerical control (CNC) machining.
Complex or intricate product manufacturing.
Electronics – in March 2022, for example, the U.S. government prepared to approve a $52 billion incentive package to reshore products such as semiconductors and printed circuit boards (PCBs).
Aluminum and steel – in some countries, these industries have benefitted from government support for domestic production.

The future of reshoring

The pandemic has made many businesses aware of the very real risks of having their manufacturing based overseas.

COVID-19 continues to place immense pressure on global supply chains, with factory shutdowns, increasing transportation costs, lower demand, and port closures now so commonplace as to be accepted.

Technology and its ability to deliver leaner and more automated manufacturing will also be important for the future of restoring.

As labor costs become a smaller fraction of total costs, businesses that once offshored to take advantage of cheap labor are starting to favor markets in closer proximity.

In fact, according to a Gartner survey of 1,300 supply chain professionals, 56% believe automation will make onshore manufacturing economically viable in the future.

The Massive Reshoring Trend

Apple: Apple has been working on reshoring efforts to bring some of its manufacturing back to the United States.
General Electric (GE): GE has been involved in reshoring initiatives in the appliance manufacturing sector. In 2012, it moved production of its water heaters from China to the U.S., citing quality control and faster time-to-market as key reasons for reshoring.
Ford: Ford Motor Company has reshored some of its manufacturing processes.
Whirlpool: Whirlpool, a major appliance manufacturer, has been shifting some of its production back to the U.S. In 2017, the company announced plans to invest $1 billion in U.S. manufacturing, which included reshoring some of its production from overseas.
Caterpillar: Caterpillar, a leading construction equipment manufacturer, has been exploring reshoring options. The company has cited improved efficiency and proximity to customers as reasons for considering restoring.
Intel: Intel, a major semiconductor manufacturer, has been considering reshoring some of its semiconductor production to the United States. The company announced plans to invest $20 billion in two new chip manufacturing facilities in Arizona in 2021.
Walmart: Walmart, one of the world’s largest retailers, has been actively working to reshore some of its manufacturing.
Brooks Brothers: The iconic American clothing brand, Brooks Brothers, has made efforts to reshore some of its production. It has invested in domestic manufacturing facilities to produce tailored clothing, suits, and other garments.
Master Lock: Master Lock, a well-known manufacturer of locks and security products, reshored some of its production from China to the United States. The company cited benefits such as better quality control and faster time-to-market.
Stanley Black & Decker: The tool and hardware manufacturer, Stanley Black & Decker, has been reshoring some of its production to the U.S.
3M: 3M, a multinational conglomerate known for a wide range of products, has made efforts to reshore some of its manufacturing. The company has been investing in domestic production facilities for products like respirators and masks.

Why Companies Consider Reshoring:

Companies decide to reshore for several reasons:

1. Cost Considerations:

Reduced Labor Cost Advantage: Labor cost differentials between home and offshore locations may have decreased, making offshore production less cost-effective.
Hidden Costs: Companies may have experienced hidden costs such as transportation, quality control, and communication challenges when operating offshore.

Quality Control:

Quality Assurance: Maintaining consistent product quality can be challenging when manufacturing is offshore, leading to quality issues.

Supply Chain Resilience:

Reduced Supply Chain Risks: Reshoring can reduce supply chain vulnerabilities, such as disruptions due to natural disasters or geopolitical instability.

Intellectual Property Protection:

Protection of Intellectual Property: Companies may bring operations back to their home country to better protect their intellectual property and trade secrets.

Proximity to Markets:

Closer to Customers: Reshoring can provide companies with proximity to their customer base, facilitating faster delivery and better customer service.

Government Incentives:

Government Support: Some governments offer incentives and tax benefits to encourage reshoring, making it financially appealing.

When to Consider Reshoring:

Companies should consider reshoring in the following scenarios:

1. Cost-Benefit Analysis:

Conduct a thorough cost-benefit analysis to determine if reshoring would result in cost savings or other strategic advantages.

2. Quality Control Issues:

If offshore manufacturing has led to consistent quality control problems, reshoring may be a solution.

3. Supply Chain Disruptions:

Evaluate the vulnerability of the supply chain to disruptions and assess whether reshoring would mitigate these risks.

4. Intellectual Property Concerns:

If intellectual property protection is a major concern, bringing operations back home may be advisable.

5. Customer Proximity:

Consider reshoring if being closer to customers or the market provides a competitive advantage.

6. Government Incentives:

Explore government incentives and support programs that may make reshoring financially attractive.

How to Implement Reshoring:

Implementing reshoring involves a structured approach:

1. Strategic Planning:

Develop a comprehensive reshoring strategy, considering factors like cost analysis, supply chain optimization, and market proximity.

2. Supplier Selection:

Identify reliable domestic suppliers and partners to support the reshoring effort.

3. Infrastructure Assessment:

Assess the need for infrastructure updates or changes to accommodate the reshored operations.

4. Workforce Training:

Train or retrain the workforce to meet the needs of the reshored operations.

5. Compliance and Regulations:

Ensure compliance with relevant regulations and standards in the home country.

6. Transition Management:

Plan and manage the smooth transition of operations back to the home country, including logistics and production.

What to Expect from Reshoring:

Companies can expect various benefits from reshoring, including:

1. Cost Savings:

Potential cost savings due to reduced transportation and overhead expenses.

2. Improved Quality Control:

Enhanced product quality and consistency.

3. Supply Chain Resilience:

Reduced vulnerability to supply chain disruptions.

4. Intellectual Property Protection:

Better protection of intellectual property and trade secrets.

5. Proximity to Markets:

Closer proximity to customers, leading to improved customer service.

6. Government Support:

Potential financial incentives and support from the government.

However, reshoring also comes with challenges such as initial investment costs, potential workforce retraining, and adapting to a changing business environment.

In conclusion, reshoring is a strategic business decision that involves bringing operations back to the home country from offshore locations. Companies should consider reshoring when it aligns with their cost, quality, supply chain, intellectual property, customer proximity, and regulatory requirements. Implementing reshoring requires careful planning and execution, but it can lead to various advantages, including cost savings, improved quality control, and enhanced supply chain resilience.

Key Highlights

Definition of Reshoring: Reshoring involves a company relocating its manufacturing operations from a foreign country back to its home country where the products are sold or where the company is based. It’s the opposite of offshoring, which involves moving manufacturing overseas for cheaper labor.
Reasons for Reshoring:
- Increasing Costs: When costs rise in a foreign market compared to the home market, it becomes less appealing to operate there.
- Trade Instability: Geopolitical tensions and global trade changes can impact the viability of operations in other countries.
- Regulatory Factors: Overseas operations can be affected by varying standards, quality control, and intellectual property issues. Reshoring simplifies compliance with one set of rules.
Industries Where Reshoring is Common:
- Aerospace and Automotive Production.
- Component Manufacturing: Such as injection molding, die casting, and CNC machining.
- Complex Product Manufacturing.
- Electronics: Government incentives to reshore semiconductor and PCB production.
Impact of the Pandemic:
- The COVID-19 pandemic has highlighted risks associated with offshore manufacturing, including disruptions to global supply chains, factory shutdowns, transportation costs, and port closures.
- Businesses are reconsidering the benefits of proximity for manufacturing.
Role of Technology and Automation:
- Technology-driven automation allows for leaner and more automated manufacturing processes.
- As labor costs become a smaller fraction of total costs, businesses are favoring markets closer to their home base.
- Automation is making onshore manufacturing economically viable, according to supply chain professionals.
Future of Reshoring:
- The practice of reshoring is expected to increase in popularity due to lessons learned from the pandemic and the potential of automation.
- The combination of reduced labor costs through automation and the need for more resilient supply chains drives the trend.

Related Frameworks & Supply Chain Concepts	Description	When to Apply
Reshoring	Reshoring refers to the process of bringing back manufacturing or business operations that were previously offshored to other countries, often due to factors such as cost, quality, lead times, and supply chain resilience.	When evaluating manufacturing strategies, mitigating supply chain risks, or optimizing operational efficiency.
Nearshoring	Nearshoring involves relocating business operations to nearby countries, typically within the same region or continent, to capitalize on benefits such as proximity, reduced transportation costs, cultural alignment, and regulatory similarities.	When seeking to optimize supply chains, reduce transportation costs, or enhance communication and collaboration with offshore partners.
Offshoring	Offshoring is the practice of outsourcing business processes or services to foreign countries, often to leverage lower labor costs, access specialized skills, or expand global market presence.	When considering global expansion, accessing specialized expertise, or reducing operational costs through labor arbitrage.
Onshoring	Onshoring involves relocating business operations or production facilities back to the company’s home country, often driven by factors such as rising offshore labor costs, quality concerns, intellectual property protection, or changes in market demand.	When addressing quality control issues, reducing dependency on foreign suppliers, or supporting domestic economic growth initiatives.
Total Cost of Ownership (TCO)	TCO is a financial framework that calculates the total cost associated with owning and operating a product or service over its entire lifecycle, including acquisition, operation, maintenance, and disposal costs.	When conducting cost-benefit analyses, evaluating offshoring vs. reshoring decisions, or optimizing supply chain management strategies.
Risk Management	Risk Management involves identifying, assessing, and mitigating potential risks that may impact an organization’s operations, including risks associated with offshoring, such as geopolitical instability, currency fluctuations, and supply chain disruptions.	When evaluating supply chain risks, developing business continuity plans, or implementing risk mitigation strategies to safeguard against disruptions.
Strategic Sourcing	Strategic Sourcing is a procurement strategy that focuses on identifying, evaluating, and selecting suppliers based on factors such as quality, cost, reliability, and alignment with organizational objectives. It aims to optimize value across the supply chain.	When sourcing alternative suppliers, assessing supplier capabilities, or negotiating contract terms to ensure competitiveness and minimize risks.
Lean Manufacturing	Lean Manufacturing is a production philosophy that focuses on maximizing value while minimizing waste in all aspects of operations, including production processes, resource utilization, and supply chain management.	When optimizing manufacturing efficiency, reducing production lead times, or streamlining supply chain operations to improve responsiveness and flexibility.
Agile Supply Chain	Agile Supply Chain refers to a flexible and responsive supply chain that can quickly adapt to changes in demand, market conditions, or disruptions. It emphasizes collaboration, visibility, and the ability to scale operations efficiently.	When managing demand volatility, enhancing supply chain visibility, or responding to market fluctuations and disruptions with speed and agility.
Resilient Supply Chain	Resilient Supply Chain focuses on building supply chain resilience to withstand and recover from disruptions, whether caused by natural disasters, geopolitical events, or other unforeseen circumstances. It involves redundancy, diversification, and contingency planning.	When strengthening supply chain resilience, identifying single points of failure, or developing business continuity strategies to ensure continuity of operations in the face of disruptions.