13 Mar 2014

TOPIC: Solving the Reshoring Dilemma

Patrick Van den Bossche, Pramod Gupta, Hector Gutierrez, and Aakash Gupta
A.T. Kearney

By: Patrick Van den Bossche, Pramod Gupta, Hector Gutierrez, and Aakash Gupta

It’s not news that manufacturing in the U.S. has become more attractive in the past few years. And, even though there is no torrent of renewed manufacturing activity moving the needle just yet, it’s clear that the reshoring movement is growing. At the very least, it should make U.S. companies think twice about where they will manufacture their products in the next few years. But how do you figure out whether to jump on the reshoring bandwagon or sit this one out? There are a few tools and tests that can help you assess whether reshoring is the right choice. And if the answer is “Yes,” making sure your assumptions are realistic and you are factoring in all the moving pieces into your analysis is crucial to avoid any nasty surprises.

A number of macroeconomic factors have tipped the balance in favor of domestic manufacturing, at least for some industry sectors. Among them are the appreciation of China’s currency versus western currencies, China’s labor rate inflation, increased concerns about supply interruption, lower energy costs in the United States as a result of shale gas exploration, and a general push from federal and state governments to reduce the costs and administrative barriers of bringing manufacturing back.

Companies are responding: A growing number of reshoring cases, ranging from heavy machinery and appliances to chemicals, have been covered by the media in the past few months. Several recent studies have added even more fuel to the fire by identifying a number of industry sectors that, based on macroeconomic factors and industry cost models, should consider reshoring their operations. The usual suspects include computers and electronics, appliances and electrical equipment, primary metals, machinery, furniture, plastics and rubber, paper, and fabricated metals.

A list of recent reshoring cases published by The Reshoring Initiative* shows many of these industries indeed at the forefront. If you are active in these industries, reshoring should be on your radar screen. There are, however, cases from less straightforward industries, such as that of an Indian textile decade. Of all the industries, textiles would be one of the last you would expect to return to the U.S. if only the macroeconomic picture was considered. On the other end of the spectrum, several companies in slam-dunk industries aren’t planning on returning anytime soon.

So only taking into account the macroeconomic factors does not provide the complete answer


Published on:
Supply Chain Management Review, January/February 2014



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