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What Will Make Reshoring a Reality?

Reshoring has become a major focus for politicos and industry leaders alike, especially in light of the supply-chain challenges caused by the Covid crisis over the course of the past year. But for most, bringing manufacturing back stateside, in a significant sense, remains an ongoing conversation without a clear course of action.

Manifold circumstances have contributed to the flight of industry from U.S. shores, and corporations offer up an equal number of reasons why they’ve been unable, or unwilling, to invest in bringing production back.

Rosemary Coates, founder and executive director of the Reshoring Institute, and Pandora Ovanessian, chief information officer and senior technology consultant for California Manufacturing Technology Consulting (CMTC), expounded upon those issues Thursday during a C Sweet virtual event—and discussed what it will take to push businesses to adopt more robust reshoring strategies.

Coates pointed to the 2012 presidential race as an inflection point in the discussion about moving production away from China and back to the U.S. At the time, she was working as a consultant to American companies looking to offshore their manufacturing, but as both candidates—Democrat and then-incumbent President Barack Obama and Republican challenger Mitt Romney—campaigned on promises to get tough on China for its misdeeds and dismantle its dominance as a sourcing superpower, Coates and her clients began to see the writing on the wall.

“It was really a turning point when executives that I was working with started talking in earnest about potentially manufacturing in the U.S. and whether it could be done,” she said.

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“We sort of did a 180,” she added. “I put my management team together and we developed a methodology for helping companies bring manufacturing back, doing the hard economics to determine if it was economically viable and potentially a good idea.” Along with her team of consultants, Coates founded the Reshoring Institute shortly thereafter. Amid the pandemic, she said, her team is “very busy,” as “lots of companies are interested in coming back.”

CMTC’s Ovanessian said that manufacturing’s exodus from the U.S. in search of cheaper pastures really started taking place “around Y2K,” but echoed Coates’ feeling that an opposing trend is now brewing. “We’re coming back to onshoring,” she said. While the appetite for domestic production is undoubtedly growing, the current process of reshoring is not without its hiccups. Companies must have access to “the right talent pool and technology” in the U.S. to make it possible, Ovanessian said, and both elements are still somewhat lacking.

“When I speak about technology, it’s really about smart manufacturing, or what we call industry 4.0,” she said, referring to the automation of many production processes that used to be done by hand. The initial impetus for offshoring was low labor costs overseas, she added, but now that those costs have been rising for a number of years, the race is on for manufacturers everywhere to adopt the latest, most efficient tech run by a smaller human workforce.

“Now that we have robotics and industrial IoT, we’re seeing that we don’t necessarily have to put in a lot of labor when we have the technology to support us,” she said. That spells good news, in some ways, for the U.S., where the cost of labor is high relative to China—but the process of getting up to speed on automation takes time and money, she said.

Paralleling that challenge, Coates added, “There are severe shortages of manufacturing skills across the U.S.,” and the country is in desperate need of “machine tool operators and technicians.” This new class of professions has been dubbed “new collar” jobs, she said—“a crossover between old-fashioned assembly work and running machines.”

“Instead of putting pegs in holes,” she said by way of example, “we need someone to run the robot that puts the pegs in the holes—who knows how to repair that robot.”

Community colleges are now taking up the mantle in providing the education needed for those interested in engaging in New Collar work, Coates said. “You don’t just need to know how to use the machines,” she continued. “You have to have communication skills and computer skills” that inform necessary business functions like quality testing and updating inventory levels virtually from the factory floor.

Automated processes are key to driving efficiency and ultimately mitigating costs, which, for many companies selling consumer goods of all kinds, are a top-level priority, she added. Meanwhile, scaling these efficiencies in order to create manufacturing capacity in the U.S. has only recently become a pressing issue.

Coates says the decision to reshore is more an evolution in strategy than a one-and-done decision for most of the companies she works with. Those that decide to bring production back to the U.S. are doing so piecemeal—not shutting down their overseas operations entirely. “It’s not like, ‘I did all of my manufacturing in China, and now I’m bringing it all home,’” she said. “It’s about having a more global manufacturing strategy” informed by a number of factors.

“We encourage our clients to look at where their customers are, and where their growth markets are,” she said. “You don’t want to rip all of your manufacturing out of China” if the Asian market is demonstrating massive sales growth, for example.

Meanwhile, companies must understand the broader sourcing landscape. Many saw Vietnam as an escape hatch that offered similar skill levels and a broad access to materials, but the country is “choking on their on their capabilities right now,” Coates said. “They can’t really take on anything else—factories are full, and they only have 95 million people versus 1.5 billion in China.”

The Reshoring Institute helps paint a picture for brands of what a more diversified sourcing strategy could look like. “We help work through the process of what to bring back to America, versus what to potentially operate in another country like Mexico, Vietnam, Thailand, Indonesia,” she said, “along with what they should leave in China.” There are also political considerations to take into account, Coates said, from tariffs to trade agreements, and the institute helps clients work through a cost-benefit analysis of those factors. “All of these things are going to affect those strategic decisions at the executive level,” she added.

Still, Coates is optimistic. “The combination of going forward with technological advancements, then factoring in the political environment, and the preference for American-made that exists—all these things are trending in a positive direction on behalf of supporting manufacturing in America.”