In 2020, the pandemic’s strain on supply chains served as a wake-up call to Americans, highlighting our dependence on imported products and an intricate web of global logistics. Public support for manufacturing noticeably shifted. Businesses across the country also felt the financial pains of offshore products. Many of the risks that have long been theoretical were simultaneously real: a global pandemic, geopolitical problems, freight delays. Emergency shipments, lost sales, and more offset the savings of sourcing from low-cost countries. Impacts to our medical and defense supply chains were suddenly front-page news. Moving work back to the U.S. became a popular discussion.
Now that the economy seems to have settled, the question remains, is Made in America back, or was it just a fun idea that made as much sense as a dozen Zoom meetings every day?
What is reshoring?
Reshoring is the act of bringing globally sourced products back to the U.S. Another option is “nearshoring”, which focuses on bringing work to Canada and Mexico. While much of the focus tends to be on moving work from China to the U.S., products can be reshored from anywhere.
If we’re back to “normal,” why is reshoring still being considered?
American manufacturing has taken leaps in cost competitiveness. In 2018, the Boston Consulting Group reported that, on average, manufacturing costs in the southern U.S. were within 6% of China. Coupled with increased costs associated with geopolitical, environmental, and human risks, the math on part costs has continued to change. Strong bipartisan support for manufacturing as part of our national economic and defense strategies has also driven policy change at the state and federal levels.
Is “reshoring” really happening?
The Reshoring Initiative, a non-profit founded in 2010 to help manufacturers understand the total cost of offshore parts, tracks reshoring announcements and foreign direct investment (FDI) into new factories in the U.S. They reported 364,904 manufacturing job announcements from reshoring and FDI in 2022, a 53% increase from the previous record set in 2021. We see three main components to the broad reshoring trend: government procurements, existing commercial products, and new commercial products.
The Bipartisan Infrastructure Act of 2021 included a provision called “Build America, Buy America”. These provisions set minimum standards for American content and a strict waiver process. Unlike previous regulations, the waivers are typically time-bound to require the transition of production to the U.S. over a reasonable period. This is beginning to influence the procurement process and will have some impact on reshoring.
Reshoring existing commercial products presents a challenge: starting up a production line involves significant one-time investments in tooling and equipment, making the business case to reshore existing commercial products very difficult. While many companies have strategies to reshore work, this component of reshoring is real but playing out slowly.
Where we see the most change is in new commercial products, specifically in new factories. Construction spending on private manufacturing facilities has nearly tripled since 2017. U.S. cost competitiveness, coupled with a better understanding of the real risks of global supply chains and significant government incentives, has resulted in record levels of new manufacturing investment. While inflation certainly impacts these numbers, the message remains clear: companies worldwide are investing in U.S. manufacturing.
Where is reshoring happening?
While there is little information about locations of reshoring in federal procurements and existing commercial products, the U.S. Census Bureau provides regional data regarding manufacturer spending on construction put in place. The Mountain district (AZ, CO, ID, MT, MN, NV, UT, WY) is the fastest-growing region, with an 800% increase since 2017. The East North Central district (IL, IN, MI, OH, WI) is second at 620%. The Mountain district has benefited from semiconductor investments, and the East North Central from automotive and battery investments. Iowa is in the West North Central district, which lags the national average with 195% growth. From a technical and geographic perspective, Iowa manufacturers are well-positioned to participate in supply chains in the major growth regions.
How can Iowa manufacturers leverage these trends?
Now is the time to step back and assess your supply chain strategy. As previously mentioned, simply reshoring or nearshoring existing parts is a lower priority given the needed capital investment. The big opportunity today is to update the guidance given to product development and sourcing teams as they design new products. Finding and identifying U.S.-based partners early in the development phase, where they can co-influence design to minimize cost, can result in near-term cost-neutral solutions while reducing long-term risks.
If you are a manufacturer looking for new sales opportunities from reshoring, follow the data. Convincing a large buyer to move a product from offshore to your business is a long shot. The growth of new construction in the EV markets has created significant demand for new sources of electrical components, wire harnesses, and mechanical systems, while the semiconductor industry is creating new opportunities for advanced tooling. Your approach to reshoring opportunities should continue to follow the basics of marketing: understand your core competencies, see how they fit into growing markets, and develop a plan to win business in that space. The key difference is that these growing markets are likely to involve new customers and new products, presenting challenges in the shift.
What is being reshored?
Electrical equipment (electric vehicle batteries), computers and electronics (semiconductor manufacturing), transportation equipment (automotive), and chemicals make up nearly 70% of reshoring cases and 90% of jobs announced in the first quarter of 2023, according to the Reshoring Initiative. Medical supplies and machinery have also been significant contributors to reshoring over the past several years.
What are the drawbacks?
Iowa’s shortage of manufacturing employees may be more intense than other states, but workforce challenges are a national issue. While many of the pandemic-induced workforce issues have subsided, a larger challenge was left in their wake: there simply are not enough people entering manufacturing to replace the retiring baby boomer generation. This will continue to impact lead time and costs, potentially eroding some of the key advantages the U.S. has built in the past decade.
Where do we go from here?
No industry provides such high numbers of middle-class jobs with career progression like manufacturing. Manufacturing has transformed from “dark, dirty, and dangerous” to a high-tech environment where people can create rewarding careers. Real challenges remain: workforce, policy, strategic, and operational issues must be addressed to reach our potential. But for now, there is real momentum in bringing the right products back to the U.S., and Iowa has significant opportunities to capture new market share.