Why Some Industries Are Moving First on Reshoring

Among the harsh lessons the pandemic taught industries is that relying on thinly sourced supply chains, particularly for manufactured goods, can be a mistake. Something coming from that experience is a degree of reshoring manufacturing—bringing it back to the U.S., as Avison Young notes.

The push has been growing for “several years … with 1.3 million manufacturing jobs brought back to the U.S. since 2010.” Manufacturing grew by 21.6%, according to the Census Bureau, and new manufacturing facilities construction was up 116%.

The reason is to diversify supply chains. “Many companies are investing in domestic facilities based on lessons learned during the pandemic, as product shortages disrupted their business flow,” the firm wrote. “Recent intense pandemic lockdowns in China took many businesses by surprise and threw another jolt into the already disruptive supply chain. By locating facilities in the U.S., they can mitigate risk and gain more control over the production, quality and distribution of their products.”

Technology companies have been leaders in the push to reshore manufacturing. Examples are multi-billion-dollar chip plants, thanks to the $52 billion CHIPS and Science Act that was part of the Inflation Reduction Act.

The shift isn’t only the province of giant companies like Intel, Samsung, and TSMC. “Many small- to mid-sized companies are also reshoring or expanding domestic manufacturing,” said the report. “Aside from the supply chain benefits, companies are also trying to work around skyrocketing shipping costs and other transportation costs. And, geopolitical issues related to China are prompting some companies to reduce their reliance on those foreign labor ties.”

With the increase of manufacturing facilities comes a boost to warehousing, because factories need storage and distribution space, as do tiers of suppliers to these manufacturers and potentially distributors. “Despite the higher labor costs of operating in the U.S., it can be more cost-effective to manufacture products closer to the customer base, when reduced shipping and distribution costs are factored in,” the analysis noted.

An additional benefit that experts in supply chain and manufacturing logistics have noted for at least 20 years is shortening that by shortening the distance to a customer base, a company can react more quickly to changes in the market. Having factories in Asia and then shipping goods by sea leaves 30 to 60 days of inventory in transit, setting an effective time barrier on how quickly updates, design modifications, or error corrections can be incorporated.