When Reshoring Begins, How Does Your Supply Chain Adapt?

In recent years, the concept of reshoring has gained significant traction as companies seek to bring their manufacturing and production operations back to their home countries. Reshoring, also referred to as onshoring or backshoring, involves bringing the production and manufacturing of goods back to the company’s home country. This trend is driven by a range of factors, including the desire to reduce transportation and production costs, improve quality control, and respond more rapidly to market demands. Additionally, reshoring aims to create jobs and boost the domestic economy.

Understanding Reshoring

Reshoring is the opposite of offshoring, which involves moving production overseas to take advantage of lower labor and manufacturing costs. While offshoring has been a frequent practice for decades, reshoring has emerged as a strategic response to the challenges and risks associated with global supply chains. The COVID-19 pandemic, geopolitical tensions, and increasing transportation costs have highlighted the vulnerabilities of relying heavily on offshore production.

Facts and Prevalence of Reshoring

Reshoring has become a significant trend in recent years, with many companies recognizing the benefits of bringing production closer to home. According to the Reshoring Initiative, reshoring and foreign direct investment (FDI) job announcements in the U.S. reached a record high in 2022, with over 364,000 jobs announced, and another 287,000 in 2023. This trend is expected to continue as companies prioritize supply chain resilience and sustainability (Figure 1).

Industry Mix

Reshoring is prevalent across various industries, including automotive, electronics, medical devices, and consumer goods. The automotive industry has seen a significant shift towards reshoring as companies seek to reduce dependency on overseas suppliers and improve supply chain visibility. 

A sizeable portion of the automotive sector is already sourcing domestically. As of 2024, 66% of the U.S. automotive sector sources at least half of its products or raw materials domestically, and 80% sources at least half of its services domestically.

The trend towards reshoring is expected to continue growing. In a survey, 44% of respondents in the automotive industry indicated they are “very likely” or “extremely likely” to onboard new North American products or raw materials suppliers in the coming months.

Policies like the Inflation Reduction Act (IRA) and the CHIPS Act have significantly boosted reshoring efforts. These policies provide substantial incentives for domestic manufacturing, particularly in sectors like electric vehicle (EV) batteries and semiconductors, which were previously heavily dependent on imports.

Geography Mix

While reshoring is most prominent in the United States, other countries, such as the United Kingdom and Germany, are also experiencing a resurgence in domestic manufacturing. These countries are leveraging reshoring to strengthen their economies, create jobs, and enhance supply chain resilience. 

The UK has seen a resurgence in domestic manufacturing. Factors such as Brexit, which has complicated international trade, and the desire to enhance supply chain resilience have driven reshoring efforts. The UK government has implemented policies to support this trend.

Germany, known for its strong manufacturing sector, has been leveraging reshoring to maintain its industrial base. The country has focused on bringing back production to ensure supply chain stability and to capitalize on its advanced manufacturing capabilities.

Steps to Adapt Successfully to Reshoring

Adapting to reshoring requires a strategic approach and careful planning. Here is a step-by-step guide to help companies navigate this transition successfully (figure 2):

Step 1: Assess the Current Supply Chain

The first step in adapting to reshoring is to conduct a comprehensive assessment of the current supply chain. This involves evaluating the existing network of suppliers, manufacturing facilities, and distribution centres. Companies need to map out their entire supply chain to understand the flow of materials and products from suppliers to end customers, identifying potential bottlenecks and areas for improvement. Additionally, assessing the reliability and performance of current suppliers, especially those offshore, is crucial for overall supply chain resilience.

During this assessment, companies should identify potential risks and vulnerabilities associated with offshore production, such as geopolitical instability, natural disasters, trade restrictions, and currency fluctuations. Understanding these risks allows companies to develop strategies to mitigate them, like diversifying their supplier base or increasing inventory levels. Evaluating the feasibility of reshoring specific operations involves analysing cost implications, including labour, transportation, and production costs, to compare the total cost of ownership between offshore and domestic production.

Another critical aspect is evaluating the availability of skilled labour and resources in the home country. Companies need to ensure access to a workforce with the necessary skills to support reshored operations, which may involve investing in training programs or partnering with local educational institutions. Additionally, assessing the availability of raw materials, components, and other resources required for production is essential for the success of reshoring initiatives.

According to a report by Deloitte, more than 75% of companies are planning to accelerate their reshoring initiatives to build more resilient supply chains and reduce dependency on offshore production.

Key Actions:

• Conduct a supply chain risk assessment to identify potential disruptions and vulnerabilities.
• Evaluate the cost implications of reshoring, including labour, transportation, and production costs.
• Assess the availability of skilled labour and resources in the home country.

Step 2: Develop a Reshoring Strategy

Once the assessment is complete, companies should develop a reshoring strategy that aligns with their business objectives and goals. This strategy should outline the key steps and milestones for transitioning production back to the home country, considering the potential impact on customers, suppliers, and other stakeholders.

Developing a reshoring strategy involves defining the scope and objectives of the initiative. Companies need to clearly articulate their goals, whether it is reducing supply chain risks, improving product quality, or enhancing customer satisfaction. Additionally, the strategy should identify the key products and operations to be reshored, prioritizing those that offer the most significant benefits in terms of cost savings, quality improvement, and supply chain resilience.

A well-developed reshoring strategy includes a detailed timeline and roadmap for the process, outlining specific steps and milestones required to transition production back to the home country. Key activities might include securing necessary permits, setting up new manufacturing facilities, and training the workforce. A clear timeline helps manage the reshoring process efficiently and ensures that all stakeholders are aware of their roles and responsibilities.

Engaging with key stakeholders is another critical aspect. Companies need to communicate their reshoring plans to suppliers, customers, and employees to ensure alignment and support. This engagement helps address any concerns or challenges that may arise during the reshoring process. Effective communication and collaboration with stakeholders can significantly enhance the success of the reshoring initiative.

Key Actions:

• Define the scope and objectives of the reshoring initiative.
• Identify the key products and operations to be reshored.
• Develop a timeline and roadmap for the reshoring process.
• Engage with key stakeholders, including suppliers, customers, and employees, to ensure alignment and support.

Step 3: Invest in Technology and Automation

Reshoring presents an opportunity to leverage advanced technologies and automation to enhance production efficiency and quality. By bringing production back to the home country, companies can utilize the latest advancements in manufacturing technologies to create more efficient operations. Investing in state-of-the-art technologies, such as robotics, artificial intelligence (AI), and the Internet of Things (IoT), can help companies achieve significant cost savings by reducing labour costs, minimizing waste, and optimizing production processes. These technologies also improve product quality by enabling more precise and consistent manufacturing, reducing defects, and enhancing overall reliability.

Moreover, automation and advanced technologies can increase production capacity by allowing companies to scale operations more effectively. Automated production lines can operate continuously with minimal human intervention, leading to higher output levels and faster production times. This increased capacity helps companies meet growing customer demand and respond quickly to market changes. Implementing digital supply chain solutions, such as blockchain and advanced analytics, enhances visibility and traceability across the supply chain, enabling real-time monitoring, disruption identification, and data-driven decision-making.

Investing in technology and automation also positions companies to be more competitive globally. By adopting innovative technologies, companies can differentiate themselves from competitors and offer superior products and services, attracting new customers and retaining existing ones. Furthermore, advanced technologies create a more agile and resilient supply chain, capable of adapting to unforeseen challenges and disruptions, which is crucial in today’s volatile global environment.

According to a report by IBM, the adoption of AI and automation in reshoring initiatives can lead to a 37% increase in labour productivity by 2025.

Key Actions:

• Evaluate the potential benefits of automation and advanced manufacturing technologies.
• Invest in robotics, artificial intelligence, and other technologies to streamline production processes.
• Implement digital supply chain solutions to enhance visibility and traceability.

Step 4: Build a Skilled Workforce

A successful reshoring initiative requires a skilled and capable workforce. Companies should invest in training and development programs to equip employees with the necessary skills to operate advanced manufacturing technologies. This investment ensures the workforce is proficient with state-of-the-art equipment and can adapt to new processes. Training should cover technical skills, like operating robotics, and soft skills, such as problem-solving and teamwork. Continuous learning opportunities foster a culture of innovation and adaptability, essential for maintaining a competitive edge.

Collaborating with educational institutions and industry associations is also vital. Partnerships with universities, technical schools, and community colleges can create apprenticeship and internship programs, providing firsthand experience and practical training. These programs prepare the next generation of workers and help companies recruit top talent early. Industry associations offer resources and support for workforce development, including certification programs and workshops. Together, companies and educational institutions can build a robust pipeline of skilled talent.

Implementing talent retention strategies is essential to attract and retain skilled workers. Companies should create a positive work environment with competitive salaries, benefits, and career advancement opportunities. Employee engagement initiatives, such as recognition programs and professional development, can boost morale and reduce turnover. Additionally, leveraging technology for workforce management, using data analytics to identify skill gaps and tailor training programs, ensures a stable and motivated workforce that drives the success of reshoring initiatives.

Key Actions:

• Create training and development initiatives to enhance the skills of the current employees.
• Partner with educational institutions to create apprenticeship and internship programs.
• Implement talent retention strategies to attract and retain skilled workers.

Step 5: Optimize Supply Chain Networks

Reshoring provides an opportunity to optimize supply chain networks and improve efficiency. By bringing production closer to home, companies can re-evaluate their supply chain to identify areas for improvement. This involves analysing current operations to pinpoint inefficiencies and reduce costs. Companies should assess their logistics, warehousing, and distribution strategies to align with the reshoring initiative. This evaluation can reveal opportunities to streamline operations, reduce lead times, and enhance responsiveness to market demands. For instance, consolidating distribution centres or optimizing transportation routes can lead to significant cost savings and improved delivery times.

Additionally, reshoring allows companies to explore nearshoring or regional sourcing to complement their efforts. Nearshoring involves moving production to nearby countries with lower labour costs but closer proximity to the home market, balancing cost savings and reduced supply chain risks. Regional sourcing focuses on procuring materials and components from suppliers within the same region, further reducing lead times and transportation costs. Both approaches enhance supply chain resilience by diversifying the supplier base and reducing dependency on distant suppliers.

Implementing lean manufacturing principles is another critical aspect. Lean manufacturing focuses on minimizing waste and maximizing efficiency in production processes. By adopting lean practices, companies can improve operational efficiency, reduce inventory levels, and increase productivity. Techniques such as just-in-time (JIT) inventory management, continuous improvement (Kaizen), and value stream mapping help identify and eliminate non-value-added activities, reducing costs and improving product quality.

Key Actions:

• Conduct a network optimization analysis to identify opportunities for improvement.
• Evaluate the potential benefits of nearshoring or regional sourcing to complement reshoring efforts.
• Implement lean manufacturing techniques to minimize waste and boost efficiency.

Step 6: Enhance Supplier Collaboration

Collaboration with suppliers is critical to the success of reshoring initiatives. Companies should collaborate closely with suppliers to ensure a smooth transition and maintain continuity of supply. This involves engaging with suppliers early in the reshoring process to align on goals, timelines, and expectations. Early engagement helps identify potential challenges and develop joint strategies to address them. Open communication and transparency build trust and ensure suppliers are committed to the reshoring initiative. This collaboration is essential for coordinating production schedules, managing inventory levels, and maintaining quality standards.

Building strong relationships with local suppliers can improve supply chain resilience and responsiveness. Local suppliers are often more flexible and can respond quickly to changes in demand or disruptions. By collaborating closely with these suppliers, companies can create a more agile supply chain that adapts to market fluctuations and unexpected events. Local suppliers can also provide insights into regional market trends and customer preferences, helping companies tailor their products and services. Developing collaborative partnerships with local suppliers can lead to mutual benefits, such as shared resources, joint innovation projects, and improved operational efficiencies.

Implementing supplier development programs is another crucial aspect. These programs aim to improve supplier capabilities and performance through training, technical assistance, and continuous improvement initiatives. By investing in their suppliers’ development, companies can ensure a dependable and high-performing supply base. Supplier development programs can also help standardize processes, reduce lead times, and enhance product quality. Furthermore, these programs foster a culture of collaboration and innovation, where suppliers and companies work together to achieve common goals and drive long-term success.

Key Actions:

• Engage with suppliers early in the reshoring process to ensure alignment and support.
• Develop collaborative partnerships with local suppliers to enhance supply chain resilience.
• Implement supplier development programs to improve supplier capabilities and performance.

Step 7: Monitor and Evaluate Progress

Finally, companies should continuously monitor and evaluate the progress of their reshoring initiatives. This involves tracking KPIs and conducting regular reviews to identify areas for improvement. Continuous monitoring ensures reshoring efforts remain on track and deliver desired outcomes. By establishing a robust monitoring system, companies can gain real-time insights into their reshoring initiatives, allowing informed decisions and prompt corrective actions.

Tracking KPIs is critical. These indicators, such as production efficiency, cost savings, lead times, and quality improvements, measure how effectively a company is achieving its reshoring objectives. Regularly reviewing KPIs helps assess whether reshoring initiatives meet targets and identify deviations from expected performance, enabling targeted improvements.

Conducting regular reviews and assessments is equally important. These reviews involve a comprehensive analysis of the reshoring process, evaluating strategy effectiveness and overall supply chain impact. Regular assessments help identify emerging challenges and opportunities, allowing companies to adapt their reshoring strategies accordingly. This iterative process ensures continuous optimization of reshoring initiatives.

Moreover, continuous monitoring fosters a culture of improvement within the organization. By consistently evaluating reshoring progress and outcomes, companies create a feedback loop that drives ongoing enhancements, addressing current issues and preparing for future challenges.

Key Actions:

• Define KPIs to measure the success of reshoring initiatives.
• Conduct regular reviews and assessments to track progress and identify areas for improvement.
• Adjust the reshoring strategy as needed to address emerging challenges and opportunities.

Conclusion

Reshoring presents a unique opportunity for companies to enhance supply chain resilience, improve quality control, and create jobs in their home countries. By following a strategic and systematic approach, companies can successfully navigate the transition to reshoring and unlock new opportunities for growth and innovation. Embracing reshoring as a forward-looking strategy will not only strengthen supply chains but also contribute to the overall economic development and sustainability of the home country.

The success of reshoring initiatives hinges on a robust system of continuous monitoring and evaluation. By diligently tracking KPIs and conducting regular reviews, companies can ensure their reshoring efforts are effective and aligned with strategic goals. This proactive approach not only addresses current challenges but also fosters a culture of continuous improvement, positioning companies to adapt and thrive in an ever-evolving global market.