“Reshoring” now includes nearshoring

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Two years of shortages – from toilet paper to semiconductors – could finally stem the addiction of American industrialists to outsourcing. Low-wage labor is losing its appeal for businesses as costs related to global transportation and geopolitical disruptions continue to rise.

Relocation to the United States increased in 2021, according to the Reshoring Initiative. Job advertisements related to relocation and foreign direct investment (FDI) reached 261,000 last year, bringing the total number of jobs advertised since 2010 to more than 1.3 million. The US computer and electronics industry was a major beneficiary last year with a 17% increase in jobs.

Chart showing employment growth in relocation since 2010

Source: The Resettlement Initiative

Big announcements in 2021 were driven by government support for U.S. production of critical commodities in short supply due to Covid-19 and dramatic increases in freight costs and delivery times, according to the Initiative. Manufacturers are also acknowledging the full costs of offshoring and growing concerns about US dependence on China.

AT Kearney, who measures reshoring differently, still sees a reliance on offshore manufacturing, but notes there are strong indications that attitudes and strategies are changing. “Thanks to the pandemic, trade wars and tariffs, and the continued supply chain disruptions that have resulted, American businesses are taking more seriously adopting expanded versions of relocation.”

Kearney divides the import of manufactured goods from 14 low-cost Asian countries (LCCs) by the gross domestic output of the United States for his reshoring index. Last year, Kearney’s Manufacturing Import Ratio (MRI) found that US imports of manufactured goods from the 14 low-cost countries totaled 14.5% of US GDP, up from 12.95% in 2020. This resulted in a negative relocation index.

The Relocation Initiative tracks relocation announcements from companies headquartered in the United States and FDI from foreign companies that have moved production or sourcing from overseas to the United States, and through case studies and surveys. It maintains a searchable database of over 3,700 relocation-related articles.

Nearshoring is a component of relocation

Kearney has broadened its vision of relocation to incorporate nearby relocation as companies seek best versus lowest cost. Regionally, the company added, “companies are also looking at each other to assess whether there will be enough critical mass in this redefined onshoring movement to build an ecosystem of suppliers, either nationally or in a location close to the coast, which can rival what China has built.”

More than 90% of CEOs surveyed by Kearney view relocation favorably.

The semiconductor industry, in particular, has an incentive to relocate. The US and EU have passed spending bills that would build state-of-the-art factories in these areas. Several chipmakers, including Intel, have already announced plans.

The Covid crisis has laid bare the overreliance of the United States on imports. In the years since the start of the pandemic, the global electronics supply chain has been disrupted by factory fires, contaminated materials, groundings of cargo ships, rising shipping and air transportation costs, and geopolitical unrest. The war between Ukraine and Russia and tensions with China will lead to continued changes in the supply chain, further accelerating relocation and proximity, experts say.

Furthermore, demand for computers and mobile technologies related to Covid increased at the end of 2019, consuming the available supply of semiconductors. The auto industry, which also saw a surge in orders, was unable to source the chips it needed for auto production. This has triggered a US government review of semiconductor manufacturing and, more broadly, of US supply chains.

Enabling technologies

Many industries are not yet ready to source materials and components regionally or locally. One technology that meets this need is additive manufacturing, also known as 3D printing. Devices that can be printed on-site, on-demand, are considered more secure because they minimize the risk of damage or tampering in the supply chain. 3D printing also produces the exact number of parts needed instead of ordering in volume, resulting in significant cost savings.

“With a 3D printer, you can take an input type of material and create a limited output,” explained Charles Lu, product marketing manager for Markedforge, an American supplier of 3D printers and materials. “It’s about labor costs, machine time and inventory holding costs,” he said. “Our niche is the low volume tooling and accessories you need right now and solid, accurate and reliable production.” 3D printers digitally store product designs that can be reconfigured on demand.

Electronic devices can be made by printing on a variety of substrates. Electrically functional electronic or optical inks are deposited on the substrate, creating active or passive devices such as thin film transistors, capacitors, coils and resistors.

Some researchers expect printed electronics to facilitate widespread, ultra-low-cost, low-performance electronics for applications such as flexible displays, smart labels, decorative and animated displays, and active wear that do not require no high performance.

“If the past few years have taught us anything, it’s that our traditional thinking about the supply chain, specifically how and where products are purchased, manufactured and distributed, is failing in the face of severe disruption,” according to Kearney.

Experts say reshoring/nearshoring is key to building more resilient supply chains that can recover from disruptions faster. Manufacturers can integrate and operate models where components and material supplies are close to shore and assembly and testing is done in America. This allows manufacturers to source some of their materials and components from nearby locations such as Mexico, Central America and even Canada, Kearney said, while still being able to tell their products are made in the United States.

San Francisco-based Tempo Automation, a specialist in rapid circuit board design and prototyping, and KMC Systems, a designer and manufacturer of healthcare devices, see proximity to their US customers as a competitive advantage. Design reviews, for example, are completed quickly. Most of KMC’s materials are sourced 200 miles from its plant in Merrimack, NH, and Tempo’s supply chain considers component availability in addition to price and other sourcing parameters.

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