Manufacturers & Distributors ARTICLE -

U.S. Manufacturers Consider Benefits of Reshoring

Target Audience: Manufacturing and Distributing Companies, M&D Industry, M&A Accountants

When moving operations to other countries — namely China and other parts of Asia — became a trend among U.S. manufacturers several years ago, the cheap labor and real estate seemed too good to be true. Today many believe they were. Reshoring — the act of bringing operations back onto U.S. soil — is a reaction to the myriad problems manufacturers have faced in foreign countries.

These issues haven’t only been a nuisance for companies, but, in some cases, have also outweighed any cost savings credited to the move. Some manufacturers are discovering that, with a little innovation and problem solving, they can come home again and compete with China’s prices.

Reasons to reshore

The relatively low costs of real estate, labor and materials overseas can make it hard for U.S.-based manufacturers to compete. On the other hand, many who manufacture overseas may not even realize the price they pay because of hidden expenses involving shipping, product quality, limited oversight and longer supply chains, all of which are harder to quantify.

Tighter, leaner supply chains — not easily achieved when manufacturing plants are an ocean away — are another reason to reshore. Many Chinese manufacturers, for example, won’t ship products or parts until they’ve been paid for in full. Longer shipping times compound this strain on cash flow — potentially adding weeks to the time it can take for a manufacturer to replenish cash spent on production. Payment issues aside, shortening supply chains (possible in part through reshoring) generally can reduce risk and improve cash flow.

The quality, safety and regulation of products produced overseas have also come into question. In a similar vein, some manufacturers are concerned about counterfeiting and other intellectual property issues associated with foreign manufacturing operations. In addition to financial and logistical reasoning, some manufacturers have ethical motives for reshoring, citing reduced carbon footprints, U.S. job creation and concern over foreign labor conditions as reasons for bringing operations back to the United States.

Overseas manufacturing operations can hinder innovation and flexibility, as well. For companies that modify their products frequently or customize orders, it can be difficult to succeed overseas because of distance, time differences and communication issues. 

Cost comparisons

For these reasons, manufacturers must scrutinize all of the costs they incur by building overseas — not just the obvious ones, such as direct shipping prices. For example, can decreased customer satisfaction and retention be attributed to increased shipping times and quality issues? Is distance causing a company’s U.S.-based R&D department to miss chances to improve production methods that may reduce costs? Are foreign operations compromising valuable intellectual property?

After answering these questions, manufacturers can begin to compare the true costs of overseas manufacturing to those of U.S. manufacturing. A huge part of that evaluation is the need to identify innovative solutions to the less-desirable aspects of U.S.-based manufacturing — specifically relatively high labor and real estate prices. For example, manufacturers might consider investing in automation and robotics to reduce labor costs.

Companies can also take advantage of incentives from federal, state and local governments that are aiming to bring manufacturers back to the United States. Picking a location that suits a company’s specific needs is also important: Labor pool quality, proximity to customers and corporate headquarters, and even weather are factors that should be weighed in this decision.

Finding a way home

Moving manufacturing abroad — something that was once seen as a forward-thinking, business-savvy decision — has now become questionable. Even though reshoring isn’t the answer for every manufacturer, many may find greater success thanks to well-planned homecomings.

Reshoring 101

To see that reshoring has become a hot topic, one need only observe the recent rise in popularity of seminars, webinars and other events on the subject. Event producers express the need to reinvigorate the U.S. manufacturing industry as one of the main reasons for their desire to educate the industry about reshoring, and point to the fact that reshoring can actually produce higher-quality products more quickly and cost effectively. Several industry associations are uniting to produce these events, and are using them as a forum to highlight reshoring success stories, offer resources and generally teach manufacturers more about the initiative. Many of these events also connect original equipment manufacturers with U.S. parts manufacturers and other potential partners that offer competitively priced solutions to encourage reshoring.

Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.

related links

M&D Newsletters & Articles 

Tax Services

Audit Assurance and Accounting

Industries

Tax and Business Updates