Given the geopolitical situation, global supply chain disruptions in recent years, and protectionist trade policies, the reshoring question has likely come across your desk. Reshoring to the U.S. has accelerated since supply chain disruptions during the pandemic revealed a much riskier global supply chain than previously assumed.
As your company evaluates whether to reshore production and supply chains, to what extent, and how to capitalize on the reshoring trend, there are four key tenets on which to focus:
- Establishing a fit-for-purpose total cost calculator.
- Investing in talent and automation synergies.
- Placing a premium on quality.
- Being proactive in customer targeting.
Total Cost Calculator
While it may seem obvious that you must calculate total costs when evaluating reshoring decisions, many companies still focus simply on direct costs, the costs/price of sourced components, tariffs/taxes/fees, and shipping. Procurement is traditionally measured and compensated based on these direct costs, which leaves out the indirect, perhaps hidden costs of production and sourcing from certain global regions or countries. These indirect, hidden costs can include several of the following:
- Risk and volatility of costs of producing and sourcing in certain countries, including the potential volatility of international trade policies (tariffs, retaliatory tariffs, sanctions, etc.).
- Potential for supply chain disruptions leading to the inability to produce or source certain components or items, leading to delayed final production and therefore delayed or lost sales to a competitor.
- Additional labor costs and other ancillary costs of managing disruptions and dealing with exceptions to standard, efficient production, sourcing, and supply chain processes.
- Quality risk of production and sourcing in certain countries, which can lead to disappointed customers, elevated warranty and/or recall costs, brand erosion, and lost sales.
As you build your total cost calculator, ensure you think expansively and evaluate the hidden, indirect costs and risks of production and sourcing decisions specific to your company and the markets it serves. Artificial intelligence (AI) tools can assist in developing a robust total cost calculator, scraping tariff and other fees from all countries and updating as these change, seemingly on a daily basis.
Talent & Automation Synergies
A challenge to reshoring to the U.S. for any company is the dearth of properly skilled labor to operate production facilities. Operating factories today requires more technical, analytical, and digital skills than in the past. To mitigate the dearth of properly skilled labor, and for general efficiency and cost reasons, investments in factory automation will be required.
Increased factory automation will further change the nature of the skills required to operate production facilities, elevating the analytical skills required to oversee and manage robots and other automation solutions. This will also include programming skills and the ability to evaluate and use the data and information being captured and produced by automation solutions.
This means your company will need to enhance training for a different role than traditionally existed – a skill level below an engineer, but above the typical line worker, who may emerge from trade schools or other technical education and need to be extensively trained on your automation solutions and production approaches. Further, automation solutions will need to be designed with worker experience and usability in mind, such that this new type of worker can be quickly upskilled and trained to operate.
Quality
With the opportunity to build new, modern, state-of-the-art production facilities in the U.S., your company now can re-evaluate all processes to drive higher quality outputs. The benefits of higher quality can more than offset the potential higher costs of production and sourcing in the U.S. These benefits can include increased sales, market share gains against competitors, enhanced brand reputation, and lower warranty and/or recall costs.
This is a unique opportunity to go beyond optimizing your supply chain, to reimagining what is possible in terms of production and sourcing processes to change the game against your competitors.
Proactive Customer Targeting
Often, the opportunity to capitalize on reshoring decisions results from a bad experience where a customer decides to re-evaluate its suppliers, creating an opening for your company to pounce. Given this, you must stay on top of industry issues and risks, communicate consistently with potential customers, and be ready to pounce when the opportunity presents itself.
As you’ve built enhanced production and sourcing capabilities to take advantage of this changing global environment, determine your target customers and stay close to them to win more business as the opportunity arises. Ensure you can demonstrate your new, enhanced processes and the benefits they will bring for customers reeling from global supply chain challenges.
Disruption presents opportunity - if you are bold enough to go after it. The volatile geopolitical environment, perhaps forcing reshoring decisions, presents the opportunity for your company to change the game. Ensure you have a robust, fit-for-purpose total cost calculator, invest in talent and automation synergies, put a premium on enhanced quality, and proactively target the right customers to win more business.
You’ll then be well-positioned to come out on top with your reshoring strategy.
