- Supply chain security
- Reduction in transportation and distribution costs
- Improved and consistent quality of products
- Increased control over the manufacturing process
- Impact of COVID-19
- Impact of US/China trade tensions
Supply Chain Impact
Post COVID-19, many U.S. companies are focused on shifting to domestic production. Manufacturers are particularly focused on materials that are critical to national security or may be difficult to source should another crisis occur. According to a recent survey conducted by SME Media, one-third of respondents indicated that their company will be shifting to more U.S.-based suppliers or localizing their supply chain. Stockpiling, multi-sourcing and creation of disaster-readiness plans with supply chains are just a few of the avenue’s companies are turning to as they look to reshoring.
The ability to adjust manufacturing or supply chain operations quickly and in real-time provides operational leaders the flexibility and confidence to respond appropriately should a global threat or emergency occur.
A key factor driving reshoring efforts is the reduced transportation and distribution costs. Moving to a domestic production and supply chain model, if even for more vulnerable goods, typically has a positive impact to product margins. And reducing raw material imports provides more control over the manufacturing process ensuring higher ‘First Time Prime’ runs and decreased scrap rates.
Also, U.S./China trade tensions have continued to rise as the current Administration’s policies are focused on decreasing reliance on goods produced in China. The increased focus on stimulus funds for U.S. companies, as well as, tariffs on goods imported from China continues to escalate trade concerns.
Reshoring Headwinds
When considering reshoring activities, some manufacturers need to evaluate the trade-off between local performance metrics while maximizing global profits. And companies will remain focused on the benefits of importing from low-cost countries within Asia. Other factors weighing against reshoring efforts include:
- Cost savings for products that are labor-intensive
- Manageable overseas freight costs
- Reduced global oil prices
- S. labor shortages
- Reluctance to surrender large offshore capital investments
Top Industries Rethinking Supply Chain Strategy
However, even with these obstacles mentioned above, certain industries remain attractive to reshoring activity including aerospace, automotive, pharmaceutical, and semiconductor production. Each of these industries relies upon raw material or intermediates that are critical to national security and vulnerable to global threats. And, while the trade war may have started reshoring considerations, the COVID-19 pandemic further solidified U.S. companies’ strategies surrounding supply chains.
In the automotive sector, the global supply chain experienced significant disruptions due to lack of parts coming from China resulting in plant closures and downstream industry disruption.
Trends within aerospace manufacturing and are driving manufacturers to invest in domestic/localized production sources. Companies like GE Aviation, Boeing and Airbus have already invested in new production facilities, reopened closed plants, or added additional capacity to further support domestic sourcing.
U.S. semiconductor manufacturers will continue to benefit from industry association and government funding. Semiconductors make up America’s fifth-largest export, however, only represent approximately 12% of the global semiconductor manufacturing capacity to-date. Several bills including the CHIPS Act (Creating Helpful Incentives to Produce Semiconductors) have been introduced to support income tax credits, research and design funding, and state-level incentive programs.
For the pharmaceutical industry, the COVID pandemic highlighted the issue of America’s reliance on outsourcing critical ingredients when pharmaceutical supply chains in China and India were disrupted. The U.S. has increasingly relied on China and India as its major sources of Active Pharmaceutical Ingredient (API) given fewer regulations in these Asian markets. In efforts to reshore critical medical products, the Department of Defense and the U.S. International Development Finance Corp. announced that it will dedicate $100 million to boost MedTech and pharmaceutical manufacturing in the U.S.
DuckerFrontier continues to be at the forefront of key trends impacting all key industries affected by COVID-19 disruptions. Visit our COVID-19 Resource Hub or our Market Insights page for the latest insights and implications for global business, or contact us to connect with a team member.