It’s no secret that putting all of your eggs in one basket probably isn’t the best idea, but that’s exactly what manufacturers around the world have been doing for years in offshoring production to China.
Starting in the late 1980s, packing up shop and moving abroad made sense. Benefits such as low-cost labor, raw materials, cheap transportation, favorable regulations and proximity to suppliers were too good to pass up. The trouble is, that was then and this is now.
The COVID-19 pandemic, geopolitical tension, inflation, trade issues and environmental and labor concerns exposed existing vulnerabilities in global supply chains and wreaked havoc like none of us have known before. Suddenly, it became all too apparent that a consolidated global supply chain reliant on a single nation for many raw materials and finished products wasn’t such a good strategy after all.
Had the Auto Supply Chain Prophets podcast been around in the 1980s and 1990s, I like to think that Cathy Fisher of Quistem, Jan Griffiths of Gravitas Detroit and I would have seen this tidal wave of supply chain disruption coming and played a role in safeguarding our industry. We can’t change the past, but we can help you prepare for the future and one way we do that is by sharing insights like those found in our Delivering on the Promise of Delivery white paper discussing our vision, “The 24 Essential Supply Chain Processes”.
Recent trends have made it clear that diverse supply chains, strong supplier relationships and risk management strategies like reshoring are more important than ever. We recently had the opportunity to take a deep dive into the latter in a two-part series with the queen of reshoring herself, Rosemary Coates, Executive Director of The Reshoring Institute, and we have a few takeaways any leader considering such a move should take into consideration.
The Supply Chain is an Umbrella – a Big One
It’s easy to think about the global supply chain as a single entity, but it’s important to remember that it’s really thousands of smaller ones that work together to some degree. The same holds true for your internal supply chain operations.
“We need to think about supply chain as being an umbrella term,” explains Rosemary in the first of our two-part series. When people think about supply chain, purchasing is usually the first thing that comes to mind, but all of your enterprise’s operations fall under the same umbrella. That includes front-end forecasting and planning, procurement, manufacturing, logistics and import/export.
Most leaders considering reshoring start with total cost of ownership methodologies, but it’s important to widen your scope beyond purchasing and look at the entire umbrella.
“Instead of just looking at total cost of ownership, or the cost benefit analysis, or reshoring, or just the basic economics, now we’re considering risk and strategies in global manufacturing,” continues Rosemary.
Reshoring to the US Doesn’t Have to Be All or Nothing
Many automotive players felt the heat when China shut down during the pandemic and car sales plummeted, but it’s not too surprising considering more than 80% of the world’s auto supply chain is connected to the nation. Talk about a domino effect.
Modern technologies, diverse suppliers and regional production facilities can help companies mitigate supply chain disruption, but that doesn’t mean there isn’t still a strong incentive to do business in the Asia-Pacific market. The region’s automotive market alone was valued at nearly $128 billion in 2021 and is expected to grow at a compound annual growth rate (CAGR) of more than 7.1% through 2028.
“A mistake companies make is thinking about reshoring [as] bringing all your production back to the U.S. — that’s not really the way global companies think these days,” explains Rosemary. “Instead, they’re looking at the global manufacturing landscape, and determining if they should keep some of their production in Asia — specifically, because it’s a huge growth market, especially for automotive.”
“When we talk about reshoring, we are talking about expanding manufacturing in the US or bringing some manufacturing back. But it’s within the context of a bigger global strategy that companies are considering at this point,” continues Rosemary.
Local-for-Local Manufacturing and Reshoring are Compatible
Manufacturers have been producing goods locally for local sale for longer than any of us can remember. Hundreds and perhaps even thousands of years ago, farmers and crafters sold wares locally for the good of their local economies and dispersed the surplus through the earliest supply chains.
The benefits of this practice remain clear today. When you use local labor, procure raw materials locally and center production in the same area, the benefits flow into the nearby economy in the form of job growth and financial stability. The practice also reduces the risk of child and human labor concerns, cuts down on carbon-intensive shipping and supports other environmental, social and corporate governance (ESG) criteria.
“If you have a growth market in China, and you plan to sell your products there, you probably ought to be manufacturing there. And the same thing is true for the US,” says Rosemary.
Through this lens, it’s easy to see that local-for-local manufacturing and reshoring are complementary, but they’re also part of a bigger picture. Manufacturers and suppliers can reshore some operations to the US, or whichever country they call “home,” in alignment with their global strategy and drive economic growth and sustainability improvements at the same time.
Positive, Proactive Control Over Supply Chains is Mission Critical for ESG
Wherever you decide to do business, ESG requirements, forced labor concerns in China and policies like the US Uyghur Forced Labor Prevention Act make it clear that business leaders absolutely must keep a close eye on production facilities and supply chain operations, but the process isn’t one to fear.
“We’ve been preaching this for a while: You can’t just expect everybody to mind all the laws and do all the right things. You have to go out there and look at your supply chain,” shares Rosemary.
We recommend making surprise visits to your facilities to ensure there aren’t any labor violations and using supplier management software, like QAD’s Supplier Management, to share data between companies, suppliers and regulatory agencies. As discussed in a recent blog post, regulatory compliance is key and violations can be bad for your company’s reputation and bottom line.
Since the Uyghur Forced Labor Prevention Act took effect, US Customs has reportedly detained thousands of shipments valued at nearly $1.4 million. Supplier management software, data sharing, strong relationships with suppliers and feet on the ground at production sites can help minimize the risk of trade issues and keep your supply chain flowing.
Other Countries Offer Low-Cost Labor, but Building Supply Chains Takes Time
The Uyghur Forced Labor Prevention Act and other policies have many manufacturers looking for places outside of China to set up operations, but their choices aren’t limited to the US or another home country. India, Africa, Vietnam and Mexico also offer low-cost labor, but supply chains there must also be managed ethically and take time to build.
“That’s a very important message for global manufacturers — [which] the automotive industry has consistently aspired to be: This idea of local for local means that they have to really be on their game — from a supply chain perspective — to be able to manage those different localities and optimize their supply chains globally as well,” shares Cathy.
“We tell our clients, you can’t just snap your finger and redevelop your supply base,” adds Rosemary. “Because as manufacturing went offshore to China, all the suppliers went with them — you have to redevelop all of that, and that’s not a trivial task.”
When considering operations in a new market, companies also need to account for varying import, export and global trade requirements. As discussed in another recent blog post, companies that do business in the US should look into Foreign-Trade Zones (FTZ) for duty and tariff purposes. We also recommend using solutions like QAD’s Transportation Execution to streamline the process for meeting regulatory trade requirements and avoiding trade risks.
Cutting-Edge Supply Chains Make Data-Based Decisions
This is true from a best practices perspective, whether we’re talking about reshoring or not. Rosemary, Cathy, Jan and I agree – and I’m sure you will, too – that the days of exclusively relying on spreadsheets have come to an end. They still have a place, perhaps at the plant level, but no spreadsheet is going to deliver the visibility or control that a modern manufacturer needs to proactively manage global supply chain operations.
“Spreadsheets may be useful for a particular project or some work you’re doing today. But longer term, it should be integrated with your ERP system, looking at data extracts that are the truth across all systems and all users,” explains Rosemary.
Reshoring is driving a shift away from global manufacturing and supply chains toward regional versions in a way, but the nature of modern business is highly interconnected and leaders need the right data at their fingertips to make informed decisions. In this case, you might consider implementing a Supplier Relationship Management tool that can effectively track and map all the many capabilities of your supply chain.
It’s also important to remember, as we often say on the Auto Supply Chain Prophets podcast, that we can’t apply the same principles to every aspect of our supply chain. As Cathy explains, it’s a mistake for automotive manufacturers to approach semiconductor and fastener requirements the same way. They have completely different supply chains and require different planning procedures. Modern technologies streamline the process and manufacturers should use them to their full advantage.
Is reshoring a conversation at your enterprise right now? If so, I highly recommend tuning into part one and part two of our conversation with Rosemary Coates of The Reshoring Institute. Cathy, Jan and I take pride in helping you prepare for the supply chain of tomorrow, today, and look forward to having you join us for the next episode of the Auto Supply Chain Prophets podcast.
