Reshoring is the practice of moving business operations back to the United States from other countries. The term is typically associated with manufacturing work, which companies have gradually moved overseas for the past few decades.
When a company has fully reshored, it means that all of their operations occur within the US. They can still acquire raw materials from other countries, but the work to turn the materials into products happens in the US.
The US needs to be self-reliant and resilient. A large part of this is how the nation's economy functions, and the balance between imports and exports.
According to the Kearney US Reshoring Index, US imports as a percent of domestic output (also known as the US manufacturing import ratio, or MIR) increased in 2021, sliding further than it did in 2020.
This trend in US reliance on imported goods is concerning. Since 2008, the MIR has increased from 9.15% to 14.49%.
Why is US reliance on imports concerning? Productive capacity is a strategic necessity for any nation that wishes to hold its ground on the world stage. While some companies might view themselves as having ascended to the ethereal world of knowledge work and the metaverse, governments and people still live in the physical world. Productive capacity is necessary because people cannot eat or wear data, and a government cannot defend its population with an army of avatars.
Not every company has to be a manufacturing company, and the whole economy cannot be devoted to making things. However, for those who do make things, the control over the process from intellectual property to finished product should reside firmly within the borders of the US.
Our grip on productive capacity appears to be slipping as more companies respond to market volatility and geopolitical influences by shifting more production to LCCs. This is not the right answer, and we need to reverse the trend to increase self-reliance within the country to weather geo-political instability.
Luckily, there is a silver lining: Kearney notes that “92% of executives express positive sentiments toward reshoring” and “79% of executives who have manufacturing operations in China have either already moved part of their operations to the United States or plan to do so in the next three years.”
These executives have seen the benefits of reshoring, which we will outline below.
Reshoring to the US has many benefits. Risk mitigation, reduction in supply chain transit time, and strengthened national security are chief among them.
Other benefits include:
At Veryable, our mission is to revitalize US manufacturing. Naturally, we’re interested in evangelizing the benefits of US manufacturing to anyone who will listen and even those who won’t.
Read our in-depth blog on these six big benefits of US manufacturing to learn more.
Reshoring is bringing supply chain operations into the US. Nearshoring is bringing them to Canada, Mexico, and other countries on the continent.
Nearshoring might be a step in the right direction, but it is not the same as reshoring and does not confer the same economic benefits to the US supply chain. It might benefit your company in the short run, but the long term benefits of fully reshoring to your company and the US supply chain as a whole far outweigh the benefits you would receive from nearshoring.
Nearshoring is a half measure, whereas reshoring is the full realization of the imperative to localize production. To learn more about the trend in localization, read our blog on local, decentralized production.
There are plenty of examples of companies who are reshoring their operations to the US. It is possible, and with some networking you can find people who can tell you how they did it.
The Reshoring Initiative has compiled a list of companies who are reshoring, which is accessible in a PDF format or as a PowerPoint.
Established groups such as the Reshoring Institute and the Reshoring Initiative can help you with examples and resources for the reshoring process. It won’t be easy, and you can’t do it overnight, but it is the correct choice for maintaining competitiveness in the future.
The greatest way you can start reshoring now is by adapting a flexible labor strategy. When you have to move from an LCC and your labor costs show up higher than they were before, you’ll be pressed to innovate with your labor model. A flexible labor strategy will enable you to remain competitive and adapt in real time to the changes in your business.
As you reshore, if you staff to your minimum required headcount, you will have the baseline you need to begin building flexible labor capacity. When you need additional labor capacity, you can quickly add workers for the day. And when you don’t need labor capacity, you simply stop posting opportunities and instantly scale down to the baseline.
Learn how to build operational flexibility as a strong foundation for reshoring by reading our blog on what a labor pool is.