3 Reasons Manufacturing is Coming Back to America

Everyone is familiar with offshoring — the process of sending manufacturing projects across seas in an effort to save costs has been in practice since the 1960s.

But now a new trend is emerging called reshoring. Also known as “inshoring” or “backshoring,” reshoring manufacturing is returning previously offshored manufacturing processes back to America.

The original benefit of offshoring — lower production costs — is now dwindling as wages outside the U.S. increase. While offshoring may still allow you to reduce some cost to your product, you  may actually be incurring more costs in other ways.

Reshoring carries a number of benefits by helping to reduce the unseen costs of offshoring.

Better Quality

In the United States, companies are incentivized by competitive market pressures to maintain strict adherence to relevant ISO and TS technical specifications, as well as standards from other standardization bodies.

Products manufactured from offshored components, however, may not meet the same quality as ISO-certified manufacturers in the U.S. Tolerances  can be looser and fail rates can be higher. These substandard-quality parts can lead to increased replacement costs and even loss of business, cutting into your bottom line.

Significantly Faster Lead Times

Offshoring parts adds considerable lead time to your orders. A general timeline for an offshored part looks something like this:

With offshored parts or components, final delivery can come four months or even longer after order placement. In contrast, reshored manufacturing processes  can finish and deliver parts in half the time or less.

Performance Guarantee

When you accept delivery of offshored parts, you never know what you are going to find. It can be incredibly difficult to trace the supply chains of offshore contractors. Certain offshore companies have even been known to use counterfeit materials, falsely branded with the logos of reputable suppliers.

With reshored manufacturing, tracking the provenance of all of your parts and their source materials is drastically easier, giving you the peace of mind that you are always receiving goods at the level of quality that you expect.

Learn More

If these three reshoring benefits are not enough to get you to consider reshoring your currently offshored manufacturing processes, there is one more to consider — the United States economy. By keeping vast amounts of raw material and manufacturing dollars in the U.S., reshoring as a whole can be a great boon to the American economy.

The Reshoring Initiative compiled job data from January 2010, the point of lowest employment in the manufacturing sector, to December 2015: they found that roughly 248,000 manufacturing jobs were created in America thanks to reshoring efforts.

To learn more about how you can reduce your production costs, download “How OEMs Can Optimize Their Supply Chain,” our newest white paper, for free today.

U.S. Manufacturing Companies like CGR Expand at a Sustainable Rate

As demand from overseas markets has cooled while domestic markets have remained steady, U.S. factories have begun to expand at a sustainable rate. Although there has been slowed order growth due to falling energy prices, many production facilities are likely to produce at the same or higher levels. This is due in part to increased consumer spending resulting from falling oil prices and higher employment rates.

U.S. economist Michael Montgomery from IHS Global Insight believes manufacturing will keep expanding even with the lower rate of exports because demand is gaining stateside. The Markit Economics gauge saw a decrease in manufacturing in the U.S. with an 11 month low marked last December. The index dropped from 54.8 to 53.9.

U.S. on Top as a Global Producer

Globally, many countries are seeing decreases in their manufacturing output. Those based in Europe saw a 17 month low by last November while China had come to an 18 month low, according to factory purchasing managers.

However, in the U.S., numbers from last year show stocks maintaining while erasing previous losses. Gains in both the energy and utility sectors offset declines in small caps while the S&P 500 Index dropped less than 0.1%. Out of 18 industries surveyed by purchasing managers’ group, 11 posted growth, including those in the metal, printers, and furniture sectors.

Due to lower crude oil prices, input costs were down and were the lowest since the summer of 2012. Chemicals, plastics, and the primary metals industries all paid lower prices during December. In total, 13 manufacturing industries reported they paid lower prices. Since the economy in the U.S. is expanding and consumer spending is up by 3.2%, the orders will likely keep factories busy in the future. Consumers account for just shy of 70% of the U.S. economy.

With employment up and gas prices down, Americans are helping to keep the economy afloat, and one of the largest manufacturers to benefit is carmakers. Auto sales are rising and from October to November of last year, they increased to 17.1 million from 16.4 million. However, some U.S. manufacturers will be hurt by overseas markets due to recessions in other parts of the world like Russia, who is facing economic decline from decreasing oil prices.