Recent events have proven the old adage that the only constant in life is change. And, for manufacturers, this couldn’t be more true. As a result of international supply chains collapsing in the wake of the COVID-19 pandemic, manufacturers have had to shift their strategies, and many are looking to reshoring for improved resilience.
According to The Reshoring Institute, in its December 2020 report, “Five Predictions for The Manufacturing Industry In 2021,” demand for products actually grew in 2020, and is now surging. Manufacturers that are nimbler and more flexible via reshoring will be positioned to take advantage of the expected growth. The report states, “In 2021, the industrial manufacturing sector will shift to localized production … driven by the threat of ongoing trade war/tariffs threatening global supply chains, encouraging manufacturers to move production activity closer to the customer.”
A primary reason for the increased demand is directly tied to the lockdowns related to the pandemic. Packaged foods, in-home workout equipment, home improvement products and outdoor living equipment are among the multitude of items for which demand rose. Even as economies reopen, we can expect much of the elevated buying levels to persist because consumer buying behaviors have been altered for the foreseeable future, especially in conjunction with additional economic stimulus measures being put in place.
Because of global specialization, production scaling issues and other concerns, meeting these production demands will not be easy. Winning reshoring strategies must be accompanied by accelerating the processes of diversifying sources domestically while addressing the skilled labor issue and expanded digital transformation.
#1. Developing deeper, multi-tier domestic partnerships is required so that, when one or more suppliers can’t deliver a needed part, there is another that can. For those cases where diversification is not possible, find ways to increase strategic inventory reserves. Even maintaining larger inventories of finished goods could make sense. Often the costs of carrying this inventory can pay off, as we have found many customers are willing to pay a premium for on-time, as-promised delivery commitments.
#2. Reshoring will exacerbate already existing skilled labor shortages and require significant investments in additional training and other key areas. Companies can look at cross-training existing employees to fill gaps and offering employees incentives to return to school to get additional education. Consider partnering with educational facilities to develop courses tailored for their needs to build a downstream pipeline of skilled workers. Meanwhile, companies should revisit recruiting practices, including taking into account individuals with transferrable skills who can be trained. Of course, hiring contingent workers --freelancers, consultants, contractors -- can also fill gaps.
#3. It’s time to make even smarter technology investments. Advanced technology, including cloud-based enterprise resource planning (ERP) is making manufacturing processes more efficient and cost-effective. It can help companies by providing visibility into every function across many departments, allowing for integration of processes and workflows, improved tracking, security and lower costs all around.
With its American Rescue Plan, the Biden administration has committed to expanding registered apprenticeships to train skilled workers, which may assist American companies in their reshoring efforts, though the administration admits this move will have to be reinforced by companies making even more investment in training their workforce.
In the meantime, there are programs already in place to help. Manufacturing Extension Partnerships (MEP) is a national network of specialists across the country who understand the needs of America's small manufacturers. Plus, the Coronavirus Aid, Relief and Economic Security (CARES) Act still provides fast and direct economic assistance for American workers and small businesses, and preserves jobs for American industries. Time will tell what other programs come out of the economic recovery plan now working its way through Congress.
It has been said that just-in-time died in 2020, but really it just took a nap. The pandemic taught us that supply chains can be disrupted, which is why reshoring has already begun and will continue. Not only will reshoring make it possible to fulfill current demand, it also will go a long way to help ensure long-term manufacturing resilience.
Dave Lechleitner is a senior consultant with Ultra Consultants.