In the late 1970s and 1980s, businesses began offshoring their manufacturing to foreign production facilities in earnest. The argument for offshoring was simple: companies could achieve lower costs and maximize their profits by moving operations wherever it was most affordable. They could also sidestep some U.S. regulations and gain access to laborers with different skillsets.
These days of the 21st century trade became a global affair.
Companies oftentimes manufacture the goods in one place, then assemble the end product in the 2nd place and finally sell it in a 3rd location.
In the late 1970s and 1980s, businesses began offshoring their manufacturing to foreign production facilities in earnest. The argument for offshoring was simple: companies could achieve lower costs and maximize their profits by moving operations wherever it was most affordable. They could also sidestep some U.S. regulations and gain access to laborers with different skillsets.
But many factors, from economic realities to politics to supply chain issues, are causing businesses to consider onshoring their manufacturing back to the U.S. Bringing your production process back to the U.S. will likely require deep analysis and planning, but there are major potential benefits to consider.
- US Investment
Before you even jump into the business case for onshoring, consider the benefits for your nation and community. More domestic manufacturing creates more jobs for Americans, and a greater potential for wealth and community economic development as a direct result. The tax revenue generated from jobs and local business growth also directly benefits local communities and the nation at large.
And depending on your customer base, keeping jobs within the nation’s borders can help you grow customer loyalty. A majority of American consumers say they’d rather purchase a product made in the USA over an imported one. Onshoring can be a way to drive customer retention and give your marketing department another arrow in its quill.
- Cost Savings
Whether or not onshoring saves your business money depends on many different factors. But consider that the savings of offshoring may not be as great as it once was. As overseas economies develop, the cost of taxes, labor, wages, and other costs in the country you offshore to may rise.
Then there’s the matter of tariffs and trade wars, which are difficult to predict long term (see the recent U.S. tariffs on Chinese imports for a prime example). These costs can be avoided if you produce your goods in the U.S.
Transportation costs have also risen due to fuel prices, rising shipping costs, labor shortages, and other issues. Simply cutting down on the distance your goods must travel reduces, and simplifies, your transportation expenses.
- Lead Times
The pandemic and ensuing supply chain issues have caused major business disruptions across industries. These issues notwithstanding, it’s simply true that the further away you offshore your manufacturing process, the longer you must wait to have your order in hand.
Manufacturing your products close to home will slash lead times, allowing you to service your customers faster and more efficiently. You may also be able to forecast inventory, order fulfillment, customer delivery time, and cash flow more accurately. And when everyone is in the same general area, you can maintain closer relationships with all parties in your supply chain to help expedite processes when necessary.
- Customer Service
There are many reasons that onshoring can improve your customer experience with your manufacturer. For one thing, manufacturing in the U.S. means your products meets U.S. industry standards and your own quality control requirements. Your products may also be manufactured under greater safety standards. And regulations can also help give you more leverage and protection as a customer.
You’ll easily be able to reach manufacturers in your own (or in a nearby) time zone, without having to worry about limited availability during U.S. working hours. And you’ll be able to visit and tour the manufacturing facility without having to travel great distances. Lastly, you won’t have to worry about language barriers that hinder communications.
- Environmental Benefits
Onshoring reduces your carbon footprint, helping the environment. As a benefit, you can develop a better connection with customers who want to do business with companies that place an emphasis on being eco-friendly. And this can help you get ahead of any potential environmental regulations that may come down the road in the future.
In Closing
Comparing offshoring to onshoring is much more complex than comparing labor costs. It will require your business to perform a cost/benefit analysis, weigh risks, and find a supplier that can meet your production needs. But the time, cost, and service benefits may outweigh the savings that initially drove the onshoring trend of the past five decades.