The narrative of global supply chains is an intricate symphony, connecting many industries, economies, and political systems. The most recent chapter is shaped by the COVID-19 pandemic, causing a seismic shift in the global economy.
As a machining and fabrication operator with deep ties to global supply chains, I’ve seen firsthand the obstacles and remarkable resilience of these networks in turbulent times.
“Onshoring” reflects a trend of repatriating offshore production to the home base. A resurgence in post-pandemic demand has fueled this onshoring movement. And it’s no surprise. The promise of mitigating risks and reducing lead times is hard to ignore.
Yet even in this narrative, the fact remains that, despite the growing appeal of onshoring, global supply chains remain an essential component of our manufacturing apparatus.
A well-managed global supply chain can give a company a significant advantage. It can provide better efficiency, cost savings, risk diversification, and access to a broader range of resources and markets.
Homeward Bound: The Global Shift from Offshoring to Onshoring
As we regain footing in a post-pandemic world, a sudden surge in demand is evident across industries worldwide.
While this is promising for manufacturing, it also highlights the gaps within our global supply chains.
One of the key challenges is the extended duration of overseas deliveries. Remote production requires a great deal of transportation resources. In the face of logistical complications, lead times can be prolonged and unpredictable. In addition, language barriers, significant time differences, and cultural differences can complicate the process.
Many businesses are considering onshoring, reshoring, or nearshoring to tackle these issues. For example, shipping from Southeast Asia to U.S. West Coast ports takes up to 20 days. Sourcing from nearby nations like Canada or Mexico cuts this down to three to four days—a distinctive competitive edge.
But the onshoring shift isn’t just about minimizing lead times. Global uncertainties have underscored the perils of over-relying on distant production centers.
Estimates from Chris Kuehl of FMA and Armada Corporate Intelligence suggest that the reshoring movement—including domestic production, factory expansions, and local sourcing—could climb as high as $1 trillion, signaling a strong trend in this direction.
Further supporting these findings, a 2022 ABB survey found that 70-74% of U.S. and European businesses plan to bring operations closer to home. Similarly, the Reshoring Initiative reported a 53% increase in reshoring and FDI jobs in the U.S. in 2022 compared to 2021, amounting to around 364,000. Federal initiatives and a trend towards less globalization have facilitated this surge.
However, as we reflect on the merits of onshoring and its growing popularity, we must also consider its implications for our industries.
Onshoring doesn’t signal the end of global supply chains. Instead, it underscores the necessity for adaptability in sourcing and production.
It’s a prompt to evolve and refine our supply chains to align with the changing global economy.
Onshoring Decisions and Industry Dependencies
Scrutinizing onshoring and its ramifications on our industries, we must bear in mind that this shift takes many forms.
Onshoring is often positioned as an effortless solution to economic challenges or supply chain risks. However, this overlooks the complex web of interdependencies fostered by years of globalization.
Several industries rely on specific parts sourced from overseas. Finding domestic alternatives can be difficult or even impossible.
Consider the automotive or off-road sectors as examples. Every machine and every vehicle is a testament to global collaboration. Each incorporates thousands of components from various countries. It’s a calculated balance of logistics, cost, and quality.
Similar dependencies permeate beyond these sectors. The electronics industry, for instance, relies substantially on East Asian semiconductors. An effective reshoring strategy would take a significant investment in domestic capabilities.
Onshoring decisions must also consider broader industrial structures. While tariffs and COVID-19 disruptions have contributed to the reshoring trend, structural factors—transportation costs, labor costs, concerns over intellectual property and quality, and a desire to source closer to facilities—play significant roles.
Each factor adds another layer to the decision-making process.
Building Robust Global Supply Chains Amidst Uncertainty
We live in an interconnected world that requires businesses to rebound quickly and stay resilient in the face of uncertainty. Global crises like the recent pandemic, have underscored the need for adaptive and resilient supply chains.
However, resilience shouldn’t be conflated with self-sufficiency.
Self-sufficiency may sound ideal but it usually proves impractical and excessively expensive. Worse, it ignores the significant benefits of diversification and international collaboration. Both are essential elements of a resilient supply chain.
True resilience and strength arise from diversification and collaboration with international partners.
- Forward-thinking allows companies to develop safeguards, ensuring continued operations during crises.
- Emerging technology, such as industrial robotics in machining and fabrication, and supply chain technologies that increase visibility, can improve risk management.
- Diversification of suppliers and locations helps avoid single points of failure. Having many locations ensures that disruptions in one area won’t interrupt the entire process.
- Global collaboration leads to shared solutions and increased resource access, creating a more robust, more resilient global supply chain network.
In this approach, potential vulnerabilities become opportunities for improved coordination and mutual support. It acknowledges the realities of our interconnected world.
Balancing Risk and Reward in Global Supply Chains
Engaging in business on a global scale often feels like walking a tightrope, balancing risks and rewards. There are political uncertainties, cultural differences, environmental concerns, and long-distance transportation issues. However, with robust supply chain strategies, these risks can be managed and mitigated.
One such strategy is spreading risk by diversifying production and sourcing activities worldwide. When a crisis strikes one region, this approach minimizes its impact and allows operations in other regions to continue.
The right spread of resources and activities can turn risk into reward. As a result, we see lower costs, higher operational resilience, and profitable market opportunities.
Global supply chains also present many rewards that have revolutionized industries worldwide. Companies can scale production according to fluctuating demand, ensuring efficiency and customer satisfaction. Additionally, combining global resources promotes innovation in product design and process improvement. The quality and efficiency of the final product increases.
By tapping into a global pool of resources, ideas, and expertise, companies can stay competitive and drive innovation.
Indeed, a well-managed global supply chain can confer a significant competitive advantage. It offers better efficiency, cost savings, risk diversification, and access to a broader range of resources and markets. Industries like automotive, off-road equipment, and engineered products thrive within this network. The key is sourcing and combining thousands of components from diverse places worldwide to create the final product.
Ultimately, the debate over onshoring versus offshoring may not be about choosing one over the other. Instead, it could be about striking a balance—a balance that appreciates the complexities of industrial structures, maximizes the benefits of international cooperation, and taps into the potential of a well-managed, resilient global supply chain.