Predictability, security, resilience, automation, ESG, and yes, lower overall costs favor the return to the USA of previously offshored manufacturing and supply chains.
Onshore or nearshore assembly, configuration and test is beginning to be deployed in several industries (large format industrial products, high tech equipment, and sectors where increased concerns for product security is a factor). This option has been under review and in motion by companies in many sectors where labor content as a percent of manufacturing cost has declined as a result of automation, where fuel costs are significant and have increased, and as import tariffs have become less predictable for their products. More recently, rising attention to carbon footprint impact and reliability of supply have added momentum to this movement.
The U.S. executive order promoting job creation and supply security in several technology areas like semiconductor and battery manufacturing is creating a further set of tax, landed cost and public sector sales considerations to those industrial companies using these technologies and with a large U.S. corporate presence and customer base.
Industrial product companies are thinking through and enacting several supply chain footprint scenarios including expanding regional manufacturing capacity within the USMCA and postponed final configuration within their U.S. based distribution network. In turn they are asking their suppliers and partners to adopt regional strategies that help shift country-of origin profile, lead time and landed cost across sets of products.
Reinvention of the landed cost equation and supporting supply chain structures is a predictability and trust priority. For some industrial product companies, landed cost now is going beyond part, manufacturing and freight costs to include cost predictability and total cost including import tariffs, costs associated with reactionary supply assurance and carbon offset costs. Likewise, lead time is increasingly focused on the total lead time of transforming raw material to a customer configured item even when volume is above forecast – not just the logistics lead time to get a finished item to a customer. Finally, supply chain quality is no longer just ‘the right product to the right place at the right time’ but is now including measures for excess and obsolete inventory, wasted capacity and stock-outs for many companies.
Security is another rising priority. The pandemic and tariff wars have pointed out that supply chains that are highly optimized for cost can have a latent and real high risk for reliability. Supply chain security is now being thought about in terms of data and intellectual property security, alternate sources of supply and routing are becoming a higher priority for supply chain management across more companies and industries.
Environmental, social, and governance (ESG) practices that promote value beyond revenue and profit are also resulting in a reversal of certain globalization trends. For example, the social component of ESG promotes diversity and inclusion in relation to how direct and indirect suppliers are selected. Suppliers providing services and products to a company now need to adopt their own ESG principles such as employment diversity and good employee management practices, in order to remain as suppliers.
All of these factors favor an acceleration of manufacturing and supply chains returning to North America.