In the manufacturing news segment of the podcast this week, the guys discussed H.R.6690, known as the “Bring Entrepreneurial Advancements To Consumers Here In North America Act”, which was introduced by Rep. Chip Roy to the House Committee on Ways and Means on May 1, 2020. This bill seeks to allow accelerated depreciation of nonresidential real property acquired to relocate facilities for the manufacture of pharmaceuticals and medical devices or supplies in the United States. It also allows an exclusion from gross income of gain from the sale or exchange of relocation property that was used to manufacture medical products in a foreign country.
In other words: it is a reshoring initiative inspired by the U.S. response to COVID-19.
The fact is, multi-step, multi-country manufacturing was already under stress before the COVID-19 pandemic, in large part to the trade wars. However, this crisis has made the entire country aware of the manufacturing industry’s supply chain issues, and has revealed that the U.S. simply does not make enough components on our own shores.
What can we do about it?
In a May 2020 survey from Thomas, reporting on COVID-19’s impact on the U.S. manufacturing and industrial sectors, more than 1,000 North American manufacturing and industrial suppliers reported how they have been affected by the global pandemic and what future trends will shape the industrial sector post-pandemic.
A key finding showed that two-thirds (64%) of manufacturers report they are likely to bring manufacturing production and sourcing back to North America — a 10% increase from the March 2020 survey findings.
Tony Uphoff, president and CEO of Thomas, responded to the results saying,
“The COVID-19 pandemic will fundamentally redefine how industrial companies approach their supply chains and will further advance the digital transformation of manufacturing. By embracing real-time resource management, redundancy, reshoring, and the convergence between the digital and physical supply chains, manufacturers will come out of this crisis even stronger than they were before.”
In addition to considering whether or not to reshore our own supply chains, which is discussed below, COVID-19 has provided a valuable wake-up call for both our industry and our country. Weaknesses have been revealed and we have an opportunity to respond with positive change.
There appears to be substantial interest from the administration to build up U.S. manufacturing, as well as growing public support. With this in mind, one thing all manufacturing leaders can do is to get educated on existing programs to help, including Manufacturing Extension Partnerships (MEP) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. We can also use our influence and voting capabilities to push for more funding for proactive organizations and programs to help in the process of reshoring.
What markets should consider reshoring?
When asked which markets/industries are most susceptible to COVID-19 and would benefit most from reshoring, Harry Moser, Founder and President of The Reshoring Initiative (RI) explained that shortages of medical products due to 90% to 95% dependence on imports make medical and pharmaceutical markets the top priority targets which bridge over to OEMs for components.
Moser stated that medical supplies accounted for roughly $53 billion worth of U.S. imports last year, and reshoring production for half of those supplies could generate an additional 302,000 jobs and add $534 billion to the GDP.
But Moser also warns that, as the COVID-19 pandemic ends, it is not just the U.S. global healthcare supply chain that must be replaced with local and national sourcing. He states, “Other leading industries of focus include transportation equipment, appliances, plastic and rubber products, fabricated metal products, electronics, and apparel.”
Responding to the same question, John Stoneback, President of JM Performance Products (JMPP), stated that the U.S. mold making industry has taken a heavy hit from off-shoring production. He speculated, “Reshoring would allow for higher quality, longer life, and faster response to opportunities. Having the ability to reduce costs in mold production, along with the reduction of transportation costs, would put mold makers in a stronger, more sustainable competitive position.”
What are the downsides of reshoring?
First, it is important to remember there were reasons domestic manufacturing jobs went overseas in the first place - the biggest being labor and production costs. Cheap labor can be found pretty much anywhere else but the U.S., especially in Asia. The U.S. workforce demands more pay and benefits, which increases production costs, which equals higher prices for the consumer. Successful reshoring may require a majority of consumers to be willing to pay more, and at a time of recession, that is hard to sell.
There’s also the issue of raw materials. According to an article in Boss Magazine, no matter where the manufacturing takes place, technological products such as phones and computers require global sourcing of raw materials, and the special skills and equipment to make components such as semiconductors are spread all over the world.” The article concludes, “A domestic manufacturing setup needs: a supply chain, an assembly design, testing and quality control, materials handling, and staffing. Scaling all that up is no mean feat, and it requires a great deal of investment.”
Finally, there is the skills gap to consider. Patrick Van den Bossche, a partner and member of the board of directors at global management firm Kearney, stated, “The few companies that have reshored to the U.S. are typically smaller operations making specialized products for a niche market where they can demand premium prices.” However, Van de Bossche continued, “Bigger companies that have reshored have often struggled to find the amount of qualified, skilled labor that they need to operate, and they often had to resort to training their own operators — not just in product- or industry-specific skills but sometimes even in ‘the basics’.”
One way to get around this issue, Van den Bossche says, is to invest in automation techniques such as robots, cobots, or artificial intelligence tools that can make human workers faster and more efficient.
Where can I Learn more?
Admittedly I am no expert on reshoring, however ample resources exist. A great place to start is with The Reshoring Initiative, a non-profit founded in early 2010 to help manufacturers consider reshoring options. Among the resources offered on their website are:
- Recent Data
- Case Studies
- Custom Reports
- Resources for Retail Suppliers