The reshoring trend that has revived hope of a renaissance of American manufacturing may need a new name. A growing number of articles and analysts suggest terms such as offshoring, reshoring, and onshoring should be retired from the supply chain manager’s lexicon.
Instead, anything along the lines of “regionalization” is being championed as the best way to describe the strategic movement of production from one market to another. The term implies supply chain strategies are driven more by the desire to be closer to end markets – whether that market is in the United States or Southeast Asia – than an outright rejection of China and other former hot spots in favor of domestic manufacturing. As speed to market gains in importance, so does the need to regionalize key components of the manufacturing process.
A study on outsourcing and global supply chains by the Global Supply Chain Institute at the University of Tennessee found companies are indeed adopting a regional model of manufacturing worldwide, not just in the United States:
“Our research suggests that global supply chains across the world will eventually break into a series of demand and supply pods where regional procurement and manufacturing operations will supply the major demand centers of the area, at least for a significant percentage of production requirements.”
The study further found organizations have learned to refrain from “knee-jerk decisions” when crafting their network design. While the cost of labor drove American companies overseas, other major areas of expense that were dismissed or not taken into account during the height of the outsourcing wave now play central roles in allocation decisions.
No sophisticated company is likely to forget the lessons learned from downplaying factors such as supply chain risk, logistical challenges, regulatory compliance, quality issues, intellectual property theft, to name a few.
In the meantime, the geographical shift in production continues as supply chain managers develop new manufacturing strategies. According to the 2014 Chief Supply Chain Officer report, nearly three quarters of manufacturers say they will have a significant share of in-house production five years down the road. During the same time frame, 52 percent of respondents expect their manufacturing strategies to be vertically integrated while a considerably smaller percentage – 26 percent – expect to be mainly outsourced.
The January manufacturing index also shows the manufacturing sector keeps expanding, recording the 25 months of consecutive growth.
Concludes Ted Stank, co-author of the University of Tennessee study, in an interview with SupplyChainBrain:
“I can firmly say that after four years, the general trend is toward regional operations, at least for part of a bill of materials.”