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Home / Companies / Bringing it all back home: a guide to reshoring manufacturing in the US

The benefits of reversing the offshoring process and bringing manufacturing back to the US are becoming apparent to many companies. But the process must be carefully managed to ensure long-term success, writes Michelle Comerford of location consulting firm BLS & Co.

Companies large and small are considering reshoring manufacturing operations to the US from overseas to reach customers faster, reduce risks in the supply chain and improve quality control. Making this trend possible are rising global labour costs and advances in production automation, two factors allowing manufacturers to produce products at competitive prices in the US while simultaneously being physically closer to target customers.  

Yet the task of evaluating the market and siting a new manufacturing plant in the US can be daunting. Choosing the optimal location requires identifying critical success factors – both immediate and long term – and matching those factors to a location’s assets. 

Here is a checklist of dos and don’ts to guide companies through this complex decision-making process:

Do consider total cost of ownership

When considering US versus offshore manufacturing, particularly for products destined for the US market, many companies make sourcing decisions based solely on price. This often results in a 20% to 30% miscalculation of actual offshoring costs. The Total Cost of Ownership Estimator is a free online tool provided by the Reshoring Initiative that helps companies account for all relevant factors that determine the true cost of ownership, including overheads, balance sheet, business risks, corporate strategy and more. Using this information, companies can better evaluate sourcing, identify alternatives and compare prices against offshore competitors.

Do consider the 'Made in the USA' brand and new market opportunities

There is a big demand in the US today for 'Made in the USA' products. Some consumers are making buying choices around it, and in response, major retailers including Wal-Mart are showing a preference for such products. 

Cleveland CycleWerks, a custom motorcycle manufacturer, recently relocated its production from China to the US, close to its customer base. “For a branded product, ‘Made in the USA’ is huge,” Cleveland CycleWerks owner and founder Scott Colosimo recently told the International Economic Development Council’s annual conference.  “There is nothing bigger that I can do for my company except make it in the US.”  

Do design the US production process and operation requirements before beginning a plant location search 

Technology has enabled the automation of many manual production processes. More automation also means less need for low-cost labour. However, often the new production processes require prototyping and piloting before ramping up to full-scale production.  

German sporting apparel manufacturer Adidas recently announced its first US plant location, located just outside Atlanta, called a 'speedfactory' and made up of robotic production lines. About a year before the US plant search was launched, the company tested a pilot robotic production line in Germany. Later, with a successful pilot completed, Adidas was able to move forward quickly with its first US plant.  

Designing the production process before beginning a site search will facilitate the process of defining operational requirements. Questions that companies should consider, among others, include:

  • What type of jobs and skills will be required for the plant?  
  • How much power will the equipment demand?  
  • What size building will be required, and in what configuration?  
  • How much parking and trailer storage area is required?   
  • Will the product be shipped via truck, or is rail access also required?  

Do consider local materials and suppliers

Sourcing raw materials and/or parts is a key consideration, and for a manufacturing operation new to the US it can be a challenge to identify suitable suppliers. 

In some cases, companies are finding raw materials and parts at the same or better cost in the US than at overseas plants. Keer Group, a Chinese textile manufacturer, recently said one reason it located its first US plant in South Carolina was the availability of cheaper cotton than in China.  

Of course, there may be parts that are more cost-effective to source from current overseas suppliers, in which case the logistics and costs of shipping those items have to be factored into the equation. A recent BLS & Co reshoring client planned to begin US production by sourcing its primary parts overseas, so proximity to a port was important. The company also planned to consider local suppliers once established in the US, when parts on the new production line could be tested. Ultimately, the goal was to eventually achieve cost parity through volume purchases.  

Various resources are available to help identify potential suppliers in the US, including ThomasNet, an online searchable database for product sourcing and suppliers. Some industry trade groups, such as the Plastics Industry Trade Association, also offer online supplier directories that are searchable by city and state. In addition, state and local economic development groups can be good resources to connect suppliers with prospective manufacturers.  

Do engage the assistance of advisors early in the process

A variety of professional services are available to assist companies with the process of planning and implementing a US manufacturing plant. Professional site-selection consultants help companies identify the optimal location for manufacturing plants based on the specific operational requirements, and negotiate state and local incentives on behalf of the company. Engineering firms assist with detailed design of the plant and production lines, which, once designed, help drive the site requirements for the operation. These specs then also help construction firms develop the budget for the new plant.

The key is to engage these professionals early in the process, as they can provide the most value when brought in during the conceptual phase of the project, facilitating a streamlined decision-making process and guiding the company through it, ultimately saving significant time and money. 

Do not assume incentives are available to fund 100% of a project

Although many US states and communities offer incentives programmes in support of capital investment and job creation, these programmes rarely, if ever, are available to fully fund a new manufacturing investment. Some states and communities do offer low-interest financing programmes, but typically these are designed to only fund a portion of the total cost of the project, requiring that the project has additional sources of financing. 

State and local incentive programmes are available to help waive and/or refund state corporate taxes, property taxes and employee taxes, and assist with job training and hiring costs. Some communities also offer funds to help with site development, such as the $150,000 grant that Ritrama, a specialist adhesives manufacturer from Italy, recently received for its new plant in Moore, South Carolina.  

Do not let the location search be driven by incentives

Incentives are only one of many important considerations when selecting the location for a US manufacturing plant. The first objective is to find the place that will allow the operation to thrive and grow. With the emphasis on automation in manufacturing plants today, the availability of skilled labour has become one of the most important location factors to consider, well ahead of incentives.  

In 2014, Whirlpool reshored its KitchenAid appliance production from China to Greenville, Ohio, citing skilled workforce availability and local labour training programmes as some of the initial drivers in the location selection, ahead of incentives offerings.  

Do not make any verbal or written announcements on a location until incentives are finalised

Signing a lease, hiring employees for the new facility or incurring related expenses before all incentives contracts are finalised in writing may jeopardise the incentives. Verbal commitments and even written offers do not replace written contracts. Many incentives programmes are offered only to companies in a competitive position for business investment, meaning the final decision to locate in a community must be precipitated by the incentives contracts. A site-selection and incentives adviser can assist a company through this process to ensure all applicable incentives are achieved.  

The time is now

Global economics, technology and consumer demand are aligning to allow for profitable manufacturing investment in the US, and the time is right to consider reshoring manufacturing operations to the US to capitalise on it. Tapping into resources and engaging the assistance of outside professionals will ensure a well-guided decision-making process and implementation plan.   

Michelle Comerford is the industrial and supply chain practice leader of Biggins Lacy Shapiro & Company (BLS & Co), a location economics consulting firm that helps companies make location decisions. www.blsstrategies.com

This article is sourced from fDi Magazine
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