Is Reshoring Enough?
September 14, 2022
Many believe that reshoring is the best way to fix the supply chain, and the previous two articles in this series (The PPE Crisis: How We Got Here and The PPE Crisis: Is Reshoring the Answer?) have discussed why.
Others, though, believe that reshoring alone would be insufficient to create the necessary change. That doesn’t mean that they reject reshoring as an approach, but that they believe that without other concurrent strategies, reshoring would not have the effects that its proponents claim it will.
The Limitations of Reshoring
While relocating manufacturing facilities to our own shores would seem to solve the supply chain problem entirely, there are several factors that would make this ineffective or impractical.
Geology. Other countries produce items by using natural resources that are not as common in the US. In fact, for the majority of the minerals listed as “critical” for manufacturing by the Department of the Interior, the US is not listed as one of the top five producers. For example, nowadays 90% of the world’s natural rubber is produced in Asia, with Thailand and Indonesia supplying the majority (60%). That means that the reshoring of latex glove manufacturers would not necessarily shorten the supply chain. Even factories on US soil would need to import natural rubber from these Asian countries in order to produce the gloves.
Labor Shortages. American workers are much less likely to accept the wages that factories pay overseas workers. That means that simply replicating the manufacturing models from overseas companies on American soil would be impractical. In addition, current labor shortages stemming from the aftermath of COVID-19 would exacerbate this issue, leaving newly-built factories without enough workers to manually create the necessary quantities of product.
Practical Issues. Some manufacturers outsourced their facilities to China and India in recent decades for reasons other than cost. For example, pharmaceutical manufacturing companies have moved many of their operations overseas. In addition to cost-cutting, a consideration may have been pollution regulations that are easier to sidestep abroad. Reshoring these facilities will be difficult, if not impossible, due to governmental restrictions and environmental beliefs in the US.
Potential Oversupply. While reshoring is a tempting way to deal with the issues that plague the medical supply network, creating the amount of product necessary to safeguard the supply chain would also mean creating an excess of product during calmer years. That excess domestic capacity would run the risk of crippling manufacturers between crises.
How to Make Reshoring a Success
While many companies have already begun to reshore manufacturing facilities to the US, long-term success in revitalizing the supply chain will depend upon several factors:
- The only way for America to truly compete in the global market is to out-innovate other countries, rather than simply replicating the models that already exist overseas. Industrial automation is the primary method that the US can use to reduce their reliance on factory workers and low wages. Reshored manufacturers would then be able to retain only their most skilled and creative workers, which would allow them to be more efficient and keep their prices low enough to compete globally.
- American national trade and industrial policies have been undergoing serious reforms in recent years. For example, in February of 2021, President Biden signed an Executive Order on America’s Supply Chains, asking for a review of supply chain problems in several industries, including pharmaceuticals, medical equipment, rare earth minerals, and semiconductors. Subsequent changes in tariffs and other reforms would need to be taken into account when determining effectiveness of reshoring.
- In addition to reshoring, America would need to stockpile the necessary equipment to respond to a crisis in both regional and local warehouses. Doing so would temper the effects of any fluctuations in the supply chain on Americans during times of crisis.
- As a country, we would need to reimagine a distribution network that would connect buyers and sellers in a strategic manner when necessary. This would include devising a plan that would prioritize areas with the most need when a crisis hits.
- Rather than relying purely on reshoring, some experts say that we would benefit from nearshoring as well. After all, it’s nearly impossible to reshore every product from every industry, especially those that cannot be automated or that rely on natural resources not found in the US. Therefore, shortening supply chains by switching to suppliers that are closer geographically to the US (Mexico or Canada, for example) can help minimize the uncertainty caused by supply chain issues.
In short, reshoring labor-intensive industries to the US (e.g., furniture, apparel) is largely impractical. Some industries, however, can be reshored fairly successfully, especially if some of the above factors are improved. For example, in the PPE industry, almost all sectors should be able to reshore successfully. Gloves would be the one exception, both because of proximity to material resources and because of the difficulty of manufacturing quality gloves.
So is reshoring the answer to the supply chain issues that have ravaged the PPE industry and others? Yes, but only when coupled with common-sense changes, along with the recognition that reshoring is not a blanket solution for all products.This is the third and last post in a series about the PPE crisis of 2020. The first post explained the history behind the PPE crisis, as well as how it developed over the past few decades. The second post discussed how reshoring could theoretically help with similar crises in the future.