Reshoring: COVID-19's Impact on the Supply Chain

The LocatorX Team

May 20, 2020

May 20, 2020

At this point, it’s impossible to quantify the ramifications of COVID-19. That may be the case for several years, if not longer. From the normalization of remote work to the untold transformations in health care, the way people and industries operate will be forever changed in ways big and small.

One surefire outcome will be in global trade and the domestic supply chain, specifically with regard to reshoring. Reshoring, or onshoring, is the term used to describe bringing imported goods or materials back to domestic production. If a certain industry relies on offshore factories, reshoring means allocating the resources necessary to localize that production, as to no longer depend on international deals and long-distance shipping.

In a 2018 study, the consulting firm Kearny reported a record number of imports from outside the U.S., especially from “low-cost-country trading partners” in Asia. This includes the largest one-year increase in offshoring since 2011’s economic recovery. The study described this as an “offshoring inertia.” Based on these findings, reshoring did not seem to be a priority for the average U.S. manufacturer just two years ago.  

Today is a far different story.  

Due to the anxieties of general travel, widespread shortages of medical supplies and other assets, and overnight restrictions placed on suppliers across the world, reshoring is now on the lips of supply chain experts and some of the largest manufacturers both in the U.S. and abroad. Research shows that the reshoring had significant momentum back in January, right before WHO declared a global health emergency related to the pandemic.  

As uncertainties loom and the number of preventable casualties in the U.S. climbs higher, some feel that immediate reshoring will save lives, simply put.

“It is time for the United States, as a matter of policy, to recognize the importance of domestic manufacturing,” writes Peter Zelinski, editor-in-chief of Modern Machine Shop. “To support, value and encourage not just manufacturing in general, but the development of a sophisticated manufacturing base as a vital matter of national security and — as we are seeing — national health.”

Globalization and Its Effects

The globalization of our supply chain has been a developing story for decades. In addition to forging international relationships, international trade deals have helped to drastically reduce both labor and retail costs. In the process, countries across the world have grown dependent on each other to fulfill these supplies, and conversely, keep factory workers employed in developing economies.

In the process, these dependencies have opened the door for unprecedented risk factors, which we’re discovering together in our shared worst case scenario. Some of the downsides came to the surface during the banking crisis of 2008 and the rise of cybercrime over the past decade. But the coronavirus has opened the floodgates and forced businesses and consumers alike to consider domestic suppliers now out of sheer necessity, despite higher costs in many cases.

As unemployment surges across the country — the highest level since the Great Depression, in some areas — some economists feel that reshoring will be pivotal to the turnaround. In addition to streamlining the supply chain and improving safety, bringing manufacturing back to the U.S. would bring millions of new jobs back to the American workforce.

Reshoring is not as simple as flicking a switch. In addition to extensive trade agreements, rebuilding facilities and teams, and other challenges in the reshoring process, cost will “remain a barrier” for many people, as stated in Oregon Business. According to a recent survey, around 70% of decisions to buy imports are driven by price.

“Consumers are used to paying low prices for certain products,” writes Kim Moore, “and those prices will surely go up if manufactured in the U.S., although some say consumers are ready to pay more.”

“But the disruption to the global supply chain has laid bare the shortfalls of relying on just-in-time deliveries of products that many manufacturers have adopted.”

In addition to the slow and unpredictable turnaround of overseas delivery, which has been greatly amplified by the COVID crisis, offshoring has steadily revealed a number of risks for U.S. manufacturers. These include “Asian factories' use of unapproved suppliers or components, finished products that differed from samples, poor quality, intellectual property theft, and lack of responsiveness to problems,” according to one study.

The Case for Reshoring

The Reshoring Initiative, an independent organization founded in 2010, works to spread awareness about the benefits of reshoring. These include the reduction of total costs, in some cases, despite the common understanding that offshoring is cheaper. The Initiative also helps to train domestic suppliers on how to meet the needs of local customers so they can effectively compete with offshore competitors.

Research from the Reshoring Initiative estimates that, between 2010 and 2018, 749,000 jobs were brought back to the U.S. across 2,900-plus companies as a result of reshoring. In June 2018, USA Today published a list of U.S. manufacturers bringing the most jobs back to the country, including Intel, General Electric, and Boeing.

Now, in wake of the pandemic, those figures have the potential to skyrocket. Extensive reshoring of pharmaceuticals and medical supplies alone could potentially create more than one million new jobs and inject more than $250 billion into the GDP, according to research published on MarketWatch.  

Between saving the lives of COVID patients, keeping shelves stocked, and putting families in need back to work, the proponents for U.S. reshoring are poised to grow in numbers as the crisis extends into the summer and beyond.

The Role of Tracking Technology

In an October 2017 interview with Inc., Tim Zimmerman, president of Mitchell Metal Products, says widespread improvements in inventory management and other areas over the last decade “set the stage for companies to effectively reshore.” Tracking and authentication technology such as the solutions offered by LocatorX have made visibility across the supply chain easier and more accurate than ever.

By optimizing traceability in pharma, along with other sectors, companies may enhance their operations in addition to building consumer trust. Along with expediting production and delivery, advanced tracking tools can help prevent counterfeits, stolen goods, and any mishandling of customer information.

As has always been the case, what’s best for one company might not be the same for another. We support those organizations who will continue to offshore in the best interests of their employees and customers. With that said, reshoring will be a major talking point as we prepare for a post-COVID supply chain, and businesses across industry have no choice but to take note.

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