Supply chains are part of a country’s critical infrastructure. Disrupt them, and you’ll end up with scenes many of us are familiar with – hoarding toilet paper, empty shelves in the grocery stores, and massive waiting times for online deliveries. Throw in the fact that most of what we buy is produced and shipped from overseas. Now, should a pandemic hit, you have a recipe for disaster. That’s why onshoring is the latest trend in global supply chain development.
When the coronavirus pandemic shut down a number of internal supply chains, it forced many manufacturing groups to turn to their second or third-choice suppliers at greater cost. Recently, a number of further incidents – like the blockage of the Suez Canal and the damaging weather in Texas – are edging people further along the route of bringing their supply chains back to North America.
The age of onshoring
In the wake of COVID-19 and the mayhem it caused to supply chains in the US (and everywhere else), many companies are now considering onshoring their suppliers and vendors. This is in direct contrast to the trend we’ve seen since the growth of globalization beginning in the late half of the twentieth century. Now, when consumers are used to the instantaneous delivery services of Amazon Prime, companies are concerned with making sure that internal delays don’t occur. Onshoring would also mean that when selling to clients, companies could better guarantee timeframes. This gives them a valuable selling point. While costs would likely increase to reflect the higher wages and manufacturing expenses of producing onshore, the tradeoff is that customers are reassured by the knowledge that their product will not be late.
This indicates a huge global paradigm shift; against the grain that saw the manufacturing of commodity goods and specialty items across many industry supply chains move overseas to countries with cheaper labor, such as China. This shift back towards onshoring should and likely will help drive positive economic growth across North America. One interesting caveat of this shift is the dichotomy between domestic and international suppliers and how onshoring labor processes will be affected by either situation. According to one expert on the supply chain, “Having a domestic supplier for your supply chain is obviously the advantage here. But having international suppliers can help reach savings targets, especially since onshoring labor will undoubtedly raise certain wage prices. However, those ‘savings’ can easily be offset by a higher inventory (in transit or safety stock) or by incurring airfreight costs when expediting shipments.”
Timeless or trending?
While the trend towards onshoring seems quite certain, it’s still too early to make a definitive call on the long-term effects of such a shift. Many companies are still making risk assessments of their vendors. After all, this shift is only viable if the vendors themselves are onshored, since the point of the whole endeavor is to ensure that everything is connected and running smoothly. It’s also worth it to mention that manufacturing in the US has been steadily decreasing over the last few decades. Therefore, mass production on such a scale as is commonplace in China might not be as easy as one might think.
With everyone connected to the internet and a post-pandemic surge in retail on the horizon, onshored manufacturers in the US may not be able to keep up with demand. Our supply chain expert said, “There are shortages across the globe for several different types of raw materials, like chemicals. For those products coming from overseas, that ‘extra lead time’, when compared to domestic shipments, makes the situation much more challenging. Also, it is really difficult to get accurate information regarding delivery dates given some of the COVID-19 restrictions and ocean shipping lines with demand well over their capacity.”
Because of this, rather than a full shift towards onshoring all companies across the next few years, certain companies may see the competitive advantage in doing so and move quickly. This would put them ahead of the market and give them a unique edge as a value proposition. However, it’s still too soon to make definitive claims about the future of this trend and whether it’ll last, or if it is merely a byproduct of the pandemic.
If your company is looking to make such a review, get in touch with us at Proco Global. We can find you the best regional talent to help design and implement your vision of transformation.