After 40 years of North American companies moving their production overseas to Asia, we’ve started to see a number of factors contributing to the needle moving back in the other direction recently.
Over the last 12 months alone, we’ve seen the damage that a single one-off accident like the recent Suez Canal blockage (estimates put the total cost at well over $1-billion) can do. We’ve seen raw material-producing companies like Brazil, Turkey, and India ravaged by COVID-19. And we’ve seen global warming cause more frequent natural disasters in countless other areas.
These eye-opening events have forced countless companies to completely revisit their purchasing and their supply chains, while more North American Original Equipment Manufacturers (OEMs) are sourcing their purchased materials within North America, which has been dubbed “Onshoring.”
For many, this has been less of a game-changing move, and more of a company-saving move.
A Shift Towards Onshoring
This trend has been somewhat of a slow burn until recent events set global markets ablaze.
Over the last decade, we have already seen OEMs moving things away from the Asian-Pacific region for a number of reasons. First of all, we’ve seen a greater availability of robotics and other kinds of automation to smaller businesses in North America.
At the same time, we’ve seen appreciable increases in labour costs across Asia, as well as prohibitive increases in overhead costs in China due to a number of factors such as urbanization. OEMs are also growing more aware of IP security in a number of countries.
While these trends have been slowly playing out over the last decade, the COVID-19 crisis certainly has intensified things over the last year.
The True Value of Onshoring
When making a move this massive in scale, the cost-saving and waste-eliminating benefits need to be obvious. The larger the company, the more high-level metrics that need to be impacted by this decision.
Even when the cost of Onshoring, after considering working capital, does not deliver a net saving, there is another approach that ought to be appealing. Using a mix of Offshore and Onshore production can be a company-saver. When the overseas supply chain shows some weakness, a company can utilize it’s flexible Onshore production to ensure supply chain security. Therefore, when looking for the true ROI of Onshoring, look at North American production as an insurance policy on supply chain security. As it is, most businesses are required to take an insurance policy on general liabilities, profitability, and product liability. It’s all well and good to have a financial insurance policy but there is no substitute for getting product to customers on time, regardless of any global supply chain catastrophe.
Let’s say a company is buying $100 million in manufactured goods offshore. If the supply chain would instead buy $90 million offshore and the remainder onshore, there is a premium to be paid on the remainder, $10 million. Maybe the premium is $1 or 2 million.
That $1 or 2 million premium is actually an insurance premium, which protects:
- Customer relationships
- Business continuity
- Ability to meet customers’ urgent demands
- Supply chain security
In this age of often-catastrophe-level volatility overseas, can any globally integrated company afford not to have this kind of insurance?
Consider a North American Solution for CNC Machining
Brotech has offered CNC machining services since 1995. It offers a variety of machines and component sizes. As an Onshore partner, Brotech has the capability to protect supply chains and help Supply Chain Managers reduce risk.
We put machining excellence into every product that leaves our facilities, whether the job calls for exacting tolerances that stretch industry standards, or working with difficult and exotic materials.