Reshoring Supply Chains: A Manufacturer’s Guide to the Benefits and Risks

The world saw first-hand how the pandemic exposed critical vulnerabilities in global supply chains, causing unprecedented disruptions in manufacturing and logistics. Many businesses faced significant delays, soaring costs, and inventory shortages, leading to reevaluations of their sourcing strategies. In the ongoing recovery, companies seek greater stability and resilience, and there is a growing trend toward reshoring and localizing supply chains to reduce dependency on distant suppliers. Technology solutions like PrismHQ can become a critical component to allowing businesses to do more with less. This article takes a look at the evolving supply chain attitudes in the United States, examining the benefits, risks, and key considerations for manufacturers considering localization.  

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The Changing Supply Chain Outlook in the United States

The pandemic resulted in supply chain bottlenecks that cost the U.S. economy an estimated $1.7 trillion in lost GDP in 2020 alone. The semiconductor shortage, for example, led to production halts in the automotive industry, with Ford and General Motors losing a combined $4.5 billion in profits due to reduced vehicle output. These challenges have prompted businesses to reconsider the long-term stability of their global supply chains.

For decades, globalization was the dominant strategy for U.S. manufacturers, driven by cost savings and efficiency gains from overseas production. However, the pandemic-induced supply chain disruptions revealed significant risks, leading to a shift in perspective. According to a 2021 study by the Reshoring Initiative, U.S. companies announced over 1,800 reshoring and foreign direct investment (FDI) projects, a 38% increase from 2020. It’s large and small businesses alike that are looking to reshoring as a guard against supply chain disruptions, with a survey from SAP revealing that 60% are prioritizing U.S.-based supply chain solutions.

Reshoring Initiatives in Response to Disruptions

To mitigate future risks, many U.S. manufacturers have launched reshoring initiatives aimed at securing domestic supply chains. Intel announced a $20 billion investment to build semiconductor manufacturing plants in Ohio, reducing reliance on Asian suppliers. Similarly, Apple has increased its reliance on U.S.-based component suppliers, investing $430 billion in domestic operations by 2026. 

The Reshoring Initiative reported that in 2022, over 350,000 jobs were brought back to the U.S., the highest recorded annual number. These moves demonstrate a strong commitment to strengthening domestic manufacturing capabilities and reducing exposure to international disruptions.

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7 Benefits of Localizing Supply Chains

Localizing supply chains offers several advantages that can improve operational efficiency and business resilience. By reducing dependence on overseas suppliers, companies can gain better control over logistics, costs, and production quality. Let’s run down seven key benefits of reshoring and localizing supply chains.

1. Supply Chain Resilience

Domestic production reduces exposure to geopolitical tensions, tariffs, and shipping disruptions. Additionally, domestic sourcing enables companies to maintain operations during international crises, ensuring business continuity. By having suppliers closer to production facilities manufacturers can respond more quickly to supply chain interruptions.  For example, Tesla’s Gigafactory in Texas helps mitigate risks associated with overseas component shortages. 

2. Reduced Lead Times

Sourcing materials closer to home speeds up production and delivery. Consequently, carrying costs can be more tightly managed by staying on top of inventory levels with automation and software like PrismHQ. Reduced lead times also allow manufacturers to be more agile in responding to market demand fluctuations. Faster access to components ensures that production schedules remain intact, minimizing costly downtime.  Boeing has improved efficiency by working with domestic aerospace suppliers to streamline operations. 

3. Enhanced Quality Control

Maintaining consistent product standards is critical to stronger brand reputation and customer satisfaction. The ability to meet face-to-face with local suppliers improves communication and accountability.  This closer oversight leads to higher-quality products, and allows for quicker identification and resolution of quality issues, reducing the risk of costly recalls.  GE Appliances was able to improve product quality by shifting refrigerator manufacturing from China to Kentucky. 

4. Job Creation and Economic Growth

Reshoring supports domestic employment. Increased domestic manufacturing creates new opportunities for skilled and unskilled workers alike, driving wage growth. A strong manufacturing base can lead to broader economic benefits, including increased consumer spending and innovation.  In 2022, reshored jobs accounted for nearly 20% of total U.S. manufacturing job growth. 

5. Reduced Transportation Costs

Shorter supply chains mean lower freight expenses. Reduced reliance on long-haul shipping also decreases vulnerability to fuel price fluctuations. Additionally, manufacturers can optimize inventory management with just-in-time delivery models, reducing warehousing costs. By moving operations to Mexico and the U.S., Whirlpool cut logistics costs significantly. 

6. Environmental Benefits

Domestic production enables companies to implement sustainable practices more effectively, such as using renewable energy sources.  Additionally, reduced reliance on global shipping lowers carbon footprints. According to the World Economic Forum, eight supply chains contribute to over 50% of global emissions. These are collectively responsible for more than half of all greenhouse gas emissions worldwide. Lower transportation emissions contribute to corporate sustainability goals and regulatory compliance. For instance, Patagonia’s decision to use U.S.-sourced wool reduced emissions from long-haul transportation.

7. Government Incentives

Tax credits and grants also encourage domestic manufacturing. Many state and federal programs offer financial incentives for companies investing in domestic facilities, offsetting initial costs. These incentives help manufacturers remain competitive despite higher labor and production expenses. The CHIPS and Science Act provides $52 billion in subsidies for U.S. semiconductor production. 

7 Risks of Localizing Supply Chains

While there are significant advantages to localizing supply chains, businesses must also be aware of potential challenges. Higher operational costs, regulatory hurdles, and workforce constraints can impact the feasibility of reshoring. Below are seven important risks to keep in mind when considering localization of supply chains.

1. Higher Production Costs

U.S. labor and regulatory expenses can increase manufacturing costs. Domestic wages and compliance costs are often more expensive than those of offshore locations, making it harder to maintain profit margins. For instance, Apple still relies on Asian suppliers for iPhone assembly due to cost concerns. However, automation and lean manufacturing techniques can help offset these cost differences. 

2. Limited Supplier Availability

Some specialized materials and components may not be readily available domestically. The U.S. still depends on China for rare earth minerals. This dependency can lead to bottlenecks in production if domestic alternatives are not developed. Expanding local supplier networks and investing in material innovation are crucial to overcoming these challenges.

3. Capital Investment Requirements

Establishing new domestic facilities requires substantial upfront investment. Capital-intensive investments in new infrastructure and technology can strain financial resources, particularly for smaller manufacturers. Securing government grants and strategic partnerships can help mitigate financial burdens somewhat, but larger endeavors may take significant time to reach their full potential. For example, Intel’s Ohio plant will take years to become fully operational. 

4. Workforce Challenges

Finding skilled labor can be difficult. Companies must compete for talent in an increasingly tight labor market, further complicating hiring efforts. The National Association of Manufacturers estimates there will be a shortage of about 2.1 million skilled workers by 2030. Investing in workforce development programs and vocational training can help bridge the skills gap and begin training your next generation of labor. 

5. Scaling Difficulties

Rapid expansion may be harder to achieve domestically. Limited availability of production space and resource constraints can hinder growth potential. Manufacturers need strategic planning to balance scalability with operational efficiency. The retail juggernaut Amazon required significant investments to scale its fulfillment network in the U.S. 

6. Regulatory Compliance

U.S. manufacturers face stringent labor and environmental regulations. Compliance with OSHA and EPA guidelines can further increase operational complexity. Navigating these regulations requires dedicated compliance teams and significant documentation. While ensuring fair labor practices and sustainability, these regulations can also contribute to higher costs. 

7. Market Demand Uncertainty

Domestic production may not always align with demand shifts. Consumer preferences and technological advancements can change rapidly, making it challenging to forecast demand accurately. Companies must implement flexible manufacturing strategies to adapt to shifting market conditions. For example, automakers investing in U.S. plants must anticipate long-term trends in electric vehicles. 

Key Considerations for Manufacturers

Making the decision to localize a supply chain requires careful evaluation of multiple factors that can impact a business’s long-term success. While the benefits of reshoring are significant, manufacturers must consider cost implications, supply chain dependencies, and infrastructure readiness to ensure a smooth transition. The following key considerations outline essential aspects that businesses should assess before committing to localization.

Total Cost Analysis

Carefully weigh labor, material, and operational costs against potential savings. While domestic labor costs may be higher, businesses must consider potential savings in transportation, tariffs, and reduced supply chain disruptions. 

For example, a manufacturer moving operations from China to the U.S. might see higher wages but benefit from reduced shipping costs and import duties. Additionally, assessing the long-term financial impact of reshoring allows companies to make data-driven decisions that align with profitability goals.

Supply Chain Mapping

Identify critical dependencies and assess risk exposure. Companies must have a clear understanding of where their materials and components originate and how disruptions could affect their operations.

During the pandemic, businesses that lacked supply chain visibility struggled to adapt, resulting in costly production halts. Mapping out the supply chain ensures companies can develop contingency plans, diversify supplier bases, and minimize risks associated with single-source dependencies.

Technology Investment 

Consider how automation and AI can offset higher labor costs. By implementing smart manufacturing technologies, companies can improve efficiency and reduce reliance on manual labor.  Manufacturing software like PrismHQ can help automate mundane, repetitive tasks which frees up labor hours to focus on more skilled work. 

For instance, Siemens has integrated AI-driven automation in its U.S. plants to enhance productivity while controlling costs. Investing in technology not only enhances competitiveness but also prepares businesses for future industry advancements.

Supplier Partnerships

Evaluate the potential to build strong relationships with reliable domestic suppliers. Establishing long-term agreements with local suppliers ensures a steady flow of materials and components. 

Tesla, for example, has developed close partnerships with U.S.-based battery suppliers to secure its electric vehicle production. Strengthening supplier relationships can lead to better pricing, increased reliability, and greater flexibility in managing supply chain demands. 

Regulatory Landscape

Stay informed on compliance requirements and incentives. U.S. manufacturers must navigate complex environmental, labor, and safety regulations, which can impact operational costs. 

Companies like Intel have successfully leveraged government incentives, such as the CHIPS Act, to offset regulatory costs and encourage domestic investment. Understanding the legal landscape ensures compliance while maximizing financial benefits from available programs. 

Infrastructure Readiness

Ensure access to transportation and utilities for new facilities. A lack of proper infrastructure can hinder production efficiency and increase costs. 

For example, businesses relocating to rural areas must assess whether roads, power grids, and water supply can support large-scale manufacturing. Ensuring that essential infrastructure is in place prevents logistical bottlenecks and supports seamless production operations. 

Long-Term Strategy

Determine if localization efforts align with broader business goals. Reshoring should not be a short-term reaction but a strategic decision that supports sustainable growth. 

Companies like General Motors have aligned their reshoring efforts with their commitment to electric vehicle production, ensuring that investments contribute to future profitability. A well-planned localization strategy should consider market trends, technological advancements, and overall corporate objectives to ensure long-term success. 

Conclusion

The lessons learned from the pandemic have prompted a fundamental shift in supply chain strategy, with many U.S. manufacturers prioritizing localization to enhance stability and resilience. While challenges exist, the benefits—such as improved quality control, reduced lead times, and job creation—make a compelling case for reshoring. By carefully evaluating costs, supplier networks, and workforce availability, businesses can position themselves for long-term success in an increasingly uncertain global market. A localized supply chain is not just a reactive measure but a forward-thinking strategy for a more secure and prosperous future.

We Can Help

If you’re ready to take the first steps towards a faster and easier way to manage your business, PrismHQ provides a simple and flexible solution to streamline production, increase visibility, and improve communication across departments. Our mission is to serve growing manufacturers by providing a single, affordable solution that automates inventory management and integrates it with daily business processes for increased productivity and lower overhead. Contact us today to learn more!