Supply chains play a vital role in the success of businesses across various industries. However, supply chains are often vulnerable to disruptions, inflation, and other external factors that can impact their resilience and efficiency. Below, Emily LeVasseur, managing director and co-owner of Waypost Advisors, and a self-proclaimed “supply chain geek,” shares her insights on the tensions of re-shoring supply chains in uncertain economic times.
MPT: How strong is interest in re-shoring domestic manufacturing?
Emily LeVasseur: Global supply chain disruptions and geo-political events have caused a resurgence in interest around re-shoring or near-shoring, defined as transferring business operations, that is, manufacturing, back to or near to the United States. For our purposes, I’ll refer to “re-shoring” to cover both re-shoring, and near-shoring.
MPT: Are some market areas in a better position to re-shore than others?
Emily LeVasseur: There are key considerations when deciding if re-shoring is right for your business and how the current inflationary cycle may impact that choice. As inflationary pressures on core goods continue to escalate, consumers will need to shift their spending dollars to necessities, thus impacting the demand of “non-essential” goods.
For example, consumers have seen significant increases over the past year in food and energy costs, in addition to housing costs. While as of right now, a full-blown recession has not materialized, the Fed has communicated they will continue to increase rates to curb inflation, increasing the potential of a recession.
MPT: How does this relate to the manufacturing sector?
Emily LeVasseur: As companies look to invest in new manufacturing facilities within or close to the United States, realizing an adequate return on investment becomes more complicated when companies are unable to pass along increased costs that may be associated with re-shoring to the end consumer without significantly impacting demand.
When examining the business case for re-shoring, having a solid analysis of the total cost of ownership is critical to determine if it makes sense for your company. Engaging in supply chain consulting can provide valuable insights and help navigate these complexities.
MPT: What factors are contributing to these complexities?
Emily LeVasseur: Increasing labor costs in the United States may be of significant impact in the decision-making process. However, hourly labor costs must be looked at in combination with labor productivity, which historically has been 10 to 20 percent higher in the United States than regions such as China and Mexico.
One recent study by the U.K. firm, Oxford Economics, found that effective labor costs, including impacts from productivity, put China labor only 4 percent lower cost compared to the United States. Productivity is a critical factor to include in your analysis to reach an accurate comparison of effective labor costs between regions.
MPT: What benefits can be found if manufacturers successfully navigate these concerns?
Emily LeVasseur: On the positive side, significant benefits can exist from re-shoring, namely a more secure and stable supply chain. Being able to fulfill customers’ orders on time and in-full (OTIF) is the key benefit of re-shoring.
Waypost Advisors is a boutique supply chain advisory and execution firm that helps mid-market companies address supply chain issues by filling gaps, easing headaches, and protecting your time. For more information, visit www.waypostadvisors.com.