Starting in the early 2000s, a major shift of manufacturing activities from North America to lower cost regions, such as Asia, was driven by globalization. For decades, we enjoyed the cost advantages that came from lower cost labor and material costs, lenient laws, favorable exchange rates and lower corporate taxes. But the economic impact of the pandemic uncovered many vulnerabilities that prompted OEMs to re-examine their offshore manufacturing business model.

Our heavy reliance on offshore suppliers and manufacturers exposed us to supply chain disruption, inventory shortages and price fluctuations. For some, the cost advantages of offshoring were no longer sufficient to preserve the status quo. The growing concerns around geopolitical tensions and protection of intellectual property provide a compelling reason to consider reshoring as a viable option.

OEMs who are still evaluating the cost benefit of reshoring should weigh the advantages against disadvantages and examine the trade-offs to better assess the long-term viability of this solution.

Advantages of Reshoring Your Electronics Manufacturing

By bringing manufacturing closer to home, you gain more direct access to your project which can translate into better control over the manufacturing and supply chain process and reducing your lead times and time-to-market.

• Better Control of Supply Chain: Closer proximity to your manufacturing facility allows you to have better control over the supply chain process reducing the risk of disruptions and shortening lead times.
• Reduced Logistics Costs: Transportation and shipping costs are minimized when the geographic distance to the end consumer market is shorter.
• Improved Product Quality: More direct oversight allows you to implement more rigorous quality control and testing procedures, which reduces the risk of defects and improves overall product reliability.
• Intellectual Property Protection: Manufacturing your product within a jurisdiction with strong IP laws provides better legal protection for your innovation.
• Faster Modifications: Being in the same time zones and communicating in the same language can accommodate faster design iterations and adjustments.
• Just-in-time Production: With faster ability to react to market demands and producing volume based real-time demand, reduces the need to inventory products and their components.
• Government Support: Government incentives and subsidies for reshoring help to offset the increased overall cost of transitioning manufacturing from overseas.
• Elimination of Tariffs: No need to deal with tariffs and duties and the administrative work required to import products.

The Disadvantages of Reshoring Electronics Manufacturing

The appeal of offshoring was primarily financial. Reshoring translates to higher costs – with higher labor, material and overhead expenses and a shrinking pool of skilled talent, the economics of reshoring may not be the right solution for some businesses.

• Higher Labor Costs: Higher labor costs, especially in pro-union regions, increase the overall production cost.
• Skill Shortages: With an aging population and a smaller talent pool in North America, skills shortages also translate to higher labor cost.
• Higher Overhead Costs: If warehousing is required to store inventory, overhead costs such as lease expenses will increase overall business costs.
• Capital Investment: Over the past few decades, as manufacturing moved overseas, North America is no longer equipped to support a manufacturing hub. Capital investment will be required to set up home-grown facilities.
• Infrastructure and Technology Mismatch: If some aspects of production remain overseas, a mismatch of capabilities can make coordination more challenging and affect production efficiency.
• Disruption of Existing Supply Chain Network: Reshoring might disrupt established supply chains and relationships with international suppliers of components and materials creating more complexity with logistics.
• Regulatory and Compliance Issues: More stringent regulations in labor and environmental can present challenges by adding complexity and cost.

Key Takeaways

There are trade-offs when reshoring manufacturing back to North America. For this move to make sense, the advantages must obviously outweigh the disadvantages. The higher production costs of reshoring must be offset by the benefits of reduced risks in logistics, more project control, protection of intellectual property, shorter lead times and government support.

Corporate policy may be driving your decision to reshore, but for those, who are still contemplating, consider the long-term impact of this move on your financial horizon, especially against the backdrop of shifting economic policies and the dynamic geo-political situation.

If you would like to compare the various manufacturing strategies and their pros and cons, download this table.