Bringing It Back Home: Exploring the Advantages of Reshoring
As the global economy continues to evolve, reshoring has become an increasingly popular topic among businesses of all sizes. Reshoring refers to the practice of bringing manufacturing and other business operations back to one's home country, rather than outsourcing them to other countries.
The history of offshoring
Off-shoring refers to the practice of a company relocating its business operations to another country where labor or raw materials are cheaper. The concept of offshoring and outsourcing has been around for centuries, but it became popular in the late 20th century.
In the 1960s, global trade began to increase, and companies started to explore the option of offshoring to reduce labor costs from international manufacturers.
In the 1980s, advances in technology and transportation made it easier for companies to communicate and transport goods across borders, further fueling offshoring growth.
In the 1990s, the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) were signed, which made it easier for companies to do business across borders.
In the 2000s, China emerged as a major player in the global economy, and many companies began to offshore their manufacturing jobs to take advantage of China's low labor costs. Off-shoring was a common practice for many industries, including manufacturing, IT, and customer service.
The global pandemic in 2020 resulted in significant supply chain disruptions, leading to a major shift in offshoring operations. The importance of companies having solid domestic sources became increasingly evident.
Additionally, while it can be controversial due to concerns over job loss and exploitation of workers in developing countries, it remains a strategy for companies trying to reduce costs and increase profits.
Reasons for offshoring
Companies offshore to take advantage of lower labor costs, access to new markets, and favorable tax policies. Offshoring also helped companies increase efficiency, reduce costs, and access specialized skills and technology.
Offshoring allows companies to benefit from lower labor and operational costs in other countries. Offshoring can provide companies with time zone advantages, allowing them to operate around the clock and be more responsive to customer needs. Offshoring can provide companies with a competitive advantage by allowing them to offer products or services at a lower initial cost.
However, offshoring can also have some drawbacks, such as language and cultural barriers, legal and regulatory issues, lower quality standards, and the potential for negative public perception. Not to be overlooked is the unstable and unpredictable political climate in some countries that could cause an unexpected stoppage in the ability to get product.
The Advantages of Domestic Manufacturing
Domestic manufacturing, or producing goods within one's own country, has numerous advantages. Domestic manufacturing can lead to improved quality control, faster turnaround times, and cost savings among numerous other benefits.
- Improved quality control: When operations are located closer to home, it's easier to monitor quality and ensure that products meet high standards. This can lead to increased customer satisfaction and loyalty, and a decrease in defective products. When innovation is necessary, having a supplier that is close in proximity will enable greater innovation and improve product quality. When production is closer to home, companies have more opportunities to experiment with new materials, designs, and techniques, while still maintaining quality management.
- Faster turnaround times: With operations located closer to home, businesses can respond more quickly to changes in demand and adjust their production schedules accordingly. Language barriers can reduce turnaround time - communicating in real time can expedite the production process. This can help them stay competitive in a fast-paced market.
- Cost savings: While outsourcing to other countries can seem like a cost-effective solution at first, the hidden costs of transportation, communication, and quality control can quickly add up. Reshoring can help businesses reduce these costs and improve their bottom line. For example, if a product requires a lot of customization or has a high degree of complexity, it may be easier and more efficient to produce it locally.
- Environmental impacts: Domestic manufacturing reduces transportation costs and carbon emissions. This is because goods are produced closer to where they will be sold, reducing the need for long-distance transportation. The US has some of the highest environmental standards for the industry in the world, while some countries may have very few if any standards.
- Boosting the economy: Purchasing domestically will revitalize the local economy. Not only does it create job opportunities, but it also promotes economic growth. This can help reduce unemployment and poverty, ultimately lessening the need for government assistance.
- National security: Finally, domestic manufacturing can lead to greater national security. This is because countries that are self-sufficient in the production of essential goods are less dependent on other countries in times of crisis.
Overall, the benefits of domestic manufacturing are clear. Reshoring offers a number of advantages for businesses that are looking to stay competitive in today's rapidly changing market By creating jobs, reducing transportation costs and carbon emissions, ensuring higher-quality products, and promoting national security. Given the benefits of domestic manufacturing, it's no surprise that many countries are putting more emphasis on it.
Forgings Made Domestically
Off-shoring's rising popularity dealt a blow to the forging industry. In the past, US-based forging companies struggled to meet the needs of customers who demanded high-volume forged components at a competitive global price. This was a result of offshoring becoming more prevalent.
Manufacturers based in the United States face considerable risks due to extended overseas lead times and the current political climate. With long lead times and supply chain uncertainties from international suppliers, the risk of material shortages looms large and impacts manufacturing capabilities.
Manufacturers will greatly benefit from a domestic supplier for their forged components for the many reasons stated above. In addition to those benefits Southwest Steel's steel supplier is right next door and is integrated with the manufacturing process, therefore the lead times for steel are short, and our capacity for manufacturing is shortened with available raw materials. This enables SSP to compete with globally competitive pricing – as we maintain the lowest cost industry steel pricing with no transportation costs and improve quality control in manufacturing processes.
Manufacturers can reap numerous benefits from using a domestic supplier for their forged components, as previously mentioned. In addition, Southwest Steel Processing's steel supplier is fully integrated with the manufacturing process, resulting in shorter lead times for steel and increased manufacturing capacity due to readily available raw materials. This allows SSP to compete with globally competitive pricing, maintaining the lowest cost of steel in the industry, with no transportation costs.
Discover how our large railcar manufacturer client benefited from domestic forged parts sourcing. Read our case story.
To learn more about our USA-made forgings or to request a quote, get in touch with our sales team today.