Recent years’ supply chain woes, especially in international production models, have been annoying to consumers, but they have been devastating to the companies whose business models rely on being able to get actual products to shoppers in a reasonably timely manner. Instead of raising the white flag, some U.S. businesses have decided to tackle the problem head-on, and bring their production back to the United States—a decision that has become common enough that it has a name: reshoring.
Consider the story of Ken Rosenblood, whose company obVus Solutions, which produces ergonomic furniture, was “destroyed” when products got stuck in transit from China to the United States. “If you run out of product, you are persona non grata,” Rosenblood said. “We had to completely start over.”
Starting over entailed turning an old, 18,000-square-foot former furniture store into a brand new factory. The conversion cost $4 million, and the factory began making its products in October. It also took Rosenblood figuring out how to adapt his needs to realities, and opportunities, on the ground—for example, switching to recycled aluminum because not enough non-recycled aluminum was available, and producing his own nuts and bolts for a fraction of what suppliers would charge.
Many other companies are reshoring production as well, partly due to their desire to avoid the risk of international supply chain nightmares again, and partly in response to incentives provided for in the recently passed Inflation Reduction Act. Just days after President Biden signed the IRA into law in August, Honda and LG Energy announced their plans for jointly building a $4.4 billion battery plant. Chip manufacturers are coming back to America, sparked by the CHIPS and Science Act of 2022, also signed in August, which provides $52.7 billion in incentives to bring production back onshore.
Reshoring offers a host of advantages, including greater flexibility and faster production. Of course, it creates challenges too, such as finding workers in a tight labor market, needing lots of capital to get started, and having to learn how to organize work and product flows in this brand new setting. But then again, entrepreneurs are nothing if not risk takers who regard tackling problems as they encounter them to be a standard operating procedure. They see opportunity in a challenge. As Rosenblood noted, when all is said and done, he wagers that he will be able to produce his goods for the same cost, if not less, than he paid to have them made in China, and “I hate to lose a bet.”
- What are some reasons a company would reshore the manufacture of its goods?
- What are some challenges to reshoring?
- Do you think there are some types of companies better suited to reshoring than others?
Sources: Amy Haimerl, “Weary of Snarls, Small Businesses Build Their Own Supply Chains,” The New York Times, October 19, 2022; Lucas Mearian, “As Reshoring Brings Chipmakers Back to the US, Apple Looks to Jump on Board,” Computerworld, December 6, 2022