Implementing a Successful Reshoring Strategy With Cloud PLM
In recent years, global manufacturing and supply chain operations have undergone a significant shift. To achieve greater product differentiation and reduce expenses, companies are outsourcing design and development work to contract manufacturers (CMs) and other domain experts. Another growing trend is the reshoring movement, in which companies bring production back to their home country or a nearby region. While reshoring is most prevalent in the United States, other countries like the United Kingdom and Germany are also making the transition.
Historically, manufacturers would offshore their operations to reduce labor costs; however, times have changed. According to a recent survey, 69% of manufacturers have already begun reshoring their supply chains and 93% are planning to increase the pace of reshoring over the next two years1.
WHAT’S FUELING THE RESHORING MOVEMENT?
The reshoring movement is influenced by several factors. Firstly, new trade policies and the introduction of tariffs on imported goods from countries like China make offshoring less appealing. Companies are concerned about how these policies impact their cost of goods sold (COGS) and profit margins. Secondly, there is a growing demand for products that are produced locally. Consumers are willing to pay a premium price for products that are manufactured domestically due to rising concerns over quality, sustainability, and job creation. Moreover, U.S. legislation such as the CHIPS and Science Act and Bipartisan Infrastructure Law are incentivizing companies to relocate their operations domestically through tax breaks, grants, and infrastructure investments.
Supply Chain Resilience: Reshoring as a Response to Global Disruptions
Perhaps the greatest driving force behind reshoring is today’s unrelenting supply chain disruptions. Factory shutdowns, port delays, and other major shocks stemming from the COVID-19 pandemic highlighted the vulnerability of our global supply chains, prompting companies to rethink their reliance on offshore suppliers. Considering the pandemic’s aftermath and continued surge of unforeseen events like natural disasters and geopolitical conflicts, companies are looking to better navigate today’s uncertainties and strengthen supply chain resilience.
View Infographic: 5 Ways to Build a Resilient Supply Chain
RESHORING VS. OFFSHORING: WEIGHING THE PROS AND CONS
Reshoring is a strategic business move that requires careful planning before making the transition. Companies must assess the pros and cons, considering all related costs and risks. Offshoring exposes companies to political instability, long lead times, cybersecurity threats, and regulatory roadblocks in foreign countries, significantly impacting their product development timelines. In contrast, reshoring offers manufacturers more control over who they do business with. Consequently, they can protect themselves from outside risks and cultivate a more stable and predictable supply chain operation.
Although companies incur high upfront reshoring expenses from relocating their operations, investing in new facilities, and hiring labor, they realize long-term savings through reduced freight, energy, travel, and operating costs.
Aside from the cost savings and risk mitigation, reshoring offers several operational advantages:
- Greater control over supply chain partners
- Enhanced product quality
- Shorter lead times for parts and materials
- Reduced environmental footprint due to shorter delivery routes
- Less compromised intellectual property (IP)
- More efficient communications due to similar time zones with nearby suppliers and decreased language barriers
- Ability to respond quickly to changing customer demands
- Faster time to market
Even with these benefits, reshoring has its challenges. For instance, companies may need to find and recruit staff who are specially trained on certain manufacturing techniques. Additionally, they will have more product information and processes to manage due to a more expansive manufacturing operation.
LEVERAGING CLOUD-NATIVE PLM AND QMS TO SUPPORT RESHORING EFFORTS
For a reshoring strategy to truly work, companies must employ digital technology to maintain complete control and visibility over product development and supply chain activities as they transition their operations.
Traditional modes of communication like phone and email make it difficult for dispersed product teams and supply chain partners to stay aligned on all the logistical aspects of the move. What’s more, reliance on spreadsheets, paper, and other manual systems opens the opportunity for errors and lost information as product records get transferred to different physical locations.
Cloud product lifecycle management (PLM) and quality management system (QMS) solutions alleviate these issues by providing a single source of truth for teams to communicate in real time and exchange product information regardless of their location. Since the entire product record resides in the Cloud, there’s no need to invest in costly servers, computer equipment, or document retention facilities as part of the move. Organizations can be confident that their product information remains intact, controlled, and secure.
Keeping Product Teams and Supply Chain Partners in Sync
Leveraging a proven cloud-native PLM or QMS solution like Arena ensures all key stakeholders stay on course during the reshoring journey. Arena delivers a structured and transparent product record by electronically linking engineering changes, items, documents, and quality processes to the bill of materials (BOM). This allows product teams and partners to manage information logically and maintain full visibility throughout the entire product development cycle.
Through Arena’s robust access controls, users can invite new suppliers and contract manufacturers to engage in critical activities like design reviews, engineering change orders (ECOs), and corrective and preventive actions (CAPAs) without sacrificing their IP. Companies can configure the system to automatically assign training, dispositions, and other tasks to provisioned suppliers whenever new ECOs are released, ensuring those suppliers remain proficient on updated procedures and resolve issues quickly.
This ability to manage product information and processes at such a granular level and keep everyone in sync makes reshoring a highly feasible option.
THE PATH TO A MORE RESILIENT AND PROFITABLE MANUFACTURING OPERATION
Looking ahead, the reshoring movement will continue to gain traction and transform how companies across various industries get products to market. As you craft a reshoring strategy, it’s important to recognize that it involves more than just relocating production. Reshoring requires the use of modern technology to align your product teams and supply chain partners, enabling them to work efficiently and tackle any issues or disruptions that arise.
Ultimately, this approach will lead to a more resilient manufacturing and supply chain operation, yielding optimal results.
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References
Shelly St.Hill