Login



For PLUS+ subscription assistance, contact customer service.

Not a PLUS+ Subscriber?

Become a PLUS+ Subscriber today and you'll get access to all Supply Chain Management Review premium content including:

  • Full Web Access
  • 7 Magazine Issues per Year
  • Companion Digital Editions
  • Digital Edition Archives
  • Bonus Email Newsletters

Subscribe Today!

Premium access to exclusive online content, companion digital editions, magazine issues and email newsletters.

Subscribe Now.


Become a PLUS+ subscriber and you'll get access to all Supply Chain Management Review premium content including:

  • Full Web Access. All feature articles, bonus reports and industry research through scmr.com.

  • 7 Magazine Issues per year of Supply Chain Management Review magazine.

  • Companion Digital Editions. Searchable replicas of each magazine issue. Read them in any web browser. Delivered by email faster than printed issues.

  • Digital Editions Archives. Every article, every chart and every table as it appeared in the magazine for all archive issues back to 2009.

  • Bonus email newsletters. Add convenient weekly and monthly email newsletters to your subscription to keep your finger on the pulse of the industry.

PLUS+ subscriptions start as low as $109/year*. Begin yours now.
That's less than $0.36 per day for access to information that you can use year-round to better manage your entire global supply chain.

For assistance with your PLUS+ subscription, contact customer service.

* Prices higher for subscriptions outside the USA.

PLUS+ Customer Service Support


Customer service for all PLUS+ subscribers is available Mon-Fri, 9am-5pm Eastern time.

Email: [email protected]
Phone: 1-800-598-6067 (1-508-663-1500 x294 outside USA)
Mail: PO Box 1496, Framingham MA 01701-1496, USA



You have been logged out of PLUS+


For PLUS+ subscription assistance, contact customer service.

Need to access our premium PLUS+ Content?
Upgrade your subscription now.


Our records show that you are currently receiving a free subscription to Supply Chain Management Review magazine, or your subscription has expired. To access our premium content, you need to upgrade your subscription to our PLUS+ status.

To upgrade your subscription account, please contact customer service at:

Email: [email protected] Phone: 1-800-598-6067 (1-508-663-1500 x294 outside USA)

Become a PLUS+ subscriber and you'll get access to all Supply Chain Management Review premium content including:

  • Full Web Access. All feature articles, bonus reports and industry research through scmr.com.

  • 7 Magazine Issues per year of Supply Chain Management Review magazine.

  • Companion Digital Editions. Searchable replicas of each magazine issue. Read them in any web browser. Delivered by email faster than printed issues.

  • Digital Editions Archives. Every article, every chart and every table as it appeared in the magazine for all archive issues back to 2010.

  • Bonus email newsletters. Add convenient weekly and monthly email newsletters to your subscription to keep your finger on the pulse of the industry.

PLUS+ subscriptions start as low as $129/year*. Start yours now.
That's less than $0.36 per day for access to information that you can use year-round to better manage your entire global supply chain.

This content is available for PLUS+ subscribers.


Already a PLUS+ subscriber?


To begin or upgrade your subscription, Become a PLUS+ subscriber now.

For assistance with your PLUS+ subscription, contact customer service.

Sorry, but your login to PLUS+ has failed.


Please recheck your login information and resubmit below.



For PLUS+ subscription assistance, contact customer service.

Re-shoring, or going “local-to-local”

When it comes to manufacturing, the question is whether firms are re-shoring manufacturing, or regionalizing supply chains to better serve the customer

By ·
By ·

Without question, today’s companies are global in nature. As such, they’re exposed to uncertainty and volatility in the market, where the only certainty is that of the unavoidable and continuous mutation of the conditions under which they operate. For many companies, this translates into a dynamic environment when it comes to the design of their supply chains, leading many to locate manufacturing operations off shore.
More than 20 years ago, for instance, General Motors began moving its facilities into the Far East as part of a global supply chain.  This helped elevate the supply chain in the development of a company’s business. In more recent years, a number of factors have led some to claim that there is a groundswell of movement by companies to shutter offshore operations and re-shore them to the United States or Europe – wherever their Western headquarters are located.
 
Re-shoring has been much in the news, but it can be confusing. On the one hand, there are surveys like the one conducted in 2016 by AlixPartners which concluded that nearly 70 percent of U.S. and European manufacturing firms were considering moving production closer to their home bases. Similarly, in a report claiming that “the tide has turned,” the Reshoring Initiative noted that “Reshoring and [Federal Direct Investment] together were up over 10% in 2016, with much of the increase coming in November and December, presumably due to anticipation of greater U.S. competitiveness following the election.” The report also stated that more jobs were created from FDI than from reshoring, but that reshoring jobs increased at a higher rate greater at a higher rate than FDI from 2015 to 2016.

So far, so good. Yet, at the same time, news reports, while anecdotal, send mixed messages. Earlier this year, the Wall Street Journal published an article headlined “Firms Struggle to Bring Jobs Back,” detailing the challenges firms face “in sectors where the U.S. ecosystem of manufacturers, suppliers and skilled workers has largely disappeared.” Meanwhile, companies such as Carrier and Ford have recently announced plans to launch new manufacturing capacity in Mexico and China respectively. Indeed, just this week came a report that more U.S. cars are being manufactured in Mexico than ever. “The data indicates one in five cars built in the North American Free Trade Agreement zone comes from Mexico, including hot new products from General Motors Co. and Fiat Chrysler Automobiles NV. That is up from the industry’s reliance on Mexico during the financial crisis, when the U.S. car business received billions of dollars in bailouts aimed at preserving jobs and keeping domestic players afloat.”

If all of that sounds confusing to you, you’re not alone. What then is going on? In order to better answer that question, this author and Jim Rice, deputy director of MIT’s Center for Transportation & Logistics, developed a cross-industry quantitative model, referring to the United States and China as the final marketplace and as the global production place, respectively. Through the model, the study was able to summarize how re-location key-factors developed in a timespan from 1999 to 2012, taking the American market as the final reference point, and considering the Chinese baseline as a production reference. We also examined how industry cost structures evolved during that same period. An analysis of the data allowed us to study several related trends. Our conclusions were in contrast to a broad set of surveys that have emerged from many trade article magazines.

The most relevant is as follows: “there is no reshoring at all,” at least when the phenomenon has been defined as the re-location of production capacity from low cost countries back to the United States. In fact, our study argues that reshoring is not far enough along to be considered quantitatively relevant. Rather, we concluded that what is described as re-shoring activity may have more to do with broader supply chain changes than a revitalization of American manufacturing. While the end point for the data was 2012, this author believes that broader supply chain changes are still the determining factor as to why companies locate their manufacturing in one locale over another.

For instance, while some industries were relocating production back to the U.S. during that period, other sectors continued to move off-shore. What’s more, the most notable trend we identified was that of global companies shifting their supply chain structures from global to regional ones - that is they were moving in order to optimize supply chain structures on a global scale. By adopting a “back home strategy,” global companies are actually shifting their supply chains from centralized to regional structures that locates production closer to consumption. Being closer to the customer allows companies to adapt to changes in the market and consumer demand in a shorter time, optimizing and fixing key-changes about critical issues related to industry cost structures’ factors. The phenomenon of Foreign Direct Investment, in which a foreign entity launches manufacturing activity in the United States, is often included in re-shoring activity, but this author would argue that it is more representative of a restructuring of supply chains to get closer to the customer than of re-shoring.

The cost of labor is a good example. During the time period we studied, there was a considerable increase in productivity that made the cost of labor in the US particularly attractive, especially because the cost of labor in China increased too. For instance, our research found that U.S. labor costs related to consumer appliances, machinery and furniture decreased about 9%, 6% and 4% respectively. Assuming a similar Chinese structure as counterpart of the American one, the overall cost gap between US and China has been reduced so that some manufacturing activities might be relocated back in US. Yet, at the same time, the wage gap between the US-China apparel and fashion industries increased by 8%.

In addition, the effects of the unpredictability of the price of crude oil contributes to a fluctuation in the structure of some industry costs, especially where the cost of transportation assumes a key role in the business. In the consumer appliances and furniture’s industries, related transportation cost ratios might affect up to 20% of the cost, due to oil fluctuation: hence, oil price variability might mean whole cost structure instability.

Rather than looking at re-shoring as a trend, the authors see it as a strategic option to pick whenever the related industry cost structure’s conditions push to a different business model, making production closer to consumption to a “local-to-local” approach that allows firms to better serve the customer.

Francesco Stefanelli, Ph.D., is a supply chain manager and a former visiting researcher at MIT’s Center for Transportation & Logistics. He can be reached by email at .(JavaScript must be enabled to view this email address).


Subscribe to Supply Chain Management Review Magazine!

Subscribe today. Don't Miss Out!
Get in-depth coverage from industry experts with proven techniques for cutting supply chain costs and case studies in supply chain best practices.
Start Your Subscription Today!

Article Topics

All Topics
Latest Whitepaper
Plan. Manage. Recover. The power of risk management and resilience.
Savvy supply chain managers are putting risk management at the top of their to-do lists, planning for the recovery following inevitable disruptions.
Download Today!
From the September-October 2017
Additive manufacturing and 3D printing promise to simplify manufacturing, reduce inventories, and streamline operations. But, to determine when and how to apply additive manufacturing, organizations need a decision model that assesses it’s market strategy, supply chain performance, and complexity.
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!


Latest Webcast
Risk and Resiliency 2.0:  Three New Keys to Managing Supply Chain Risk
It’s no longer enough to simply identify risk. In Risk Management 2.0, resiliency is the name of the game. This webinar explains how leading firms are broadening their view of risk; expanding it to include the impact on reputation and social responsibility; and elevating the corporate and strategic importance of risk management.
Register Today!
EDITORS' PICKS
Clean Cargo Working Group Launches Annual Emissions Factors
The Clean Cargo Working Group reached a major milestone of 50 corporate members
Data Management “Hype Cycle” Revealed in Gartner 2017 Report
The “Hype Cycle for Data Management,” developed by Gartner, Inc. is designed to assist CIOs,...

Tech Innovation Creates Some Jobs But Puts Others at Risk
The dramatic opening of the global economy, combined with the rapid pace of technological change,...
Deloitte Report Gives Atlanta High Marks for Supply Chain Connectivity
SupplyChainCity Analysis places the region among top seven North American cities