A cumulative combination of factors is responsible for the upward trends, says the founder of the Reshoring Initiative
February 10, 2022
By Mark Shortt
When we hear the words “American made parts,” we know they mean more than just the location of a factory—much less, one that produces lots of commodity items. To those of us who’ve been fortunate to see the humanity and resilience of U.S. manufacturing, those three words imply much more.
Part quality, reliability of delivery, and yes, manufacturing ingenuity and craftsmanship are some of the principles that come to mind when hearing the phrase. Today, “American made parts” resonates strongly throughout the land, as world events continually remind us of the need to safeguard our supply chains for critical parts by strengthening our American manufacturing base.
Supply chain woes that first surfaced during deadly natural disasters came back with a vengeance in recent years, prolonged by trade tensions, a global epidemic, and far-reaching geopolitical upheavals that continue to hinder international commerce. But it appears that a solution is in the works, as a growing number of manufacturers are reshoring their parts production to America. Foreign and domestic companies are also stepping up their investments in U.S. manufacturing by building new facilities and expanding existing operations.
All of this activity helps strengthen national security, the economy, and innovation. In addition, manufacturing a product closer to its designers in America enables richer, more efficient iterative designs, creating new possibilities for product and process innovations. Localized manufacturing, where products are manufactured in locales closer to end users, can also cut delivery times and make it easier to receive meaningful market feedback from customers, an advantage that can help facilitate custom manufacturing.
Suffice to say it’s really good news when we read that a combination of factors is driving American OEMs to bring their manufacturing back to the United States in record numbers. In its 2022 Q3 Data Report, the Reshoring Initiative said its third quarter data revealed the highest rate ever recorded of manufacturing job announcements tied to reshoring and foreign direct investment (FDI). It was reported to have topped the previous record, set in the first quarter of 2022, by about 15 percent.
“The current 2022 projection of jobs announced is a record-breaking 350,000—up from 255,000 in 2011,” the report stated. “This will bring the total jobs announced since 2010 to over 1.6 million.”
At the same time, the U.S. market for manufactured products—most notably cars and EV batteries—continues to attract foreign companies. Major automakers like Mercedes-Benz, Honda, Hyundai, BMW, and Toyota are building and investing in U.S. production facilities so that they can manufacture their vehicles closer to where they sell.
The combination of reshoring and foreign direct investment reflects a level of manufacturing job creation not seen in the U.S. since 2010. That’s the year that Harry Moser, founder and president of the Reshoring Initiative, began his quest to bring manufacturing back to America. Moser said in an interview that announcements of U.S. manufacturing jobs created by reshoring and foreign direct investment have risen nearly continuously in the years since.
“That year (2010), there were 6,000 jobs announced,” Moser told D2P. “In 2022, it’s going to be somewhere between 350,000 and 400,000—about 60 times as many.”
These gains are particularly impressive when considering the fact that price has long been the sole determinant of companies’ sourcing decisions. Their over-reliance on price puts companies at risk of miscalculating the costs of offshoring by up to 20 to 30 percent, according to the Reshoring Initiative.
It’s also important that the upward trends in reshoring and FDI reflect increases in domestic part production, as well as product assembly. Much of the news, however, focuses on the construction of large assembly plants that could employ more than a thousand people. That’s great news, no doubt. But it can obscure the fact that the majority of America’s manufacturing is done by the part makers and service providers—the contract manufacturers and job shops that provide metal fabricating, machining, molding, casting, coating, and myriad other manufacturing services.
For Moser, the reasons for these upward trends are cumulative. They began with the gradual recognition by U.S.-based companies of the total costs and risks of moving manufacturing offshore. Some of these costs were “hidden costs” related to poor part quality, shipping delays, or even theft of intellectual property. In many cases, the total costs of offshoring outweighed the price-per-part savings gained by paying less for overseas labor.
The Reshoring Initiative’s free online tool, the Total Cost of Ownership Estimator addresses the challenges of accounting for hidden costs and has played a key role in helping companies analyze and better understand the true costs of offshore manufacturing. The TCO Estimator calculates 30 cost factors for each source, enabling companies to compare and better evaluate sourcing options.
“Universal TCO usage, alone, would reshore about 1.5 million jobs,” according to the Reshoring Initiative’s 2022 Q3 Data Report.
In addition to becoming increasingly aware of the total costs of offshoring, many American companies decided that whatever savings they might expect from lower wage costs and part prices were not worth the supply chain risks of manufacturing overseas. Problems resulting from a nuclear accident, flood, canal stoppage, pandemic, or war will do that to you. Companies that received parts months later than expected, or didn’t receive them at all, finally realized that it made “more sense for them to pay a little more for the components,” Moser said, so that they could “have the components to make the end product.”
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