Businesses have moved assets and manufactured goods worldwide for as long as the global marketplace has existed. In recent years, many companies have begun moving once-outsourced operations closer to home in a practice known as reshoring. Spurred by pandemic-era supply chain vulnerabilities and accelerated by changing geopolitical dynamics, reshoring now dominates conversations around manufacturing and job growth.
In the latest installment of M. Holland’s Plastics Reflections Web Series, the panel of experts listed below met to discuss key trends, drivers and considerations surrounding reshoring in the plastics industry:
To begin the broadcast, Andrew Reynolds offered an overview of the reshoring trend followed by a full panel discussion of different geopolitical, economic and strategic considerations manufacturers should keep in mind during the dynamic reshoring process. The panel explored how companies can best navigate reshoring decisions to protect supply chains and maximize economic and environmental benefits. Read on to discover major takeaways from the panel or watch the full webinar recording here.
In his macroeconomic overview of reshoring, Andrew explained the factors encouraging companies to reshore manufacturing operations. Although reshoring conversations have been consistent over the past two decades, the COVID-19 pandemic catalyzed efforts by exposing globalized supply chain issues.
Andrew hypothesized the reshoring boom is due to the COVID-19 pandemic coinciding with increased nationalism and protectionism, particularly in North America. Amid geopolitical unrest between Russia and Ukraine and a trade war with China, over 70% of American companies are considering bringing manufacturing and jobs back to North America, according to statistics presented by Andrew.
The U.S. government has propelled reshoring efforts with the passage of the 2021 Infrastructure Act, a bipartisan bill to invest in logistical improvements, and the 2022 Inflation Reduction Act, which offers tax incentives for producing and buying American-made technologies. According to Matt Zessin, the Infrastructure Act has been a key factor in bringing more automotive manufacturing, such as lithium-ion battery production, back to North America. The batteries are an essential link in the electronic vehicle supply chain.
The United States-Mexico-Canada Agreement (USMCA), passed in July 2020, is another reshoring driver. The agreement promotes free trade between the three North American countries, giving the U.S. and Canada a lower-cost, more local alternative to manufacturing in China, i.e., Mexico. Andrew suggests this trend of culturally aligned regions working together will continue to move business that cannot be completely reshored from China due to cost or supply constraints to lower-cost countries aligned with trading blocs.
However, reshoring is not isolated to North America. As geopolitical uncertainty persists, many companies are moving manufacturing out of China. Although the reshoring discussion is a bit quieter in Europe, many European companies reflect the same protectionist principles as the U.S. and are reshoring closer to home in countries where technical labor is available like Poland, Germany and Slovakia, according to Andrew.
Between government incentives and geopolitical uncertainty, there are many external reasons to reshore. But companies must also assess internal motivations to move operations and whether making a move will optimize value for supply chains and customers. According to Matt, one of the main reasons automotive companies are reshoring is to move parts manufacturing closer to final assembly to strengthen supply chains. “During COVID and past shortages, it was very difficult to get products over,” Matt said. “[Semiconductor shortages] really shined a light on the automotive industry as a whole because it was a good that’s so expensive and capital-intensive.” By consolidating aspects of the supply chain, manufacturers of all industries can reduce dependence on distant suppliers and mitigate potential risks.
Additionally, Andrew emphasized that meeting consumer demand for fast delivery is a priority for companies. “Consumers expect that they can order something today and they’ll have it tomorrow,” Andrew said. “That’s very hard to do if you move products over a long distance.” Reshoring operations closer to final consumers will reduce shipping complications and create a more cost-friendly supply chain.
Production and labor costs were the foundation for original offshoring efforts and remain a primary driver of reshoring. With increasing labor costs in China and a higher demand for technical workers in the digital age, companies are looking for ways to meet their labor needs economically. Moving manufacturing from China to countries like Mexico or the Southeast Asian region can help achieve that need, according to Matt.
Another reason for reshoring was environmental, social and governance (ESG) principles. “When we look at reshoring from a procurement lens and consider customer demands in the supply chain, ESG and sustainability have become equal, if not more important, than cost, quality and delivery,” Tyler Wheeler said. According to Tyler, as companies consider the total environmental impact of their production, they’re finding that reshoring can help meet sustainability goals by reducing CO2 emissions.
Andrew noted that the rise in recycling also may accelerate reshoring because the sourcing of recycled feedstock is, by necessity, a local endeavor due to the cost of collection, sorting, etc. This will be especially important as foreign countries become less open to accepting plastic waste from abroad.
The majority of the panel discussion focused on practical considerations companies must assess when reshoring. Even if reshoring is a fit for a company’s business goals, it’s hard to account for every single eventuality, Tyler warned. Keep in mind there may be unexpected obstacles to the reshoring process such as security concerns or logistics challenges.
The panel covered many important considerations for reshoring, including concrete factors like labor costs, proximity to markets and real estate availability, along with nuances like cultural and language barriers and navigating multiple legal systems. More complex challenges include how the product type can affect reshoring timelines and how to account for manufacturing complex products with numerous raw materials. According to Tyler, the more complex the product, the more complex the preparation, logistics and timeline will be when reshoring.
Overall, the panel agreed that companies must fully understand the depth of their supply chain and the complexities of systems and processes before beginning reshoring efforts. Andrew suggested using robust planning and forecasting models to ensure a successful reshoring effort.
After discussing practical reshoring considerations relevant across industries, the panel examined how reshoring could affect resin production.
According to Andrew, capacity must be a primary consideration for polymer companies. Successful reshoring depends on a company’s ability to balance the capacity of resins and demand in their new region.
To navigate this challenge, Matt looked to the future. “Once everything is reshored, companies will look at localized materials and how to use those,” Matt said. “At first, they might use resins from overseas, but the advantage is to eventually move into some of those resins that are produced in North America.”
Dwight Morgan’s advice on this subject: partner with a global plastics producer to navigate resin testing for local materials and ensure supply is available until a substitution is found. Still, the panel concluded that many plastic materials are available in North America, which can expedite production once reshored.
Reshoring efforts will continue as political and economic pressures encourage companies to pursue more profitable, sustainable and secure manufacturing practices. To end the discussion, Dwight asked the three panelists for their advice to companies considering reshoring.
All three panelists stressed the importance of understanding the complexities and challenges of reshoring. “Accept the complexity of what you’re getting into and ensure your systems are at the very highest level,” Andrew said. “If you start from a weakness there, you’re not going to be able to ask the right questions and reach the right conclusions.”
Matt added: “There are a lot of different implications of moving one part, and you might not know of them until you really get into it.” And Tyler suggested to always keep the true mission in mind: “Know your reasons behind delivery, quality, ESG and costs…you’ll make the most informed decision possible.”