After 20 years in the industry, I’m now witnessing the third wave of major changes to enterprise resource planning (ERP) challenges and requirements. We first saw the post-era of Y2K, followed by the market crash of 2008, and now the post-COVID business pressures on supply and demand. Perhaps nothing has disrupted supply chains quite like the COVID-19 pandemic, which has resulted in factory lockdowns, port closures, rising transportation costs, reduced demand, and shipping delays that continue to impact us today. In response, a growing number of North American manufacturers are pivoting to reshoring. Shifting to a modern ERP system can help manage some of the challenges of reshoring and manufacturing processes in a changing world.
What Is Reshoring, and Why Do Companies “Reshore”?
Reshoring is the opposite of offshoring. It applies to companies that are bringing production and manufacturing “back home,” i.e., returning it to the country in which the company was first established. In other words, if a business has moved some or all of its production operations overseas (offshoring) to reduce manufacturing costs, reshoring is the process of bringing some or all of it back. If the materials and resources needed for manufacturing can be sourced locally, reshoring can stimulate a company’s balance sheet and improve customer service.
Why Do Companies Reshore?
There are four top drivers behind most manufacturers’ decisions to reshore.
- Increasing costs in developing countries – Transportation costs, raw materials, labor, etc., no longer provide a competitive advantage.
- The geopolitical situation – Changes in the global landscape are affecting supply chains.
- Supply chain management – Manufactures want more control over inventory and the production of raw materials.
- Risk migration – Companies want closer control of all of the above items.
The three industries that most widely benefit from reshoring in North America are:
- Automotive and aerospace production –The International Traffic in Arms Regulations (ITAR) have some requirements where only North American resources can be utilized for labor, as well as some restrictions on raw materials.
- Manufacturing of parts – Supply chain issues are driving the need for local control in such areas as die-cast mold tooling, plastic injection molding, and computer numerical control (CNC)machining, among others.
- Electronics and medical device companies – Manufacturers in these industries require lot tracking for recalls and quality issues, and they can adjust faster with local partners.
What Are the Challenges to Reshoring?
- It requires capital and investment – To fund reshoring initiatives, many manufacturers are turning to mergers and acquisitions and or private equity investments. Alternatively, they have to (reinvest profits or obtain lines of credit to fund investments in capital equipment, technology, staff, etc.
- Automation is critical in the current labor market – With continued shortages of highly skilled workers, manufacturers need to maximize productivity by investing in robotics, the Internet of Things (IoT), artificial intelligence (AI), and big data to automate operations and planning.
- Access to natural resources is limited – Some natural resources are not available in local markets. For example, the United States lacks domestic reserves of five commodities that are critical to certain manufacturers: manganese, niobium, strontium, tantalum, and tin.
How ERP Can Help
While the automation provided by an ERP system helps to optimize a manufacturers’ overall operations, three areas of functionality play particularly important roles in reshoring.
- Forecasting and planning tools – These tools assist in managing lead times and economic trends and spikes. They also help in evaluating what-if scenarios—seeing, for instance, how bringing a large customer order into production affects capacity, labor, machine utilization, supply chain, and lead times.
- Management of outsourced manufacturing processes – It facilitates partnering with other local onshore manufacturers as required in the production process and enables tracking of that process in detail.
- Capable to promise tools – These tools give your enterprise a 360-degree view of manufacturing—from sales to the shop floor, real-time production, machine capacity, labor constraints, and maintenance.
By leveraging the critical functions outlined here—along with other ERP capabilities for decision-making—manufacturers can maximize their investments in machinery, technology, and people to successfully reshore.