How to Determine Whether Reshoring Is Right for Your Business

Everyone is talking about reshoring these days. Last week, there was an entire conference dedicated to the subject at Mississippi State University. In attendance was the Mississippi Merchandise Manager for Walmart, who said, “We have made the commitment that in the next 10 years, we are going to purchase an additional $250 billion of U.S. manufactured goods.”

Second, they should bring back the lowest investment work first. In other words, if someone is machining a part for them offshore and now they’re going to have it machined stateside, the cost to switch will be almost nothing. There should be no tooling, minimum travel, etc. They don’t have to buy any machines.

“Companies should consider bringing back the lowest-investment work first.”

At the other extreme, if they have built their own factory offshore and spent $10 million or $20 million and they think they’re going to shut it down or sell it and build a new one here, there is a lot involved with construction, employee hiring and training, etc. It’s critical that they do a detailed analysis of what it’s going to cost to make sure the savings they get from reshoring will be sufficient to pay back the cost of the transition. The ideal situation would be, if your offshore factory is producing 50% for the U.S. and 50% for Asia, then put your incremental investment into gradually making the transition for the 50% that ships to the U.S. At the end of 4-5 years, your entire U.S. market supply will be stateside and your offshore facility will produce products entirely for Asia.

MCEOB: Can manufacturers expect any help from the federal or state governments?
HM: At the federal level, there is no money involved, but the Commerce Department provides a lot of helpful information. They have a nice website called (ACE stands for “Assess Costs Everywhere”). Also, MEPs, manufacturing extension partnerships associated with the Commerce Department, can help with the analysis.

Several states’ programs are under way to bring our methodology to companies to help them do analysis and make decisions. At the state level, there are incentives for both reshoring and foreign direct investment, such as the Japanese automotive companies building plants here. The money—for things like tax rebates, training and highway connections if you’re big enough—can be pretty substantial. The state incentives typically do not drive your decision to go offshore or reshore, but rather, it’s about choosing between one state and another. So states are bidding for companies’ business—just look at Tesla’s Nevada deal. You might retain a site selection consultant to help you maximize the benefits.

MCEOB: How long would it typically take for a manufacturer to recoup its costs and generate a return on reshoring?
HM: There is no consistent formula. It depends on the nature of the project. For instance, Hubbardton Forge, which makes high-end lighting systems, offshores aluminum die castings. They tried bringing back the dies and tools, and the tools were so rough that the U.S. companies said we can’t use these. So they decided, we’re going to leave in China what’s in China, and when we come out with new components and parts, we’ll look at the possibility of staying in the U.S. So instead of bringing things back, they’re just applying the methodology to the new things. Over 3-5 years, the old parts will phase out and then they will have everything in the U.S. without having to go through a transition.


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