Offshoring has been a popular strategy for manufacturers and distributors for many years. Whether for cheaper labor or savings in operational costs, businesses have had every incentive to outsource at least some of their operations to international destinations.
Recent disruptions, such as the COVID-19 pandemic and U.S.-China trade conflicts, however, have those same businesses contemplating a return to domestic production. Reshoring — the process of returning manufacturing and production of goods from overseas to a company’s original country — has its limitations. But it could help businesses escape a chaotic international trade scene and avoid global supply chain backlogs.
In our latest Quicktake podcast, MDM CEO Tom Gale and Dorn Group CEO James Dorn discuss why it’s important for distributors to start think about reshoring to North America, and how the phenomenon might impact the future of distribution.
“I think there’s just an appetite for manufacturers to mitigate the risk in their supply chain,” Dorn said. “And they’re doing that by trying to make investments here, either onshore or near shore in Canada or Mexico, to where they can actually control their supply chain.”
“The U.S. economy is so powerful,” Gale said, “because of the power of distribution channels to flex and mold quickly to economic conditions, just market-to-market competitive landscape conditions, as well to really serve customers the way they need to be served.”
Baird, which collaborates with MDM on a quarterly market trends survey, estimated in an Aug. 25 report that industrial distributors could stand to gain $15 billion in incremental revenues as a result of reshored production at new domestic manufacturing sites. This benefits both industry giants as well as smaller distributors, according to Dorn.
“I think it also benefits the mid- and the small-size distributor, where their whole value prop is built around this local, hyper-personalized model to service some of these larger facilities and really cater to their specific needs,” he said.
Another angle to consider is the potential (re)development of rural American communities, many of which lost jobs due to offshoring.
“There are so many rural areas out there that just were devastated decades ago, when manufacturing went overseas,” Dorn said. “So, you’re going to see a revival of that. And there will be tailwinds that other businesses and communities can benefit from. So, that investment will create more jobs and more opportunities for distributors to actually become a part of that process.”