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May 23, 2016 Experts Corner

‘Reshoring’ — An increasing trend in American manufacturing

John M. Kirschner

America's long and admirable legacy as the world's manufacturing leader set the tone for much of the progress made in the 20th century. From assembly lines to precision manufacturing, from the flight age to the space age, it was American manufacturing know-how that was at the core.

Innovation created here led to a demand for high-performance manufacturing and production, and that, in turn, created a strong part of our country's economic backbone.

Towards the latter half of the last century, though, as the cost of doing business in America got greater and greater — coupled with a rise in global communication ability that made the world a much smaller place — companies began to look beyond our shores to expand or even move a good portion of their operations. Work of the same quality could now be done overseas at a much cheaper rate, and with lower costs of materials and labor, it allowed companies to produce goods for less money. This led to the “offshoring” of work becoming a very attractive option for a number of manufacturers.

Having so much of their business performed offshore presented challenges for American manufacturing companies that were not easy to overcome. These challenges included higher shipping costs and pricing, increased labor cost, travel costs back and forth between countries, the lack of a properly educated and trained workforce, long distance and timing complications, and a series of regulatory hurdles.

These issues added up enough over time for it to start to make sense to bring the work back to America, but only if the approach changed in a way that made financial sense. And for an increasing number of American manufacturers, that is exactly what happened.

Today it's known as “reshoring,” the return of American jobs to our country. It's happening with increased regularity, and it's happening for one main reason: Manufacturing companies are changing the ways in which they operate and are doing it much leaner and more efficiently.

Over the past few years in particular, especially in the recent years following the 2008-09 recession, companies are changing their minds and bringing these jobs back to America.

One of the biggest reasons for the trend in reshoring is that manufacturing companies are making investments in technology and infrastructure that simply weren't being made before, and work that once could be done overseas for a reasonable rate is now capable of being done here for the same or lower price. This was a problem that many businesses met head on by determining what investments they could make to replicate what they are paying for in another country.

This was coupled with the industrial ability to operate at a leaner level, with fewer people performing more tasks than had been the norm in recent years. Technological improvements also played a role, as did adapting to lean principals or other process improvements that maximize every dollar spent and ultimately improve the bottom line.

It's an interesting lesson — often times in business, great challenge can lead to great opportunity. American manufacturers recognized this challenge and responded with lean, sensible reshoring efforts, which in turn is bringing jobs back home as well as helping the nation's economy as a whole.

John M. Kirschner is a partner with BlumShapiro, the largest regional business advisory firm based in New England, with offices in Connecticut, Massachusetts and Rhode Island.

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