OM in the News: Bringing Supply Chains Home

Large U.S. companies are increasingly talking up bringing workforces and supply chains back home—known as “reshoring,” reports The Wall Street Journal (July 26, 2022) “Companies’ mentions of reshoring skyrocketed recently amid supply chain challenges and we believe the 2020s will mark the beginning of de-globalization,” writes Bank of America. Executives have been using the buzzwords onshoring, reshoring or nearshoring at a greater clip this year than they did in early in the pandemic.

It’s the latest sign that companies are looking to move away from the globalized supply chains that have boosted profits and productivity for decades as worries about shipping delays and increased costs have changed the equation. The new focus on reshoring, combined with increased spending on capital expenditures, suggests many companies could be looking to replace overseas workers with technology rather than U.S.-based workers. Companies in the S&P 500, led by industrial firms, are increasing capital expenditures by 24% from the year prior year.

The construction of new manufacturing facilities in the US has soared 116% over the past year. There are massive chip factories going up in Phoenix. Intel is building two just outside the city. Taiwan Semiconductor Manufacturing is constructing one in it. And aluminum and steel plants that are being erected across the south, including in Alabama (Novelis); Arkansas (US Steel); and Kentucky (Nucor).

The tight labor market also points to companies’ need to automate. Historically, high wage inflation has led to increased labor productivity (i.e. automation) on a lagged basis. The pandemic and Ukraine war have demonstrated the vulnerabilities of global interdependence. They all point to the same thing — a major re-assessment of supply chains in the wake of port bottlenecks, parts shortages and skyrocketing shipping costs that have wreaked havoc on corporate budgets in the US and across the globe.

“Globalization is in retreat,” writes UK-based Barclays. “Governments and firms are examining connections to minimize exposure to possible causes of economic damage and social turmoil.” Barclays also found that large companies are recruiting more in their home countries, and that cross-border M&A activity has been cooling.

Classroom discussion questions:

1. What problems do firms face in bringing their manufacturing home?
2. Why is reshoring becoming a hot topic in OM?