reshoring – The OM Blog by Heizer, Render, & Munson

OM in the News: Bringing Mac Mini Production Stateside

Apple just announced a significant expansion of its Houston manufacturing operations, confirming that production of the Mac mini will move to the U.S. for the first time as part of a broader investment in advanced manufacturing and AI infrastructure. The move will also see Apple expand AI server production at the Texas site and open a new Advanced Manufacturing Center, initiatives that together are expected to create thousands of jobs.

The decision marks a notable shift in the company’s global manufacturing strategy, writes Yahoo Finance (Feb. 28, 2026). The move follows a wider trend among technology firms seeking to diversify supply chains and expand domestic production capacity, particularly in high-value electronics manufacturing.

Alongside Mac mini production, Apple is ramping up output of advanced AI servers at the Houston site, an initiative that began in 2025. The expansion reflects Apple’s growing investment in AI infrastructure, an area that has become central to both consumer devices and cloud services.

Beyond hardware production, Apple is also investing in workforce development with the launch of an Advanced Manufacturing Center in Houston. The facility will provide hands-on training in advanced manufacturing techniques. The center will train students, supplier employees, and manufacturers in processes used in Apple’s own production lines. Apple engineers will teach how U.S. manufacturers can adopt new technologies and improve efficiency, strengthening the domestic manufacturing ecosystem while building a pipeline of skilled workers.

Apple’s expansion comes amid a broader push to localize manufacturing in North America, driven by supply-chain resilience concerns, geopolitical tensions, and government incentives. Bringing Mac mini production home signals that high-tech consumer electronics assembly—traditionally concentrated in Asia—may increasingly be split across multiple regions. Meanwhile, Apple’s investment in AI server production reflects surging demand for data-center hardware as AI applications expand.

By combining Mac mini assembly, AI server production, and advanced manufacturing training, Apple is positioning Houston as a key node in its global supply chain—while signaling a deeper commitment to U.S. manufacturing capacity. As reshoring momentum continues, Apple’s move could encourage other electronics manufacturers to consider similar strategies, particularly for high-value or strategically important products.

Classroom discussion questions:

Why is Apple reshoring this particular product?
Why is it difficult to bring manufacturing of high-tech products home?

OM in the News: U.S. Manufacturing Resurgence Will Be Powered by Cobots

Once a luxury reserved for big manufacturers, smaller, smarter, more flexible and less expensive “cobots”—collaborative robots—are bringing automation to every fabricator, no matter the size. The slow, fragile recovery of American goods production wouldn’t be possible without them, writes The Wall Street Journal (Oct. 11-12, 2025).

The number of U.S. companies that make physical things reached a low point in 2014 and has grown since then. Yet they are trapped in a never-ending labor shortage as skilled workers age out, and young people fail to take their place.

China has the greatest number of industrial robots, including these at a factory in Nanjing.

China has become the de facto manufacturer of the world’s goods, owing not only to its enormous population of engineers, technicians and machinists but also its 2-million-plus army of industrial robots. Now the U.S. is attempting to claw back some of those contracts—called “reshoring”—and robots can in some cases quadruple worker output.

The push to bring manufacturing back to the U.S., and the demand for industrial goods to power America’s AI-fueled economy, are driving automation adoption and innovation. “Automation is key to reshoring, plain and simple,” says one CEO.

Cobots have become radically easier to program over the past decade, and now people can use a simple tablet interface to instruct them to perform specific sequences of actions. Programming the older robots common in automotive factories since the 1960s took years of training.

Cobots are part of a broader trend in robotics: Specialized robots that use sensors to safely navigate human environments. They can cope with more variability than previous industrial robots, which had no sensing abilities. This has been essential to the rise of Amazon and its superfast fulfillment, and now it’s coming to manufacturing.

China is indisputably the leader in high-volume manufacturing, and companies that want the biggest volumes of manufactured parts for the lowest possible price continue to send work there. And though many U.S. manufacturers can’t match their Chinese peers in volume, they are competing by using automation to tackle smaller batches of goods under tight deadlines. Manufacturers in the U.S. are now asking how to reshore the making of critical parts.

Classroom discussion questions:

What is a “cobot” and how does it differ from a robot?
Why has China become such a powerful manufacturing hub?

Guest Post: Sharpie’s U.S. Comeback– A Masterclass in OM

Prof. Jon Jackson is Associate Professor of OM at Providence College. He created AI classroom exercises–appearing in our Instructors Resource Manual– for every chapter of the text.

Newell Brands (the parent company for Sharpie markers) just revealed how it revitalized one of America’s most iconic writing tools through strategic operations management. The company invested $2 billion to bring production of Sharpie pens back to its Tennessee plant, leveraging automation, workforce empowerment, and supply chain redesign to lower costs while keeping prices stable. It serves as a powerful illustration of how operational excellence can become a source of strategic advantage.

For decades, manufacturing strategy centered on offshoring—moving production to lower-cost countries to chase labor savings. Newell flipped that logic. By reshoring Sharpie production, it bet on process innovation through automation, reports The Wall Street Journal (Oct. 6, 2025). The Tennessee plant now produces pens up to 4 times faster than before, thanks to robots and computer-vision systems that detect defects in real time. (The factory operates around the clock, making 1.8 million fine-tip Sharpies a day). Newell also reengineered workflows, balanced production lines, and embedded quality control directly into the process.

A common fear associated with automation is job loss. Sharpie’s story shows an alternative path. Rather than cutting staff, Newell retrained workers for higher-skill roles such as robotics support, maintenance, and technical troubleshooting. These new roles led to average wages increasing by nearly 50%.

Bringing production back to the U.S. also reshaped Newell’s supply chain. Domestic production reduced lead times, transportation costs, and exposure to global disruptions and geopolitical risks. In doing so, Newell gained not only cost efficient but also greater agility and control over its operations.

While not every company can afford a $2 billion operational overhaul, Sharpie’s success underscores a broader lesson: sustainable cost advantage often comes from process innovation and continuous improvement, not from chasing the lowest labor costs.

Classroom Discussion Questions:

Why did Newell’s decision to reshore Sharpie production make sense strategically, even though U.S. labor costs are higher?
What other “simple” products could benefit from following Newell’s operational strategy to reshore?

OM in the News: Can Apple Change Its Supply Chain?

President Trump recently demanded Apple and other smartphone makers like Samsung make their phones in the U.S. or face a 25% tariff, reports CNN Business (May 23, 2025). But Apple’s CEO, Tim Cook, says its plan is to manufacture iPhones set to be sold here at newly built plants in India, stating “the majority of iPhones sold in the U.S. will have India as their country of origin.”

Unlike Apple, Samsung doesn’t rely on China for smartphone production. The South Korean giant closed its last phone factory in China in 2019. The vast majority of its smartphone manufacturing takes place in South Korea, Vietnam, India and Brazil.

Treasury Secretary Scott Bessent stated: “I think that one of our greatest vulnerabilities are external production, especially in semiconductors, and a large part of Apple’s components are in semiconductors. So we would like to have Apple help us make the semiconductor supply chain more secure.”

The world’s most valuable publicly traded company is flush with cash and rakes in tremendous profit — more than any company in history. But Apple has long contended that it cannot manufacture iPhones here. It has instead invested billions of dollars training millions of skilled engineers abroad, claiming China and India simply have more skilled engineers–and that they cost significantly less.

In 2010, Steve Jobs, Apple’s late CEO, called America’s education system an obstacle for Apple, which needed 30,000 industrial engineers to support its on-site factory workers. “If you could educate these engineers, we could move more manufacturing plants here,” he told then-President Obama.

So, can Apple reshore iPhone production? The notion is a “fictional tale,” says tech exec Dan Ives at Wedbush Securities. “U.S.-made iPhones could cost more than 3 times their current price of $1,000, because it would be necessary to replicate the highly complex production ecosystem that currently exists in Asia. You build that supply chain in the U.S. with a fab in West Virgina and New Jersey, they’ll be $3,500 iPhones. And even then, it would cost Apple about $30 billion and three years to move just 10% of its supply chain to the US to begin with.”

While moving iPhone production to the U.S. may not be possible, Apple did announce a $500 billion investment to expand its U.S. facilities earlier this year, in an effort to appease the President.

Classroom discussion questions:

Is it true that China and India have more engineering talent than the U.S.?
Discuss the pros and cons of reshoring iPhone production from an OM perspective.

OM in the News: Supply Chains and Tariffs

For more than a decade, US manufacturing has achieved growth in employment, output, the number of manufacturing establishments, and investment to expand or construct new facilities. This strong growth was driven by a desire to derisk supply chains and establish facilities closer to US customers. Increased supply chain volatility in recent years has led organizations to shift their supply chain strategy from cost minimization to a focus on balancing cost with resilience.

Some manufacturers have reconfigured supply chains by reshoring portions of production, by nearshoring—leveraging the USMCA free trade agreement (see Ch.2) to source more from Mexico and Canada—and by growing trade with countries such as India and Vietnam, which offer cost advantages.

And this trend is likely to continue: Over 70% of CEOs plan to alter their supply chains over the next 3-5 years.

President Trump’s policy priorities include cutting taxes, reducing regulations, lowering energy costs, and bolstering fair trade, all of which could accelerate continued investment in the US manufacturing sector. The policies could also drive a shift in supply chain strategy by prioritizing reshoring while potentially disrupting recent nearshoring and global sourcing trends. Tariffs comprise a component of this economic strategy.

Here are some key takeaways from a new Deloitte report (April 1, 2025) called Enhancing Supply Chain Resilience:

1. US manufacturers import a variety of products, parts, and raw materials from around the world, and supplemental tariffs levied on these items could impact supply chains, costs, and the industry’s profitability.

2. Economically viable opportunities for reshoring production to the US are likely to be higher-value, complex products with strict quality standards, produced with technologically advanced, higher-capital intensity processes, and a workforce with higher-level skills.

3. For labor-intensive or lower-value goods, it might not be as economically viable for manufacturers to reshore. Instead, manufacturers may diversify their supply chains by seeking suppliers in countries that offer labor cost advantages—and minimize the long-term risk of supplemental tariffs, trade tensions, and geopolitical friction.

4. Digital tools and technology will play an important role in any supply chain strategy. For example, simulation, supply chain planning tools, and enhanced visibility can help mitigate risks in global supply chains.

Classroom discussion questions:

What are the advantages and disadvantages of tariff adjustments?
How are nearshoring and reshoring impacted?

OM in the News: Tariffs and a Strategic Move to Reshore Manufacturing

“President Trump has certainly employed tariffs as a strategic tool to reshape the American manufacturing landscape,” writes UCLA Prof. Chris Tang in Industry Week (March 10, 2025). The vision driving these initiatives, at its core, aims to bring manufacturing back to the U.S., reduce trade deficits, and protect national security.

Reshoring The central pillar of the strategy is to incentivize both American and foreign companies to establish manufacturing operations here. Imposing tariffs on imported goods provides a financial rationale for companies to rethink their offshoring strategies. The goal is to rebuild a robust industrial ecosystem that produces goods domestically for world markets.

Trade deficits Most countries impose higher tariffs on American goods than the U.S. imposes on theirs. For example, the U.S. has relatively low tariffs on dairy products, around 25%, whereas Canada imposes tariffs of over 200% on certain dairy imports from the U.S. With reciprocal tariffs and higher import tariffs, the U.S. seeks to make it less attractive for companies to rely on cheap foreign labor –and more feasible to invest in America. This shift is expected to reduce the trade deficit and boost domestic economic growth.

National Security Implications Dependency on foreign manufacturing in critical sectors like technology and pharmaceuticals poses risks. By encouraging companies to produce these goods domestically, the U.S. can ensure a more secure and reliable supply chain (critical during crises such as the pandemic).

Many firms have shifted operations from China to other countries to avoid paying higher tariffs associated with Chinese imports. For example, Apple shifted some operations from China to friend-shoring countries such as India. Likewise, toy manufacturer Mattel and tech manufacturer HP expanded operations to Mexico as a near-shoring strategy.

A significant outcome on the new tariffs is the renewed focus on building domestic manufacturing capabilities and its significant infrastructure. Apple plans to invest more than $500 billion in the U.S., Eli Lilly $27 billion, and Taiwan’s TSMC over a $100 billion (for 3 new semiconductor plants).

Rebuilding an industrial ecosystem that was hollowed out over decades requires substantial investment, skilled labor and modern infrastructure. There are many long term benefits, including growing the U.S. economy through economic revitalization.

Classroom discussion questions:

What is the difference between near-shoring, reshoring, and friend-shoring?
Summarize the advantages of tariffs as a tool, according to Prof. Tang.

OM in the News: Is Apple Really Reshoring?

With great fanfare, Apple just announced plans to spend $500 billion (yes–that’s a half a trillion dollars!) in the U.S. and add 20,000 jobs over the next 4 years. Apple, like many of the most valuable U.S. companies, isn’t a major manufacturer. It designs products, writes software and creates chip blueprints, but outsources much of its production and markets the results.

But early in the Trump administration, Apple and other companies are trying to quickly answer the president’s call to rouse American manufacturing, reports The Wall Street Journal (Feb, 25, 2025). To do that, they are turning to investments and job growth. Apple’s new jobs promises are slightly ahead of the company’s recent 4-year pace, and the spending pledge is roughly on track with its recent investments that include previously planned spending or developments already under way.

The company has yet to spell out how many people it will continuously employ beyond saying it will create thousands of jobs. If Apple adds 20,000 jobs, it would mark only a modest increase in hiring over the 19,000 U.S. workers every 4 years since 2013.

Unclear is how much of the planned spending is actually new. Apple has spent about $1.1 trillion over the past 4 years on total operating expenses and capital expenditures, of which about $500 billion was in the U.S. In short, Apple’s announced figure is in line with what one might expect the company to be spending anyway.

While it is still largely dependent on East Asia, and China in particular, Apple has been using more suppliers that manufacture in the U.S. since the pandemic. Its expansion includes a multibillion-dollar commitment to produce advanced silicon in a fabrication facility in Arizona, and a new 250,000-square-foot factory in Houston is slated to open in 2026 and produce servers for AI systems.

Big investment plans don’t always pan out. In 2018, electronics-maker Foxconn—one of Apple’s big suppliers—said it would invest $10 billion and create 13,000 jobs at a liquid-crystal-display plant in Wisconsin. Foxconn later cut investment to under $700 million and 1,450 jobs.

Classroom discussion questions:

Why do such announcements often not result in the advertised plans?
Why is Apple moving some its manufacturing to the U.S. from China?

OM in the News: Taking Nerf Guns Away From China

Nerf guns. Monopoly board games. G.I. Joes. Some of Hasbro’s bestselling toys are getting pricier as the U.S. implements stiff tariffs on Chinese imports. So Hasbro, and others like Barbie maker Mattel, are negotiating with suppliers and considering design changes. The threat of new taxes on toy imports comes amid a long-term shift in the industry away from China, spurred by rising labor costs in that country. Manufacturers have spent years trying to make fewer toys and games in China by relocating to factories in other countries, including Vietnam and India.

Across industries, U.S. companies have been diversifying their supply chains, prodded in part by tariffs implemented during both the Trump and Biden administrations, writes The Wall Street Journal (Nov. 18, 2024). Makers of everything from steel and semiconductors to auto parts are rejiggering supply lines to source components from other countries. Sharpie and Yankee Candle maker Newell Brands, for example, is moving more factory work to the U.S.—the desired result of the tariffs.

Hasbro’s current target is for roughly 20% of its U.S. sales to come from China-made products within four years, down from about 40% today. The challenges the company has faced in achieving a long-held goal underline the pressure facing toy makers. While lower-cost locations are easy to find, switching to a new factory with similar product-quality and safety standards can be a challenge in the toy industry.

Unlike in some industries, automation has yet to make major strides in parts of the toy-making process. Assembly for many toys still relies on skilled workers to put together the latest action figure or hand-paint details. Shifting to a different country requires training a new generation of craftspeople. Smaller factories in South and Southeast Asian countries also might not produce enough units to easily replace Chinese facilities.

Hasbro’s shift away from China is part of a $750 million cost-cutting push that includes negotiating lower prices from suppliers or changing designs to make them cheaper to build, such as Jenga blocks that now use a single type of wood. The change lowered costs and had the added benefit of making the pieces slide more smoothly out of a Jenga tower. Meanwhile, the Chinese government has been pushing for the country to graduate from being a hub for lower-cost work, such as toy making.

Classroom discussion questions:

What other products have been moving away from China?
Have the tariffs been successful?

OM in the News: Mexico, Nearshoring, and Manufacturing

The United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA), has played a crucial role in Mexico’s manufacturing growth (to a recent $374 billion), reports Industry Week (June 12, 2024). The USMCA (see Chapter 2 in your Heizer/Render/Munson text) establishes more significant regional content requirements and higher labor standards, encouraging local production.

Supply-chain relocation has benefited investment in Mexico, where there has been an unexpected increase in the demand for industrial warehouses. Foreign direct investment (FDI) is now over $18 billion and has been vital to technological advances and has strengthened the trade relationship with the U.S., Mexico’s leading trading partner in manufacturing.

The fact that Mexico displaced China as the U.S.’s top trading partner made world news. U.S. data shows an import value of $427 billion from China in 2023, down from $536 billion in 2022 and $504 billion in 2021. By comparison, Mexico’s import value to the U.S. in 2023 was $475 billion, up from $452 billion in 2022 and $382.5 billion in 2021. The trend continues in 2024, since during the first four months of the year, the U.S. imported $129 billion dollars from China compared to $162 from Mexico.

The main engine of the Mexican manufacturing economy is the automotive sector. In 2019, Mexican plants produced $94 billion worth of components; by 2023, that reached $121 billion, and this year, it is expected to reach $152 billion, an all-time high. Mexico is now the leading exporter of auto parts to the United States, with 42.5% of the U.S. market—well above Canada, with 10.5% and China, 8%.

In addition to its modernization, the USMCA now demands higher regional content, going from 62.5% under NAFTA to 75% in the USMCA. This motivates the narrowing of value chains and makes Mexico essential to the region’s productive structure.

Classroom discussion questions:

Why is this reshoring occurring?
How does this impact decisions the operations managers in the U.S. make?

OM in the News: A Soap Maker Cracks the Code to ‘Made in America’

A $7.95 bottle of Bath & Body Works (BBW) foaming hand soap used to take 3 months to put together. The pieces had to travel more than 13,000 miles from China, Canada and Virginia to the company’s Ohio distribution center.

Bath & Body Works decided it needed to get new products to market more quickly. The result was a production initiative with little parallel in corporate America, writes The Wall Street Journal (July 26, 2023). The new campus includes 10 manufacturers and millions of square feet of production and warehouse spaces, with 5,000 employees working there.

Now every step of production occurs at plants just feet from each other on the company’s dedicated “beauty park” near Columbus, Ohio. One factory makes the foaming pump and mechanism. Another makes the bottle itself, a third makes the label, a fourth makes the soap, fills the bottle, attaches the label and screws on the top. A fifth packages it. Getting a bottle to distribution is down to 21 days and a few miles. A majority of Bath & Body Works products, which are sold in its own stores, are made on site.

BBW persuaded companies throughout its supply chain to move to an Ohio city near its HQ

Bringing production closer to home, often called “reshoring,” has become a priority for many companies. Disruptions from Covid-19, severe weather, trade wars, geopolitical tensions and stuck ships left consumers without the couches and hot tubs they wanted. While competitors struggled with shortages, BBW’s suppliers on location shared raw materials and even employees. (Persistent supply-chain issues are leading to a factory building boom, with spending at its highest level in at least 20 years).

But moving production to Ohio wasn’t easy. Factories had to contend with planning officials, high labor and construction costs and even endangered bats. And BBW had to persuade its best suppliers to move. The plus for suppliers was continuing to do business with volume guarantees from BBW for a set number of years. The minus: spending millions to relocate production and buy new equipment. There was a lot of supplier resistance to overcome.

The BBW campus can be a model for other companies and communities. It has attracted an Amgen pharmaceutical plant. Intel just chose the area as the site of a $20 billion semiconductor facility. Intel said the plant would attract dozens of new local suppliers, including semiconductor equipment makers and other materials providers.

Classroom discussion questions:

1. What makes reshoring so difficult?

2. What are the advantages BBW gained in this major move?

OM in the News: America Is Back in the Factory Business

Manufacturing has always been an integral part of American life. Paul Revere opened a foundry that produced bells and cannons following his famous midnight ride. Ford’s assembly line made cars affordable to the masses. And U.S. industrial might helped win World War II, when nearly half of private-sector employees worked in factories. That portion plunged after the war, thanks to automation and U.S. companies seeking lower costs overseas.

Here is the good news. The Wall Street Journal (April 8-9, 2023) writes: “Record spending on manufacturing construction heralds a made-in-the-U.S. rebound, stoked by green-energy incentives and concerns about foreign supply chains; this is here to stay.” New factories are rising in urban cores and rural fields, desert flats and surf towns. Much of the growth is coming in the high-tech fields of electric-vehicle batteries and semiconductors, national priorities backed by billions of dollars in government incentives. Other companies that once relied exclusively on lower-cost countries to manufacture eyeglasses and bicycles and bodybuilding supplements have found reasons to come home.

Retailers don’t want to carry excess inventory in their stores, and the U.S. factory allows the company to quickly replenish stock. Time is also of the essence for companies like FutureStitch, which sells socks commemorating events like the NBA Finals or the Kentucky Derby. It has factories in China and Turkey, but just opened a new one in California–the company’s first in the U.S. “There is more and more equity around Made in the USA,” said FutureStitch’s CEO.

Nearly 800,000 jobs were added in the manufacturing sector over the past 2 years. But the industry is actually hurting for workers—about 800,000 more are needed, which has lead to concerns that labor shortages and other bottlenecks could short-circuit the boom.

An despite the surge in factory building, many industries are unlikely to create entirely homegrown supply chains. An automated shoe factory Adidas built in Atlanta so it could get its products to market faster shut down in 2019, two years after its opening. (See our 2017 blog announcing its opening.) The firm moved production to Vietnam and China to achieve what it called “better utilization of existing production capacity and more flexibility in product design.”

Classroom discussion questions:

What factors are driving the manufacturing in U.S. resurgence?
What factors are working against it?

OM in the News: Decoupling of Supply Chains

“Covid-19, Russia’s invasion of Ukraine, and rising geopolitical risks in Asia have thrown a wrench into global supply chains,” writes The Wall Street Journal (Sept. 20, 2022). That has reinvigorated the push to put key supply links back onshore—particularly those currently located in China. A full “decoupling,” meaning the breaking of economic links with China, remains unlikely, but supply chains would become less integrated than in the past.

Two proposed laws in Europe are the latest case in point. The EU just set forth a ban on products made using forced labor. (It doesn’t name China but forced labor in the Xinjiang region is clearly a main target.) Recent U.S. legislation puts the onus on importers to prove that products from Xinjiang aren’t made with forced labor—an incredibly high bar. Such rearrangements could be challenging in some cases: For example in the solar supply chain, which is dominated by China. Xinjiang is a major producer of polysilicon, a crucial precursor of solar cells.

Another proposal from Europe tries to directly address such dominance, which also extends to the processing of lithium and other minerals critical for green energy applications. That law would attempt to speed up domestic production, processing and recycling of such raw materials. “Lithium and rare earths will soon be more important than oil and gas,” said EU’s Commission president. China processes almost 90% of rare earths and 60% of lithium.

All of this follows similar moves in the U.S. A recent law provides incentives for domestic manufacturing of clean-energy products such as batteries and solar panels. The U.S. is also implementing policies to encourage the onshoring of semiconductors and biotechnology. Such onshoring will take years and a full-scale relocation of manufacturing jobs back to the West is unrealistic. Friendlier or closer countries such as Vietnam and Mexico will probably be big beneficiaries—particularly those that already have free-trade agreements with the U.S. or the EU.

The rapid globalization of the past few decades seems likely to take a pause. Businesses, consumers and governments will gain a measure of reliability and peace of mind—but they should be prepared to pay up too.

Classroom discussion questions:

What are the benefits and dangers of the new U.S. and EU laws?
Is the globalization era ending?

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:

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

OM in the News: Cutting the China Supply Chain

For two months, millions of dollars worth of designer perfume and cologne sat untouched in a Shanghai warehouse as Covid-related lockdowns rendered the building inaccessible. For Jean Madar, chairman of Inter Parfums, the lost sales validated his decision to break up with China. “We’re doing this even though China is way cheaper,” he said. “How good is it to have cheaper components when you cannot get them? You need to have super stability in supply.”

Inter Parfums cologne bottles are filled in New Jersey.

The NY-based fragrance seller is one of many companies permanently shifting operations back to the U.S. from China and other countries where cheap labor and easy access to factory capacity had far outweighed costs of shipping products across the ocean. Inter Parfums has doubled supplier contracts with U.S. companies; nearly 70% of parts now come from U.S. suppliers, rather than having to depend on Chinese suppliers for glass, metal and pumps. (There is enough profit made on a $50 or $100 bottle of perfume to absorb the higher expense incurred to give priority to reliable supply, even as inflation mounts).

“The pandemic and ensuing global supply-chain meltdown have made businesses—from beauty companies and auto manufacturers to global retailers and small businesses—rethink low-cost importing,” writes The Wall Street Journal (July 11, 2022). Close to 20% of supply-chain executives said they had brought some production back to a nearby country in the past year, double the number from a year earlier. “The equation has changed,” said a McKinsey supply chain exec.

Amid the pandemic, ocean shipping costs skyrocketed. Factory shutdowns and logjams led to major delays and shortages. Demand became difficult to accurately predict as consumers rapidly shifted buying patterns. All those dynamics compounded longer-term shifts already under way: rising cost of labor in China, higher tariffs and worries about theft of intellectual property.

But betting against China carries risk and remains out of reach for industries with narrow profit margins. Companies such as Peloton that set out in the pandemic to uproot their China-based factories and supply chains found doing so was harder in practice. The exercise-bike maker has since scrapped plans for a $400 million factory in Ohio.

Classroom discussion questions:

In Table 11.3 in your Heizer/Render/Munson text, 10 supply chain risks and tactics are provided. Which impacted Inter Parfums decision?
List several reasons why it makes sense to reshore now.

OM in the News: France “Reshores” Sneaker Production

After 15 years of manufacturing entirely in Asia, French sportswear firm Salomon SAS, decided it was time to start making its sports shoes at home. The challenge, in a country where shoemaking died out years ago, was how to build the necessary supply chain, writes The Wall Street Journal (May 7-8, 2022).

The Salomon Meta Cross produced in France

The first phase was to build an automated sneaker factory in France. It also redesigned its shoes, drastically shrinking its supply chain by slashing the number of components in each sneaker by 2/3. (Salomon’s redesigned shoe has 26 parts, down from over 70 in its other models). That still left the matter of sourcing materials in a region largely devoid of suppliers. Until now it has sourced soles and other parts primarily from China and Vietnam, two of the main centers of shoemaking.

For decades, Western companies have made everything from clothes to toys in Asia or Latin America, taking advantage of cheaper labor and highly developed supply chains. But the business case for that practice has eroded in recent years amid repeated shocks to the global economy, prompting many companies into a rethink. Then from 2020 onward the pandemic brought waves of factory closures, as well as port blockages and truck shortages, disrupting supply chains and pushing up freight costs. Russia’s invasion of Ukraine rattled global systems anew.

These crises have made “reshoring”— the return of production to a company’s home country—increasingly attractive. Some 2/3 of U.S. and European manufacturers say they will bring some of their Asian production home by 2025, with 1/5 saying they will bring back most or all of it.

Footwear production is particularly tricky to repatriate, because Asian shoemakers use cheap, plentiful, low-skilled labor. That model can’t be recreated in the West, prompting companies to turn to automation. The France-made shoes will be as profitable as those made in Asia, thanks to savings from lower transportation costs and the elimination of customs duties.

The new Salomon plant requires only 15 humans a shift; a typical shoe factory in Asia would require 5 times as many to match its output. Some operate sewing machines—this intricate work is still best done by hand—while others monitor the automated production lines. If the French project is successful, Salomon wants to build a similar automated plant in the U.S. to meet demand there.

Classroom discussion questions:
1. Why is this reshoring effort difficult?

2. Of the 10 OM decisions in your Heizer/Render/Munson text, which directly relate to reshoring shoe manufacturing?