Direct material purchase price per unit increase: It is likely that your purchase price per unit will increase when or if you reshore a product. Factors such as higher domestic labour costs, stricter regulatory compliance, and more expensive raw materials in the home country can contribute to a higher-cost environment. When considering reshoring, you need to carefully analyze the impact on the overall cost structure to ensure the benefits outweigh the additional expenses and risks and help sustain your pricing competitiveness. It is advisable to take a life cycle cost-to-use approach to ensure you consider all costs created by offshoring, as well as all events that lower frequency but entail very high costs, like premium freight, and one-time/infrequent inventory write-off costs. As noted above, for some companies, offshoring is still the right strategy as the savings outweigh the risks and costs.
If you are a small to medium-sized company purchasing a custom product, a very close look at the risks noted above is in order.
It is worth pointing out that even for small companies, there is little risk associated with offshoring commodity items such as nuts and bolts and very simple hardware, as these are relatively easy to redeploy/repurpose should you end up with too much and are relatively easy to source elsewhere should you end up with too little.
Specialization and expertise challenges: Some regions have developed specialized manufacturing clusters and ecosystems that offer unique expertise, access to skilled labour, and established supplier networks. Shifting production away from such regions may result in a loss of these advantages, potentially affecting the company's ability to innovate, optimize processes, and compete in the market.
A good example of this is hard tooling. Some overseas jurisdictions produce exceptionally high-quality tooling that is competitive with North American tooling, and since the lead time is long whether sourced domestically or not, the disadvantage of the longer supply chain is less critical.
Disruptions to established supply chains: Implementing a reshoring strategy requires a significant realignment of supply chain networks, which can be disruptive in the short term. The process may involve finding new local suppliers, renegotiating contracts, and adjusting distribution channels. These transitional challenges could also create business relationship turbulence with the previous international vendors and need to be considered and tackled carefully.
In short, reshoring is complicated and takes careful planning and execution. Little things like securing the return of hard tooling that may have been built for you overseas can be more time-consuming and costly than you might expect. This means ensuring appropriate inventory banks are built in preparation for reshoring.