Why supply-chain matchmaking is a crucial next step, and how to accomplish it

By Bart Taylor | Apr 12, 2020

As gratifying it is to watch the country rally around manufacturing, new laws that would incent companies to reshore jobs, or require companies to source domestically, will run headlong into issues that force companies offshore in the first place, including the most obvious: an inability to find qualified, cost-effective suppliers in the U.S.

It's why the sector's next great challenge is to connect America's importers -- its product brands and manufacturers -- with domestic suppliers that map to their needs, one by one, company by company.

Matchmaking is the short path to renewed expansion for U.S. manufacturing.

It's not a new idea. Literally every trade or industry group has expended money or energy on supply-chain mapping. We continue to try, and fall short.

Understanding who is reshoring, and why, is an important starting point for a new approach.

Harry Moser is founder of the Reshoring Initiative (RI) and has studied the economics of offshore production for more than a decade. RI's free tools like the Total Cost of Ownership (TCO) Estimator is today helping companies do the math as it relates to moving jobs or investment dollars back to the U.S.

Moser has quantified reshoring activity throughout the past decade. "In 2010, the total for reshoring and FDI (foreign direct investment) was 6,000 jobs in that year, and by 2017, it had risen to 180,000 jobs in that year, up thirty times. In 2018, it fell off to about 150,000, and our preliminary numbers for 2019 say about 112,000 jobs, off a third from 2017 but still 20 times greater than 2010," Moser explains.

Why the falloff later in the decade? Call it a hangover from the certainty of tax and regulatory cuts to the chaos of a trade war. "We went from talk of how good the tax cuts were to the uncertainty of tariffs," says Moser. Still, he sees a quick recovery under certain conditions. "Our best belief is that if we can stabilize the trade war and get beyond coronavirus, the rate of reshoring and FDI both will pick up and in a reasonable time get back to the rates of 2017," he says.

What types of companies will reshore in the future? Easy reply. "The companies that have been coming back," says Moser.

Transportation has been a reshoring leader. "The big numbers are always in transportation equipment," Moser explains. "When Toyota or Audi builds a new factory, they bring 10 suppliers with them -- often 10,000 to 20,000 jobs.

"Then, typically, electronics, appliances, and machinery are active -- all situations where there's significant TCO economics that favor it," he says. "Or products that may have significant trade costs associated with importing, frequent design changes, IP risks, or unstable or variable demand. Or where hidden costs other than price are a substantial part of the total cost."

Finally, automation is crucial. "If you expect to bring it back, certainly you want to automate more than when it left, and preferably more automated than where it is in China or wherever it is, because we still have significantly higher labor costs here," says Moser.

Fortunately, for Colorado, California, Utah, and other western states, the list of top reshoring industries correlates geographically with the industrial assets of the region. Compare the list of most active industries, below, to California and Colorado's top pre-COVID-19 manufacturing growth industries:

Most jobs reshored, 2010-19 (Reshore Initiative, preliminary 2019 data):

  1. Transportation equipment
  2. Computer and electronic products
  3. Electrical equipment, appliances, and components
  4. Chemicals
  5. Plastic and rubber products
  6. Wood and paper products
  7. Apparel and textiles
  8. Fabricated metal products
  9. Machinery
  10. Medical equipment and supplies

Here are the top 5 employment sectors California, pre-COVID:

  1. Computer and electronic product manufacturing
  2. Food
  3. Fabricated metal product manufacturing
  4. Transportation equipment manufacturing
  5. Chemical manufacturing

Three of the top 5 sectors are trending up:

  1. Computer and electronic product manufacturing, +2.4 percent
  2. Transportation equipment manufacturing +13 percent
  3. Fabricated metal product manufacturing +2.4 percent

Largest employment sectors in Colorado manufacturing, 2018 (CompanyWeek/University of Colorado Leeds School of Business 2020 Business Outlook Report)

  1. Food
  2. Computer and electronic products
  3. Fabricated metal
  4. Machinery
  5. Miscellaneous
  6. Beverage

Fastest growing Colorado sectors/Top Gainers (total employees):

  1. Beverage manufacturing (up 4.1% year-over-year -- 31st nationally)
  2. Machinery manufacturing (+4.5% -- 19th nationally)
  3. Transportation equipment (+2.75% -- 30th nationally)
  4. Fabricated metal manufacturing +3.1% -- 34th nationally)
  5. Food manufacturing (+2.2% -- 13 nationally)

Here, then, is a different approach to matching companies in these industries to local partners:

  • First, map the contractors and suppliers well-positioned to support local importers and companies in these industries. This is no trivial exercise. Contractors have been slow to publicize their shops. Sewers have been asked by brands to maintain a low profile. We need to meet the suppliers working in our communities.
  • Same with original equipment manufacturers (OEMs) and brands, by first acknowledging that these companies are integral to a region's manufacturing community. Today, companies that design and engineer locally but manufacture offshore are largely ignored by the trade, even as they're celebrated as "technology" or "bioscience" companies. Manufacturing's small tent must get bigger. As Harry Moser suggests, "I'd get everyone in the same room -- the job shops, the equipment manufacturers, the MEP (in California, CMTC; in Colorado, Manufacturer's Edge), the economic developers, and say ‘Here's 20 multinational companies, here's the different product categories, here's the the top 10 importers in each of the categories. Who has contacts at this company, in this product category?' and go from there."
  • Lastly, we need better tools to connect manufacturers with each other and the supply chain. As in-person events slowly come back, new enabling technologies that help companies locate and interact with new business partners, will be a catalyst.

We're working on several new projects including the new Suppliers Bulletin, to better map and connect America's supply chain as companies reshore or develop organically here.

We need your help, that is, your participation. Let us know who you are by submitting a suppliers listing. Our growing list is the basis for a new resource that will map the region's capabilities to connect and advance the sector.

Bart Taylor is publisher of CompanyWeek. Reach him at btaylor@comapnyweek.com.