Will the COVID-19 crisis lead more companies to manufacture and source their products and materials from the United States instead of China and other countries?
I’ve been getting asked that question a lot these days. Overall, I believe this pandemic will cause companies to reevaluate their supply chains in light of whatever reality we find ourselves in when we come out of this crisis. However, I don’t believe we’ll see a wholesale, overnight move away from China and global sourcing. It’s easier said than done for a variety of reasons (see Wall Street Journal article on why Apple, for example, is so reliant on China).
But in certain industries, especially medical supplies and pharmaceuticals, in light of the challenges we’re experiencing right now in procuring personal protection equipment, ventilators, and other critical items, I believe we’ll see more diversification in where those goods are manufactured and sourced from, including increasing manufacturing capacity here in the United States.
Insights from Indago Supply Chain Research Community
Back in November 2019, we asked our Indago members, “Over the next five years, do you plan to manufacture more or less of your products in the United States? If you’re a retailer or distributor, do you plan to source more or less of your products from the US?”
This survey was taken before the coronavirus pandemic hit, but at the time half of our member respondents planned to manufacture (or source) the same quantity of products from the United States over the next five years as they do today.
About 38% planned to manufacture (or source) moderately or significantly more products from the US over the next five years, while only a small percentage (12%) planned to manufacture or source moderately or significantly less products from the US.
Source: Indago (n = 26)
The biggest roadblock cited by the respondents in bringing manufacturing operations back to the United States is “high labor costs” (50%), followed by the “large capital investments required” (19%).
Source: Indago (n = 26)
As several respondents commented, whether or not to manufacture in the United States depends on your industry and other factors. “Ultimately, it comes down to net landed cost,” said one executive. “Important factors to consider include material costs, labor costs, freight costs, tariffs/taxes, reliability/consistency of supply, etc.”
We’ll likely conduct this survey again later this year once this crisis has passed. It will be interesting to see if the results change.
I suspect, however, that we’ll see similar comments to the ones shared by our Indago supply chain practitioners last November:
“At the end of the day, labor costs drive manufacturing offshore. I don’t see any clear way to solve this issue as you will never be able to match [offshore wages] here in the USA.”
“The capabilities in the USA are exceptional. Unfortunately, the driving force [for moving manufacturing overseas] has been the ‘bottom line’ financials. However, productivity in the USA is quite low if we compare [ourselves] to a country like Germany. It would be in our best interests to continue to improve on productivity, which in turn will fuel the need for ingenuity. We as companies owe it to the people to [become again] the industrial force we once were. The biggest hurdle is the financial investment to start.”
“I believe the ability to bring manufacturing back to the US will rely heavily on robotics and automation. It is far cheaper to produce overseas but being able to automate the work may help shift work back to the US.”
“Our products are 100% manufactured in the US today. We started a new product line which we are importing. We did look at producing [it] in the US, however, there is not a steady supply of raw materials in the USA for us to manufacture this product here.”
“It will be difficult to bring some types of manufacturing back when low-cost countries don’t have to deal with all the regulations we have in the US. There will always be a new low-cost option and consumers want low prices. I think we will see a growth in assembly with foreign content.”
What do you think? Do you believe the COVID-19 crisis will lead more companies to manufacture and source their products and materials from the United States instead of China and other countries? Do you agree with our Indago members? Post a comment and share your perspective.
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