Supplier financial health check, Part III: Now is the time for manufacturers to reshore

COVID-19 crisis exposes global supply chain weaknesses, shows value of U.S.-made products

Illustration of globalization

The COVID-19 pandemic wreaked havoc on many manufacturers’ supply chains as global borders closed and shipments slowed. Now that U.S. consumers are realizing the true value of domestically manufactured products, OEMs have the opportunity to reshore their products with U.S. suppliers while also attracting consumers looking for U.S.-made goods. Getty Images

Editor’s Note: This the final edition of a 3-part series from Alexandria Industries. Part I of this series discussed ways to evaluate suppliers to ensure they are financially sound. Part II covered other key attributes OEMs need to evaluate to ensure their suppliers will meet their postpandemic needs.

Things are different today compared to the start of this year. Before COVID-19, OEM design engineers and the purchasing people who support them were focused on getting the lowest piece-part price from their suppliers. And rightfully so. It’s their job.

Most designers and buyers would prefer to source product manufacturing in the U.S., as domestic suppliers generally offer higher quality resulting from greater access to skilled labor, but the cost for that labor is high, and that drives up product costs.

Following the COVID-19 outbreak, purchasers and design engineers had trouble getting product because their suppliers shut down. International borders closed, and many companies had no alternative U.S. resources. When the pandemic revealed these supply chain hazards, buyers and designers realized the need to rethink their purchasing decisions to lower the risk of undelivered product.

Given the potential implications for consumers, “Made in the USA” declarations, along with increasing awareness of where U.S. companies manufacture their products, are much bigger considerations today.

Paradigm Shift

As consumers pay closer attention to what is made in the U.S., their purchasing decisions likely will change. Our new normal may end up being a paradigm shift, providing value that did not exist before.

The negative impact of the pandemic on our lives is convincing many U.S. consumers they may have to pay a little more because they have a better understanding of what drives product prices. They are learning that low-cost labor and material, combined with foreign government subsidies, allow overseas suppliers to sell products below market value. They are learning that these choices can hurt the U.S. And they are beginning to understand why it makes sense to purchase items slightly higher in price to support U.S. manufacturers.

Decreasing Risk

Consumers did not foresee the major supply chain shortages that came with the pandemic. As consumers begin to view cheap products from overseas as less attractive, U.S. suppliers have the opportunity to reclaim manufacturing capacity offshored to low-cost countries over the past few decades.

Your company might have struggled to get component shipments and incurred slowing revenue streams as a result. Can you afford to leave yourself open to similar risk in the future? Now that you have experienced the effects of closed borders, it might be time to reconsider supplier location and the ways this can influence your supply.

Moving Forward With U.S. Suppliers

If you decide now is the time to make your products in the U.S., make sure the suppliers you select help put your organization in the best possible position for the future. It is crucial you choose U.S. suppliers that are willing to work with you to ensure they will produce your products as cost-effectively as possible.

How do you move forward with this new supply chain strategy?

Step 1: Know where the supplier will manufacture your products. If you want to claim your product is made in America, you need to be sure it’s true. Making sure the supplier is manufacturing in the U.S. will lower your risk of another major supply chain disruption as well.

Step 2: Adjust your thinking about higher-priced components. It’s important to understand a supplier’s ideas to remove costs from your product. This will ensure that you will be in a better position than competitors that continue purchasing from other countries.

Be open to the supplier’s recommendations for removing costs from your components. Carefully consider the suggestions and anticipated return on investment. And remember that cost-containment initiatives are not just the supplier’s responsibility, but yours as well.

Step 3: Select the right U.S. supplier. Choose a supplier that helps you get ahead of your competition by collaborating with you early in your product development process and facilitating any necessary product redesigns. These initiatives will reduce the time needed to make your products.

Find ways to leverage the advantages of the higher-skilled labor throughout the organization. Meet the people responsible for making your parts. Ask for their ideas to do it better. Their answers may surprise you.

Select a supplier that invests in workforce training, which indicates a continuous drive to innovate and gain knowledge. And make sure the supplier is willing to educate you and your team on how different manufacturing processes work and how they work together. This will give you opportunities to build a better product while moving forward quickly.

Evaluate the amount of robotics, automation technology, and advanced manufacturing methods a supplier has, and select one that plans continued growth in these areas.

It’s Time

This is the time. Take full advantage of the paradigm shift with U.S. consumers’ growing awareness of what “Made in the USA” truly means for them and for all Americans.

As awareness increases about where products are coming from, you can reclaim the manufacturing capacity you have offshored for decades and bring it back to the U.S. Reshoring will mitigate the supply chain risks exposed during the COVID-19 pandemic while also attracting consumers looking for U.S.-made products.

About the Author

Jim Sartell

Director of business development

Alexandria Industries

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