Reshoring or nearshoring operations offers contract manufacturers greater control, quality, and resilience in the face of disruption. Managing a complex global supply chain inherently comes with risks, and businesses need to be ready for it.

Take the Covid-19 pandemic, which caught many large companies off guard who were unable to react quick enough. This was a hard and costly lesson, but businesses took note, making reshoring and nearshoring operations a priority over the last five years.

It’s impossible to guess what that next disruption may be, but with tariff talks and continuous geopolitical risks inundating the news cycle, it’s in your best interest to prepare. Businesses need to take a hard look at what they have done over the last decade to stabilize and diversify their supply chain and lower their resilience on overseas contract manufacturing.  Those who have taken these steps are already way ahead.

Labor costs are rising

Getting closer to your manufacturing source not only creates a safety net from potential disruptions, but it can also help drive down overall costs. Decreasing reliance on overseas suppliers eliminates much of the unpredictability around logistics costs, such as shipping financing, and quality control. And beyond logistics, the benefits of a great contract manufacturing partner closer to your base operations are numerous. Shorter lead times and rapid turnaround times. In many cases smaller order quantity minimums. Easier communication and more frequent site visits for quality control and strengthening relationships. And if partnered in the United States, the coveted “Made in USA” label can resonate with many customers you may be missing out on today.

During the pandemic when we saw 40-foot containers from China go from $2,500 door to door to $25,000, many companies had no choice but to foot the bill. Having a diverse supplier base would have allowed businesses to make a better choice.

I’ve experienced situations where my company had seven containers on ships in the middle of the ocean with product inside that had already been paid for. The product was being financed, so while the per-unit price was enticing, by the time it landed on our dock, the true landed cost was far more than the per-unit price on the original PO. When these real costs are factored in, you can make a case for reshoring contract manufacturing at a higher per-unit price.

Moving that source closer to home places boundaries on the variability, giving you greater control not only over costs but quality. The worst thing that you can do is have a 40-foot container that takes five weeks to get to your dock, and then you start unloading it and realize the product is wrong. If you can’t sell that product or it needs to be modified, that’s lost time, money, and a frustrated customer.

It’s easy for purchasing managers to become complacent because it can be difficult to find secondary suppliers and negotiate prices and terms, but when things go wrong and you’re reliant on just one supplier, its already too late to pivot. You can’t ramp up a secondary supplier in a month. It takes time, money, and when things go wrong, they are likely already too busy to answer your phone call.

Diversifying your supply chain with regional-based suppliers not only lowers these logistics costs but also improves quality control and allows for faster reaction times to market changes.

Creating stability through growth

There are hundreds of external factors and variables you can’t control but creating a more robust business through strategic M&A is one way companies can enhance long-term stability.

At FOCUS, we believe the market conditions are good for contract manufacturers and businesses who rely on contract manufacturers to strengthen their business through consolidation or acquisitions.

Opportunities are growing for contract manufacturers to invest in increasing capacity and build up their supply chain to handle big changes or swings in throughput. Businesses who rely on contract manufacturers for their product lines can create more stability through vertical consolidation and acquiring or partnering with those manufacturers.

It is a good time to be a successful contract manufacturer operating in the United States. Especially one with excess capacity. Businesses who are less reliant on overseas manufacturing will be especially valuable over the next years as geopolitical, climate and unforeseen disruptions continue.