Decentralization of production, also known as re-shoring from China/Asia back to North America or Europe, is at the top of the agenda in many corporate boardrooms. What are the advantages and disadvantages of various manufacturing strategies and how does a real life reshoring business case look like?
Mitigating the risk of being too dependent on critical suppliers in just one single region of the world (read: China/Asia) is a clear driver for decentralization of production, also known as re-shoring. This decentralization trend is enhanced by new smart manufacturing technologies like additive manufacturing / 3D printing. But does coping with external disruption risks like pandemics, natural disasters but also trade tariffs, make decentralization a realistic option?
The table below shows the pros and cons of keeping production in China versus a more regional manufacturing strategy.
Source: BCI Global, 2020
The reality is that the choice is not simply black-and-white.
BCI Global analyzed an American company with a plant in China which has to choose between 4 scenarios, in which Shenzhen in China and Chicago in the US were taken as benchmark locations.
Scenario 0: The company has 4 production lines in the current plant in China
Scenario 1: 100% reshoring from China to the USA: 4 production lines transferred
Scenario 2: 50% reshoring from China to the USA: 2 production lines transferred
Scenario 3: 25% reshoring from China to the USA: 1 production line transferred
Note: the case study is illustrative; the outcome in reality will be different for each company/industry
Source: BCI Global, 2020
BCI Global made a comprehensive analysis in 5 steps:
Source: BCI Global, 2020
The results are shown below.
Source: BCI Global, 2020
Source: BCI Global, 2020
The “half reshoring” scenario shows that reshoring in this case makes sense. The initial cost gap of 33% decreases to only -16% if a lockdown in China occurs once in 5 years plus (heavy) duties of 25% are imposed to all import and export between China and the US. In addition, the ‘Quality of the business environment’ and ‘Meeting customer expectations’ factors are both significantly more favorable in the US in the half reshoring scenario compared to the China AS-IS.