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?

reshoring

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.

Pros and Cons of Manufacturing Strategies

Pros and Cons of Manufacturing Strategies

Source: BCI Global, 2020

The reality is that the choice is not simply black-and-white.

Example

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

Company profile: US company with high-tech manufacturing operations in Coastal China

US company with high-tech manufacturing operations in Coastal China

Source: BCI Global, 2020

Analysis

BCI Global made a comprehensive analysis in 5 steps:

BCI Global made a comprehensive analysis in 5 steps

Source: BCI Global, 2020

Results

The results are shown below.

AS-IS vs Full Reshoring to the US (5 years’ operating cost – mln USD)

Source: BCI Global, 2020

  • The initial cost gap of 60% decreases to 7% 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.
  • The ‘Quality of the business environment’ and ‘Meeting customer expectations’ factors are both more favorable in the US Full reshoring scenario compared to the China AS-IS.

AS-IS vs Half reshoring to the US (5 years’ operating cost – mln USD)

AS-IS vs Half reshoring to the US (5 years’ operating cost – mln USD)

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.

 

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