#77 – Inside Our Industry – Farewell Offshoring, Outsourcing. Pandemic Rewrites CEO PlaybookPosted on
Reshoring has been a topic of interest to manufacturers for many years, but since the pandemic, the interest in reshoring has intensified. We expect this interest to continue to grow. The following is excerpted from a Wall Street Journal article addressing the issue.
Farewell Offshoring, Outsourcing. Pandemic Rewrites CEO Playbook.
By Thomas Gryta and Chip Cutter, The Wall Street Journal, Nov. 1, 2021
With the machinery of international trade slowed, business leaders are ditching, at least temporarily, overseas partners and the conventional wisdom of the global economy in favor of reliability, even if it costs more.
Some are moving workers and production facilities closer to home and relocating plants closer to suppliers. Others are buying their suppliers or bringing former contract work in-house.
“It’s about control. I want to have more control in an uncertain world,” said Ellen Kullman, chief executive of 3-D printing company Carbon Inc. and the former CEO of DuPont.
For more than a generation, many executives at large multinationals have pursued a tested strategy: securing inexpensive manufacturing in distant locales, outsourcing many low-skill jobs and relying on just-in-time production and ocean transportation to grind down costs.
But since the pandemic, many companies have had trouble getting raw materials as well as hiring production workers and booking space on shipping vessels. Input shortages and supply line bottlenecks are disrupting the availability and quality of goods and services for everything from sneakers to airline flights to breakfast hours at McDonald’s.
Ms. Kullman, who also is a director at Goldman Sachs Group Inc. and Dell Technologies Inc., said some of her customers in automotive, medical and consumer durable goods, industries that rely on manufacturing facilities in Europe and Asia, increasingly want a presence in the Americas.
“They’re realizing, right now, they’re losing business because they’re kind of stuck with a very long, very efficient—but very inflexible—supply chain,” Ms. Kullman said.
“There are some people who are saying, ‘Look, what I need is short term because this is never going to happen again,’ ” she said. “Then there are other people who are saying, ‘This is going to happen more often than we think.’ The world is a very different place, and it’s not just the pandemic. It’s natural disasters. It’s the floods down in the South. It’s tornadoes, it’s hurricanes.”
Shipping delays and trucking bottlenecks are making many companies rethink geography for every part of their operations. Multinational companies got an early shock in the pandemic when border closings, local restrictions and lockdowns caused chaos. Some have decided on permanent solutions.
Majestic Steel USA, which processes and distributes flat-rolled steel for a number of industries, has used acquisitions to broaden its footprint to the West Coast, adding to locations in Ohio, Nevada, Florida and Texas.
The company also is trying to close the distance from suppliers. In August, Majestic committed to building a 515,000 square-foot facility on the grounds of a Nucor Corp. steel mill in Arkansas.
“We get a lot of steel from Nucor,” Mr. Kipe said. “Instead of shipping it to Cleveland, we will be much closer to the site and can reduce lead time.”
Disruptions from hurricanes and other severe weather also figure into production decisions.
Sherwin-Williams Co. decided to buy one of its suppliers with operations far from the Gulf of Mexico, where bad weather has hampered production.
The paint maker has cut its 2021 earnings and sales projections because resin suppliers, hurt by Hurricane Ida this summer, are taking longer to resume production. By acquiring Specialty Polymers Inc., which has facilities in Woodburn, Ore., and Chester, S.C., Sherwin-Williams can increase output and reduce severe-weather risks, executives said.