This article is from the Chief Executive’s Manufacturing CEO Briefing. You can sign up to receive this newsletter by clicking here.
Regular readers of this newsletter know that we’ve been focusing heavily on the growing move to reshore manufacturing operations from around the world. We’ve written special reports, interviewed dozens of experts and surveyed the CEO community, all in the hopes of helping you get a handle on how to think through this critical potential chapter in your company’s life. On Wednesday, we convened a four-hour online workshop as the latest step in our ongoing efforts. It featured some of the most influential thinkers in the world on all-things supply chain and reshoring, including Harvard’s Willy Shih, MIT’s Jonathan Byrnes and Kearney’s Patrick Van den Bossche, who runs their annual Reshoring Index. There were lots of great thoughts and insights from the day, but the overwhelming takeaway is this: Reshoring is very hard. Not that it’s impossible—but for more than 30 years, industry chased low-cost labor offshore and sank trillions of dollars into building out unparalleled manufacturing infrastructure in China. Reversing the flow won’t—can’t—happen overnight. And it will have some knock-on impacts we may not even realize yet. My four biggest takeaways/open questions from the day: Are our factories smart enough to be dumb enough? Every speaker, from Shih to Prasad Reddy, CEO of footwear maker Twisted X, who is trying to bring shoemaking back to the U.S., stressed the point that the reshoring rally for the U.S. will depend on the ability to get factory workers—something that’s already a struggle. How will they do it? Reddy focuses on new tech to simplify work, so that training takes hours not days. It’s worth asking yourself: Even if you can’t fully automate operations, what can you “dumb down” so you expand your pool of available labor? Does operating a pre-programmed CNC machine require a degree—or just a better process so you can move someone from a Burger King cash register to an assembly line? Too much for chips? Shih, for one, has been a reshoring pessimist for a long time, but some of that, he says, is changing. The reason: Fat incentives from the Federal government are making the U.S. manufacturing climate a strong draw for companies around the world. But much of it is concentrated in a few select industries: EV vehicles and microprocessors. If you want to take advantage, you’ll need to find ways to get into the supply chains for these industries. I asked Reddy if he’d seen any sign he’d be getting help from Washington to bring shoemaking back to America. He laughed. Will reshoring make higher inflation permanent? The better the manufacturing climate becomes in the U.S.—thanks to trade policy, geopolitical risks, incentives, cheap(er) energy, rule of law, size of market—the more folks from around the world, especially Europe, are going to pile in. So, be careful what we wish for; unless we unleash an unparalleled wave of automation or convince millions of Americans that factory work today offers a far better future than it did in the past, we’re going to see labor scarcity and wage inflation remain a permanent feature of the manufacturing economy—and likely the overall economy. The Fed will have a tough time fighting a structural change to the economy like this—it’s the inverse of the deflation we saw during the outsourcing movement of the 1980s-90s. Finally, there was this under the radar risk: Can the nation’s grid actually handle the reshoring wave? In a small-group conversation with CEOs, consultants, site selectors and state officials after the main program, one of the biggest concerns that cropped up was building new facilities amid the already-fast-rising demand for electricity in the U.S. Some new projects—like chip fabs—are asking states and utilities if they have spare power plants that could be refurbished or brought back online to meet projected demand that’s in the hundreds of megawatts per factory. That’s how much power they’re looking to draw—and how much strain it could put on things. All of which is happening as the country pushes toward the irregular generation capacity of wind and solar, while withering hydro generation in the drought-plagued Southwest and growing consumer demand of EVs will create still more strain. If there’s a wildcard in reshoring, power could be it. Read our Reshoring Revolution Special Report > — Dan Bigman, editor, Chief Executive. dbigman@ChiefExecutiveGroup.com |
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