You are currently viewing Why Reshoring Is Not the Most Viable Option in the Long Term

Why Reshoring Is Not the Most Viable Option in the Long Term

During the pandemic, the supply chain process experienced disruptions. A variety of issues contributed to the challenges, including a shortage of workers that reduced production capacity, material shortages, fluctuating demand, and shipping lane disruptions. This was a perfect storm of issues with financial consequences that stemmed from inventory fluctuations, volatile demand, and a shortage of products due to delays with components required for manufacturing and assembly of finished goods.

Upon reflecting on the financial impact that this unprecedented event had on many businesses, many have advocated to “reshore” or bring back certain parts of the manufacturing or assembling process to the homeland and become more self-sufficient. We realized just how interdependent we are with our global partners and network. But is reshoring really a viable option for a business in the long term?

The answer is maybe, and it depends on what business you’re in Avnan, a Canadian-based electronics design and manufacturing company with an extensive global network of suppliers and OEM partners and is recognized as one of the Top 10 Manufacturing Companies in Canada by a global business Magazine, believes that offshoring still offers a competitive advantage. They rely on their global partners for components and manufacturing to deliver best-in-class electronic product solutions at a competitive price for their clients. Offshoring is part of their strategy, and there are many key considerations for choosing this over reshoring.

Offshoring gives them access to a larger pool of skilled workers who can efficiently get the job done on time and on budget. With some parts of manufacturing automated with robots, economies of scale can be achieved. A larger pool of skills and automation translates to lower production costs, which get passed on to the end consumer. Offshoring will then give businesses a more competitive price advantage and profitability due to lower production costs.

An offshore strategy doesn’t necessarily translate to lower quality. In fact, there are highly skilled workers in different parts of the world, namely in Asia. Because of the high competition to win business from North American head offices, quality is often something they don’t compromise. With close oversight of every aspect of the supply chain and manufacturing process, Avnan monitors QA to ensure they deliver to the high standards they set. “Our team in Asia is an extension of our head office team here in Canada. They work seamlessly together using established processes and standards that guide our quality control expectations,” says Allan Read, Chief Operating Officer overseeing Avnan’s global business development, engineering, and operational teams.

Another advantage to offshoring is the manufacturing-friendly regulations. With fewer restrictions in Asia, manufacturing is more seamless and less costly. Policies that create red tape for manufacturing businesses tend to lengthen production cycles and cost more money.

Reshoring may sound like an ideal solution to alleviate supply chain issues, but it is not an easily achievable reality. Firstly, after years of offshoring manufacturing work, North America no longer has the capacity to provide a skilled labor pool. Canada’s population is aging, with the labor force participation rate dropping from 65% in 2022 to 64% by 2026. Many workers had transitioned to other industries when manufacturing moved offshore, while others took early retirements.

In addition to the declining labor force participation rate, minimum wage rules mean higher production costs. Even if the gap in active skilled workers were fulfilled through immigration, the cost of labor or the minimum wage regulation imposed by the government would still result in high production costs. Businesses will find it difficult to maintain a competitive cost advantage when their profit margins are squeezed because their production costs, specifically labor costs, remain high.

Reshoring may make sense for short-run production customized for local markets, but this would apply to certain type of industries. There could be an argument made for bringing back certain parts of the manufacturing process to their home country, but the ideal scenario would be “distributed manufacturing.” Businesses can mitigate their exposure and vulnerability to market disruptions by distributing their manufacturing facilities throughout the world with certain critical activities even brought back to their home base.

In the case of Avnan, offshoring and distributed manufacturing makes sense and aligns with their business strategy. Some key areas of their manufacturing process are offshored in order to provide the best outcome for their clients – lower costs without compromising quality because of close oversight by the head office in Canada.

They leverage an established electronics manufacturing hub in China that offers them the best-skilled labor at affordable rates, which allows them to reduce their production cost. With hands-on oversight of the process from end to end, they ensure production meets their standards – accuracy in designing to technical specifications, delivery on time, and on budget.

With facilities and global partnerships around the world, Avnan maintains flexibility and control over the production process and reduces its reliance and exposure to market disruptions. By having manufacturing facilities in other countries, like India, they can choose to offshore certain types of jobs or processes that make sense for their clients.

Certain critical areas of their business still remain in Canada, such as product planning, research and development, and design engineering. But as part of their strategy to diversify manufacturing, they also leverage local partnerships to manufacture and produce certain components when it makes business sense.

At the end of the day, Avnan’s clients want a reliable partner that can deliver high-quality, cost-efficient products and undisputed excellent service. The combination of offshoring and distributed manufacturing with management oversight from head office is a formula that has allowed them to provide highly competitive products to their satisfied clients.

Author’s Bio

As Avnan’s Chief Operations Officer, Allan is responsible for driving innovation and operational excellence, expanding Avnan’s overall value. As part of his role, Allan leads Sales and Marketing, Engineering, and Operations. Allan has over 30 years of experience in the high-tech industry, serving in a variety of engineering and operational leadership roles, including a two-year assignment in Taiwan, where he was responsible for strategic partnerships and was the Chairman of the Canadian Chamber of Commerce.

Prior to joining Avnan, Allan was the Chief Product Officer responsible for technology development, engineering, and manufacturing of wearable devices for Mio Global, at the time a leading Vancouver, a Canada-based wearable manufacturer. Prior to that, Allan was a product launch Director at Celestica in their Diversified Markets division and is responsible for leading the development and mass production, most notably consumer devices such as Readers and tablets. Before Celestica, Allan was an engineering site director at Murata Power Solutions and, before that, held a variety of engineering management positions. Allan is the proud father of three children, enjoys a variety of challenging fitness activities and team sports, and continues to study Mandarin when not spending time with family.