A recent report found that reshoring initiatives have become so successful that companies who have taken a wait-and-see approach in the past are now scrambling to find manufacturing operations in the United States and Mexico.
However, the report does recognize that reshoring is much harder than many companies expected and requires thorough preparation and strategic planning.
MH&L asked Keith Hartley, CEO of LevaData about this issue.
MH&L: Why investing in semiconductors and clean tech within the U.S. isn’t enough to fully commit to “Made in America”.
KH: Although investing in semiconductors and clean tech within the U.S. is a positive step toward promoting domestic manufacturing, significant challenges must be considered.
Establishing new semiconductor manufacturing facilities in the U.S. is a time-consuming process that can take several years to complete.
Moreover, even when these facilities are operational, they may not immediately produce the most advanced chips because of a shortage of skilled workforce.
Unlike Taiwan and China, the U.S. lacks a large-scale workforce with expertise in producing advanced chips, which poses a significant hurdle. Addressing the talent shortage will require time and a substantial increase in the number of engineers in the university pipeline. It’s important to acknowledge that the industry’s talent shortage is one of its toughest challenges.
In the realm of cleantech, the importance of rare earth minerals used in electric vehicle motors and offshore wind turbines cannot be overlooked. Currently, around 60% of all mined rare-earth minerals come from China, and China dominates the rare-earth supply chain. The current geopolitical tensions raise concerns about how reliance on China for rare earth minerals could affect production and exports. Mining and processing facilities are being established in the U.S. but ramping up production and building expertise in this field takes time.
Therefore, it’s crucial to recognize that a significant portion of the rare-earth supply chain still resides in China, making it difficult to fully commit to “Made in America” in the short term.
MH&L: Why many companies will likely increase the amount of sourcing they do within the U.S. as more suppliers are established but won’t stop sourcing from other countries entirely.
KH: As more suppliers are established within the U.S., industry analysts expect that many companies will increase their sourcing from domestic providers. This shift toward domestic sourcing can offer benefits such as reduced shipping times, improved supply chain resilience, and support for the local economy.
However, it’s unlikely that companies will completely stop sourcing from other countries. Some U.S. trading partners who currently benefit from global trade agreements may perceive the shift to domestic sourcing as protectionist and respond by diversifying their own supply chains away from the U.S.
Moreover, relying solely on domestic sourcing presents risks associated with a lack of diversification. Maintaining a trusted network of global trading partners reduces the potential for supply chain disruptions and ensures a diverse and resilient supply base.
MH&L: How cost will remain a top priority for sourcing managers and how they can ensure they’re getting the best price for their parts.
KH: Cost will invariably remain a top priority for sourcing managers, and rightfully so. Sourcing managers need effective strategies and tools to obtain the best price possible for their parts. Advanced technologies such as AI-powered platforms have demonstrated their ability to deliver substantial cost savings.
For example, at LevaData, our AI-powered direct-sourcing platform has enabled companies to save millions of dollars by analyzing their parts lists and identifying opportunities for better pricing. By leveraging AI and machine learning, sourcing managers can gain visibility into their spend, reduce costs, and mitigate risks.
Additionally, sophisticated benchmarking capabilities, like those LevaData has developed over multiple years utilizing contextualized insights, enable sourcing managers to access more accurate pricing information, even for custom parts. This gives procurement teams stronger bargaining power, leading to more favorable pricing and shifting supplier relationships from transactional to longer-term partnerships. Ultimately, prioritizing cost while simultaneously reducing risk and gaining spend visibility improves companies’ bottom lines.”