For a long time, we’ve thought bigger was better. We mass produced items, built bigger warehouses to store them in, and created big-box stores.
But today’s consumer wants a more one-of-a-kind experience that adheres to their values, needs, and aesthetic.
While 73% of millennial customers are willing to invest more into their purchases if they know they’ll be supporting sustainable products, they still want to be able to rely upon the lightning-bolt-fast turnaround times established by Amazon Prime. To accomplish this mission, reshoring is the answer and having smaller, local factories will pave the way forward.
What Is Reshoring?
One out of five manufacturing companies uses factories in China as part of their supply chain. Most of the time, this allows for significant cost reductions that help businesses maintain profitability while customers still get discounted rates. However, a lack of diversity in the supply chain and a supply chain far from a business’s customer base can spell trouble.
Last year, a trade war broke out, which resulted in U.S. businesses scrambling to find inexpensive, reliable alternatives to the factories they had long-established relationships with in China and raising domestic prices to account for the taxes and duties imposed on the goods still exported from China.
Then, in February of this year, when the COVID-19 pandemic forced factories in China to shut down, 60% of the North American companies Thomas surveyed reported that they were impacted.
Reshoring brings manufacturing back to the country where the business resides. Back in February when we first surveyed North American companies to see if they were interested in reshoring, 54% of them were actively considering the switch. We recently did another round of surveying and, as of July, found a statistically significant 15% leap.
Now, more than 69% of North American businesses want to bring production out of Asia and back home.
Why Millennials Care About Reshoring
Reshoring hinges upon opportunities to improve the ethics in how products are sourced and manufactured; creating and filling highly innovated jobs in Industry 4.0; and satisfying customers with both the quality of goods and the speed at which they can get goods.
Ethics in the Supply Chain
Today’s customer wants to know and buy into the story behind the product they’re purchasing. They want to know where a good comes from, how it’s made, and who made it. Words like “fair trade,” “cruelty free,” “ethically sourced,” and “sustainable” are not merely buzzwords — customers rightly care about ethical procurement.
According to a Deloitte survey, 36% of millennials have “deepened a business relationship” because of a company’s standards of ethical sourcing, while 37% have in fact “stopped or lessened” purchases from a business that does not source ethically. Another 81% of consumers strongly believe environmentalism should be taken into consideration by companies.
This is not to suggest that outsourcing and offshoring are inherently immoral. As Dr. Dale Rogers pointed out in a recent Q&A with Thomas Insights, manufacturing overseas has often been mutually beneficial in improving the quality of lives for those in the U.S. and abroad.
However, unethical actions do occur in links within the supply chain. In 2018, the North Carolina-based company Badger Sportswear relied on third-party inspectors who gave their Chinese supplier a pass. AP journalists, however, found in an investigation that the factory was actually relying on labor from minorities who had become modern-day slaves forced into manufacturing. Meanwhile, last year, some countries in Africa increased scrutiny of practices related to the chocolate supply chain, which resulted in some buyers moving their businesses to other African countries that did not hold as stringent of ethical standards in the treatment of their workers.
By reshoring, companies can keep a closer eye on their supply chain, ensuring it upholds ethical responsibilities related to labor and environment.
More Fulfilling Jobs, Reduced Debt for Millennials
Speaking of labor, reshoring offers opportunities for employment and career advancement for millennials.
As the millennial generation is typically defined as those born between 1981 and 1996, those who were entering the job market during the Great Recession of 2007 to 2009 felt the wrath of the economy acutely.
As a gauge, peak global employment was in October 2009, when someone born in 1988 would’ve been 21, a typical age for someone graduating from college and looking for employment that was scarce even for those with significant experience. An astounding 24% of millennials took unpaid jobs just to gain experience, according to the Pew Research Center. Now, once again now, with the COVID-19 pandemic, there has been mass unemployment.
Fortunately, there is a silver lining in the manufacturing industry. While many businesses were forced to temporarily shutter, many manufacturers were considered essential; some innovated to pivot their factories to create PPE, thereby making themselves essential and useful; and some even had to hire more employees as production ramped up.
At Thomas, we recently conducted a survey that revealed even more good news: 91% of the respondents had the positive outlook that American manufacturing will recover, and more than a quarter of the respondents are currently actively hiring.
Now, here’s an interesting fact for millennials still determining their career path or looking to make a transition: last year, about half a million jobs were not filled in the manufacturing sector because of a skills gap.
The industry has an image problem. It’s a stereotype based on antiquated notions that people who work in manufacturing are just cogs in the system—assembly people doing boring, repetitive tasks. In reality, we’re currently in the Fourth Industrial Revolution, in which creative individuals are doing, what I like to call, “new-collar jobs.” Today’s manufacturing employees weave together tried-and-true manufacturing methods with innovative uses of Industry 4.0—things like artificial intelligence (AI), 3D printing, Digital Twins, and the Internet of Things (IoT).
Although much has been made of the high tuition loans that young people are saddled with, fewer than half of millennials feel like they actually have the education and training they need to advance their careers.
One of the benefits of the manufacturing business is its use of paid apprenticeships that provide hands-on experience, classroom learning, and mentorship. On the Thomas Industry Update Podcast, I recently spoke with Ralf Weiser, vice president of operations at Alexanderwerk Inc., who said it doesn’t need to be an “either/or situation” when it comes to higher education and apprenticeships, as both serve unique purposes.
Weiser also said that today’s business leaders should be advised that millennials are seeking the same things that everyone seeks: “the purpose, the impact, growth, flourishing, and also, of course, a career that flourishes as well.”
A Curated Customer Experience
If you watch a lot of HGTV or if you look at some of the hashtags that have been popular on social media recently, you probably already know that today there’s a growing movement of people who are looking to downsize their houses to live in tiny homes, boats, and even vans.
We’re seeing this movement toward downsizing in manufacturing sites as well.
One of the ways we can accelerate reshoring is by building more local micro-factories and local micro-warehouses. This not only makes it easier to maintain the ethics throughout the supply chain and provide even more of the aforementioned jobs, but it increases customer satisfaction in two important ways.
First, numerous micro-warehouses allow for faster turnaround times to customers. Particularly at the start of the COVID-19 pandemic, supply chain bottlenecks made the distribution of goods from ports and from large warehouses to local stores and customers extremely difficult, resulting in the types of shortages on basic essentials—such as toilet paper and hand sanitizer—that caused panic in citizens. If there were an increased number of local factories and local warehouses, even if they were smaller, they would be able to more efficiently get goods into the hands of customers.
It’s worth noting that this is already on trend. Even before the pandemic, rental rates for smaller spaces—defined as below 120,000 square feet—were twice as in-demand than larger units. Albertsons, an Idaho-based supermarket, has been able to launch a two-hour delivery service thanks to investments in creating a series of micro-fulfillment centers. Walmart, meanwhile,
simply decided to use its brick-and-mortar stores as fulfillment centers to support their e-commerce business—a move that helped them beat out their competitor Amazon during the pandemic.
Second, micro-factories allow businesses to stay ahead of the creative curve. By bringing both the design teams and the production teams in-house, a company can cut through gaps in time zones, collaborate and communicate decisions more efficiently, and bypass delays caused by goods exchanging hands up the supply chain. Vertical integration and Just-in-Time (JIT) production allows for companies to adjust to trends—and current events—in real time.
One notable example of a company that does this effectively is fashion retailer Zara. The Spanish company refreshes its offerings five times faster than the majority of its competitors. It has the ability to do this because it invested in designing and manufacturing in-house rather than outsourcing and offshoring.
As one might expect, by bringing production in-house, the output is smaller. However, this works to the chain’s advantage because customers know that they have to shop often and buy on impulse or they’ll miss out. Thus, shoppers feel like they get a more exclusive, curated line that allows lucky purchasers to stand out as unique among the crowd.
All of these facets of reshoring will be guided by a continued dependence on relationships as well as on investments and training in Industry 4.0 technology that will allow for great autonomy and even greater checks-and-balances.