Four supply chain experts on the challenges of manufacturing in the US—and the tactics to turn to instead

Nearshoring and federated manufacturing models may be the way to go
article cover

Francis Scialabba

· 5 min read

For the last few weeks, we’ve been diving into what it means for a product to be Made in America and talking to companies about the process of stateside manufacturing.

But while many covet shorter lead times, more control and agility, and that stars-and-stripes-adorned Made in USA seal, moving entire supply chains to the US isn’t easy—or even plausible—for a lot of retail brands.

  • Even New Balance, which produces its Made 990v5 running sneaker in Massachusetts, sources 30% of the shoe’s components from abroad.

“It’s very, very naive to expect that 3,000 suppliers are going to come back to the US,” said Ricardo Ernst, professor of operations and global logistics at Georgetown University’s McDonough School of Business. “You have already a very, very widely spread supply chain. You can bring some elements of that supply chain, but to assume, to expect, to dream that all these are going to combine is not realistic.”

Manufacturing in the US is also all about the Benjamins.

  • Labor in the US costs a lot of $$ compared to areas like Asia, and it’s hard to come by. (ICYMI: There’s still a labor shortage in the US.)
  • And building facilities where these products are made takes—you guessed it—$$, too, plus a good chunk of time. “All these factories require huge investments, and there’s a couple of years of planning to open one,” said Felipe Caro, professor of decisions, operations, and technology management at UCLA.

So, if completely reshoring production isn’t realistic for many, or even most, companies, what is?

Come a little closer: One way to shorten lead times and eliminate constraints like customs, tariffs, and other regulations when shipping from China is nearshoring, or bringing manufacturing closer to home, but still not on US soil. Georgetown’s Ernst said developing trade agreements with countries or regions like Central America could offer opportunities for a “win-win” manufacturing situation.

  • Central America, for example, is a notable supplier for the garment industry, with Honduras producing about 5% of the clothing for brands like Nike, Under Armour, and Adidas, Ernst said.

Caro said major international apparel companies are already using nearshoring in their manufacturing strategy. “It has to do with the level of specialization in the current supply chain, how complex they’ve become,” he explained. “Reproducing that in a single country, honestly, doesn’t make sense, and is almost impossible.”

Caro pointed to Spanish retailer Zara, whose inventory allocation model he helped develop.

  • Certain clothes, such as seasonal fashion trends, are produced closer to Spain—in Morocco, Eastern Europe, or Turkey—to make sure they can get to shelves while they’re still in demand, Caro said.
  • Basics, like t-shirts, are produced where the cost is lowest, usually in Asia, because demand for those items is stable, the products are ubiquitous, and lead times matter less, Caro said.
Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.

Building blocks: Just as there are different manufacturing strategies for seasonal and basic items, varying price points afford different approaches, Kamala Raman, VP of logistics and supply chain network design at Gartner, told us.

Lower-value items can be “really impossible” to manufacture stateside, especially if the company has a wide supplier network outside the US, Raman said. These products are less likely to be reshored compared with newer industries that the US places more importance on, like electric vehicles, or pharmaceuticals, she said.

  • Higher-value and bulky products, like grills (and, perhaps, office chairs) might make more sense to be reshored.

Raman said producers of lower-cost items may look to establish a federated (hybrid) model with factories in different continents. Lego, for example, announced in June its plans to open its first US factory in Virginia, while still operating facilities in regions like Asia.

“People are trading those different costs off and saying, ‘You know what? I can pay a little bit more in terms of local labor costs or source from suppliers locally, but I know who I can call. I know where they are. And I have a little bit more control on the supply chain,’” she said.

Helping hand: Dr. Lefteris Iakovou, an engineering technology and industrial distribution professor at Texas A&M, said encouraging companies to manufacture in the US will require collaboration between the public and private sectors. “These two have to talk to each other, and they’re not doing it effectively,” he said.

The US government can help by providing “tax breaks, subsidies, and incentives” to entice manufacturers into stateside production, Iakovou explained. And the private sector can provide the technology and supply-chain visibility.

Together, he continued, they could find the “sweet spot” of supply chains that are closer to home, more resilient, and more controlled.

Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.