The past eight years have been a whirlwind if nothing else for supply chain professionals.
Tariffs and a trade war were followed by a global pandemic, escalating conflicts and one issue after another, including cargo ships getting stuck in the Suez Canal and hitting a bridge in Baltimore.
Generally speaking, many companies had their supply chains set up toward being lean and efficient over being resilient, said Kyle Lindberg, vice president of supply chain strategy and planning at Rockwell Automation. The tariffs introduced in the late 2010s forced companies to be more agile and focus on resilience, but the pandemic was another story.
“We felt the effects of the pandemic … and the importance of resilience at a much bigger level,” Lindberg said, noting how nearly every industry was impacted in some way. “What that emphasized is just how reliant we are across the global enterprise and the interdependencies that happen across supply chains. I think that that was a monumental shift in the thought process for a lot of leaders in how resilient do we want our organizations to be.”
All of these issues would seem to bode well for manufacturing in Wisconsin. If global supply chains are chaotic, perhaps production would return to the United States. Wisconsin’s imports, however, have climbed from around $23 billion in 2016 to more than $41 billion in 2022, according to data from the U.S. Census Bureau. The state’s imports were down slightly in 2023 at $39.3 billion.
Look beyond those topline figures and there is a more nuanced picture.
Imports from Asia, for example, went from 45% of the total in 2016 to around 34% this past year. A declining reliance on China is the main driver of the decrease. In 2016, China accounted for 25.7% of Wisconsin’s imports. In 2023, that figure was 14.9%. The rest of Asia was down just two-tenths to 19.4%.
Europe has grown as a share of the state’s imports from 21% in 2016 to 32.5% this past year, although it has been at or above 30% since 2017.
Mexico stands out in the data as well, going from around 12% in 2016 to an average of 9.5% from 2017 to 2022 and then reaching more than 15% in 2023.
Searching for reshoring
While it doesn’t necessarily show up in the data, reshoring is happening.
Sussex IM, a plastic injection molding company based in Sussex, has two product programs launching later this year, both of which the company won over overseas suppliers, said Megan Tzanoukakis, president and chief executive officer.
But even with the challenges facing global supply chains, bringing work back to the U.S. is no quick task. In the case of one of the Sussex IM programs, the customer committed it to the company in 2022. Sussex IM had been working on the project for six months before getting the commitment and calling on the customer for two or three years to get the chance.
“The sales cycle is very long,” Tzanoukakis said.
Bringing work back to the U.S. is an ever-changing task. Tzanoukakis said what worked 10 years ago does not necessarily work now. Even in just a few years, things can change. Coming out of the COVID-19 pandemic, many companies were willing to hold onto extra inventory to make sure their supply chains were resilient.
“Now, with higher interest rates, people are starting to not want inventory again,” Tzanoukakis said.
‘Every customer is different’
Where products are made is often thought of in broad, sweeping terms, like can manufacturing come back to the United States? But in reality, each reshoring project often comes down to the specifics of what a customer wants to achieve.
In some cases, a company may want a more resilient supply chain and is looking to have vendors in multiple regions. In others, the goal may be cutting down the time a product spends in transit. In others, improving quality could be the top priority.
“Every customer is different,” Tzanoukakis said.
Like Sussex IM, Milwaukee-based MPE has had some reshoring wins in recent years. Hank Kohl, CEO of the contract manufacturer for medical device capital equipment, said many large companies are focused on building products where they will sell them.
“The challenge is always these products are being manufactured in low-cost countries because they are low-cost countries,” Kohl said. “Just because they have this reshoring strategy that makes sense for all the right reasons doesn’t necessarily mean their customer base is willing to pay more for that same product.”
Lindberg said in cases that a company is adding redundant sourcing, it doesn’t have to necessarily add cost.
“You now have more leverage across two suppliers,” he said. “You have that opportunity to take that business elsewhere.”
Kohl said MPE has needed to work hard to make sure customers understand the total cost of ownership from sourcing overseas.
“What’s surprising is that most of these large companies truly don’t have a good handle on what is their total cost of supporting low-cost country manufacturing,” Kohl said.
Purely based on the price of a part, an overseas supplier may be cheaper, but adding in costs from freight, duty and carrying inventory can change the picture. Additionally, Kohl said MPE has discovered that different parts of the company handle those different costs and if people operate in siloes, they may not see the full picture.
“Really what we needed to do in every case is we needed to drive this conversation much higher up the organizational food chain to the individuals where total revenues, total earnings matter and then help them understand,” Kohl said. “It’s not an easy journey, but it’s been very beneficial to the organizations that have gone through it.”
The role of automation
Being able to have those conversation means making sure MPE’s business development teams have the information they need to work with customers, Kohl said. It also requires being able to talk with customers about how a product will be manufactured in the U.S. compared to a low-cost country.
Kohl explained that the availability of different materials or fasteners in the U.S. compared to overseas can shape the outcome of a reshoring project. When labor costs are low overseas, a certain fastening approach may make sense, whereas U.S. manufacturers would use a different fastener and automation.
“If you work with your supplier/vendor on that process, you can deliver the same functioning specification of a product to your customer that has the same look and feel, but maybe slightly different in technical design,” Kohl said.
He added that because a customer is going to need to validate your work regardless when shifting production from one country to another, the idea of redesigning is “more of a mental hurdle for customers” than it is a roadblock in winning a project.
“If they’re really willing to reshore, they’re open to redesigning,” Tzanoukakis said.
Automation plays a big role in the competitiveness of U.S. manufacturers when it comes to reshoring, but that can be a limiting factor in winning projects back.
“It’s hard to automate a part that was never designed for automation,” Tzanoukakis said.
She also noted U.S. manufacturers are better positioned to win work on more complex components. However, in some cases, the volume of parts a customer needs when the part is complex is not enough to justify the investment in automation needed for a U.S. supplier to be competitive.
Even when all of the elements line up, the economy can be a roadblock for potential reshoring. Launching production of a part requires upfront investment in tooling and automation by a company like Sussex IM. With higher interest rates, Tzanoukakis said potential customers don’t want to make the needed capital investments.
Kohl highlighted another investment-related challenge for reshoring: the ability of smaller sub-suppliers to have access to capital to make investments in automation to be able to compete.
“There’s probably the biggest challenge in that model that exists today,” he said.
Rockwell’s Lindberg said not being highly automated doesn’t necessarily mean a smaller company won’t be able to win business.
“You’ve got to be able to put a value in proposition in front of companies like Rockwell,” he said, adding sourcing teams consider things like cost, service and quality. Being able to demonstrate resilience by having four different presses to produce a part instead of just one may be enough in the right circumstances.
