Are you thinking of reshoring? Not sure how to go about it? Here is a short list of things you should consider in your plan:
ROI – Evaluating the Investment: Reshoring is an investment, and like all investments, it will consume cash. Design changes may have to be made, new vendors will have to be sourced and approved, tooling may have to be re-manufactured, and someone will have to manage the process. Of course, there will be some return on this investment: quality may improve, the supply-chain risk may be reduced, the unit cost may go down or up, terms may improve, inventory carrying cost may decrease, etc.
This is particularly relevant in Electronics Design, Mechanical Design, and Electronics Engineering, where factors such as custom tooling, automated assembly, and local sourcing can greatly impact costs and efficiency. Custom electronics design often requires modifications to accommodate domestic manufacturing capabilities, affecting both cost and performance.
It’s important to quantify these costs and returns. What will these costs be, and how much will we get in return? Quantify these elements in a simple spreadsheet that then calculates the ROI.
Like all capital expenditures, a decision should be made based on this ROI calculation to go forward or not. If the return is negative (and you vetted the assumption—see the next point), then stop. However, even if the ROI is positive, you still may not want to move forward. If you’re like most companies, you have more projects than capital available to fund them. It’s a good idea to compare and contrast these capital investments before making this funding decision.
Test Assumptions: Your first estimate of the ROI was likely made up of guesstimations. Time to test if these assumptions are close.
It’s easy to get these wrong—and just as likely to be lower than higher. Don’t assume that just because labor is cheaper in Asia that this means the unit cost will be higher. Often, parts are less expensive in the U.S., and it may be possible to modify the product design to better suit automation—thus reducing the number of hours per unit.
For Mechanical Engineering and Thermal Engineering, this could mean redesigning components for more efficient cooling, reducing material costs, or leveraging automated manufacturing techniques that were not feasible with offshore suppliers.
Don’t forget or underestimate the management cost. Even if you are managing the reshoring completely in-house, there are always opportunity costs. If the team has never done a reshoring project before, they are likely underestimating the time needed, and the risk goes up.
Don’t forget to include the inventory carry cost. Most small companies have a very high cost of capital. If reshoring gets you several months closer between inventory payments and revenue cash, the savings in terms of carry cost could be significant.
Design First – Optimize for Domestic Production: Before talking to any new contract manufacturers (CMs) or vendors, get the engineering completed. In all likelihood, changes will have to be made simply because the existing design has most likely been optimized for low-labor costs and not automation. Simply giving the existing drawings to a U.S. vendor will likely result in a 2x increase in COGS.
For Custom electronics design, this may involve reworking PCB layouts to support automated assembly processes, ensuring that components are readily available from domestic suppliers, or redesigning enclosures for more efficient manufacturing. Similarly, Mechanical Design updates may be needed to simplify machining, reduce waste, or use alternative materials better suited for local production.
Sourcing New Vendors: Vendor relationships have often been compared to interpersonal relationships. Good ones can help you grow, and bad ones can be toxic.
Don’t fall into the trap of focusing solely on price. Price is important, but not nearly as important as fit. Is their quality system sufficient to meet your requirements, or is it overkill? Will you be the biggest or smallest customer for them—you want to be in the middle. Do they share the same values? Can we communicate with them?
For Electronics Engineering and Mechanical Engineering, vendor selection should also consider their expertise in advanced manufacturing techniques, such as automated SMT assembly, precision CNC machining, or thermal management solutions. Thermal Engineering plays a crucial role in ensuring product reliability, especially in electronics where heat dissipation is a critical factor.
Move Slowly – Ensure Stability: Don’t disengage the old supply chain until you are absolutely positive the new one is working—which means they have produced a significant quantity of product that has passed DVT/HALT and has been in the field for enough time to know.
Some companies keep the old supply chain in place indefinitely. Even if they are only producing 20% of total output at a higher cost, this can be cheap insurance against supply chain disruptions. Electronics Design and Mechanical Design projects often encounter unforeseen challenges in material sourcing, assembly, and testing, so a phased approach minimizes risk.
By carefully planning and testing each stage, reshoring can be a highly strategic move, reducing risk, improving quality, and optimizing long-term cost structures for Electronics Engineering, Custom electronics design, Mechanical Engineering, and Thermal Engineering applications.
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