Remnants of a COVID-disrupted supply chain, economic choppiness, and pressure to lower prices have backed manufacturing companies up against a wall, and forced them to reconsider their approach to offshoring production.

Reshoring — moving manufacturing back to the countries where the goods are sold —is currently being embraced by 69% of manufacturers, according to research by Medius. As companies continue to weigh the risks and benefits of reshoring, more are embracing it as a core strategy to improve product quality and consistency, take advantage of local tax incentives, and cultivate a skilled workforce.

On a global scale, business leaders are turning to reshoring in response to geopolitical tensions that have posed heightened risks to supply chains. The recent crisis in the Red Sea, which resulted in shipping delays and a spike in costs, presents just one example of how global events can take a toll on offshored production.

The rise of artificial intelligence, especially generative AI, is increasingly driving operations across industries. The integration of AI into manufacturing processes has provided companies with models to aid in product development, detection and procurement processes, in addition to enabling real-time responses to occurrences impacting the supply chain. 

When applied to product development, automated models improve production speeds by streamlining manual tasks while eliminating the risk of human error. Manufacturers have full control over the production process, and can more strategically manage and redirect employee responsibilities and roles as necessary. From initial design and production to transportation and inventory management, manufacturers are increasingly adopting AI tools to drive growth in the supply chain.

Medius’ survey of more than 1,000 business and financial leaders in manufacturing found an estimated 38% of respondents incorporating AI into supply chains to lower costs and protect profit margins. Factors driving the trend include the benefits to be gained from AI-driven tracking platforms, data analytics for risk management and the use of generative AI in supply chain management. By adopting reshoring to move production directly to the location where goods are being sold, companies can more easily integrate AI-powered platforms into their operations.

More than half of business and financial leaders in manufacturing are concerned that plans to adopt reshoring will require more specially trained staff to drive the production process. As a result, experts estimate that it will take significantly longer for workers in manufacturing to be adequately trained. Another pain point is the challenge of changing suppliers necessitated by moving production locations.

American manufacturers also face a marked disparity in energy capital between the U.S. and China. According to independent research firm Enerdata, China produces nearly twice as much electricity as the U.S. This poses an additional drawback for American manufacturers as they look to relocate production locally. This means a longer reshoring process and increased operational costs. 

An estimated 93% of manufacturers are planning to increase the pace of reshoring within their supply chains. While this will require stepped-up training efforts —58% say they will require more specialized training in the U.S. to aid reshoring efforts — the shift will make it easier for companies to integrate AI-powered platforms into their everyday operations.

Manufacturing companies in the U.S. that have already adopted reshoring have reported heightened security levels and enhanced product value. Lower inventory costs and greater product differentiation are also among the top reasons for continued interest in reshoring. 

Reshoring enables manufacturers to provide customers with the products they want at faster rates and for lower cost, in addition to supporting local workforces. As we move further into a generation of widespread AI, reshoring provides a strategic solution to the supply chain woes that today’s manufacturers are battling.

Don Holm is global vice president of value consulting for Medius.