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Re-Shoring OEMs Challenged to Meet Expectations of Consumers & Regulators

For the past few decades, OEMs based in the U.S. have had many good reasons to ship the bulk of their manufacturing and supply chain jobs to other countries in the APAC region. The most compelling reason was that it dramatically reduced costs. Other benefits included less stringent regulations and greater convenience. The massive supply chain network they have built around the world, especially in APAC, is, in the opinion of many, a triumph of globalization.

That's all changing. The trend began its reversal about three years ago when U.S. President Barack Obama proposed tax incentives meant to encourage companies to return to the U.S. the jobs that had moved overseas. Furthermore, Obama proposed ending or severely reducing tax breaks for businesses that continue to move jobs from the U.S. to other countries. Other factors contributing to the moving of jobs from Asia to the U.S. was the increase in labor costs in some parts of that region and the more consistent pricing of raw materials, which used to be considerably more affordable in Asian countries.

Apple's move to invest $100 million in U.S.-based manufacturing the MacBook remains one of the more high profile examples of this trend. But there are other businesses that are following the tech icon's lead. For example, ET Water Systems, moved its manufacturing operations from California to China in 2005. After taking a hard look at costs such as shipping, custom duties and other fees, however, the company forged a manufacturing partnership with General Electronics Assembly, which is based in San Jose.

When he made his announcement, standing alongside executives representing aerospace, chemical and furniture industries who were in the process of building or expanding factories in the U.S., Obama heralded the advent of “insourcing,” – the trend of reversing the long-term norm of outsourcing. After sustaining losses for more than a decade, the U.S. was finally adding manufacturing jobs. 

As manufacturing returns, a part of its supply chain network also returns; however, it's critical that a robust reverse supply chain management (RSCM) infrastructure be easily accessible so that excess, obsolete and defective parts and products can be handled in an environmentally friendly and cost-effective way. 

As of today, that infrastructure is not in place. That's because the decades-long exodus of manufacturing rendered it unnecessary. There was not much of a market domestically for repurposing disposed parts and products here at home in the U.S. The U.S. has focused instead primarily on raw materials recycling and simple waste management.

This lack of RSCM expertise and the services that come with it is problematic in many ways, but two are of critical importance to manufacturers returning to the U.S. 

The first is that regulations go further and are more complex than those in the APAC region. In the U.S., manufacturers must comply with regulations in the areas of environmental health and safety, recycling and others.

The second major area of concern is that consumers in the U.S. simply take a more sophisticated approach to holding corporations environmentally accountable. Consumers in the U.S. want to know what's happening with their products post disposal. They want to be as kind as possible to the environment but they are also concerned about issues such as data security and privacy. 

That's why it's more important than ever for manufacturers to partner with providers of a comprehensive portfolio of RSCM products and services. A few of the larger OEMs – ones that are household names the world over – are prepared to handle the RSCM function internally. However, many of the manufacturers returning all or part of their operations to the U.S. will need to work with a trusted partner to ensure that the expectations of both regulators and consumers are met. Managed correctly, the RSCM function can generate a positive financial return and become a sustainable business function instead of just an obligation and liability.

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