Pandemic leads many manufacturers to consider reshoring production

December 21, 2020

People working at the production line at the SodaStream factory in Israel. (Remy Gieling, Unsplash)

Manufacturers are likely poised to bounce back strongly from COVID-19 disruptions, with enhanced focus on supply chain resiliency and on bringing operations back to U.S. shores, economists said in a new study.

In research published in Business Economics, the National Association of Manufacturers reported results of a new survey showing that more than 60% of U.S. business respondents have increased supply chain resiliency, 77% are evaluating what jobs can be done remotely, and 43% will consider bringing some oeprations back onshore in the U.S. About 66% of companies surveyed also plan to reengineer their production process with "social distancing" in mind.

COVID-19 has created “a new sense of urgency” among manufacturing leaders, with many companies re-evaluating supply chains and production processes and exploring opportunities for more local production and reshoring, according to the paper, published in October.

“In some ways, trends that were already emerging have just simply been accelerated,” author Chad Moutray, chief economist for the National Association of Manufacturers, told The Academic Times.

For example, many companies were already exploring new technologies that could create opportunities for remote work or help create “social distancing” in production processes; and trade wars over the last few years had caused manufacturers to re-evaluate material sourcing and other parts of their supply chains.

“So I think coming out of this, the new normal is probably going to look a little different than it did before,” Moutray said. “Companies have to think about their workers and flexibility of the workforce in ways that they weren’t before.”

Manufacturing production fell sharply between February and April, plummeting by 20.2%, and though most companies have been able to resume operations, production remains 6% lower compared to last year, Moutray found. Exports of U.S. manufactured goods also fell by more than 17% in the first six months of 2020.

“So that was a pretty sizable hit,” Moutray said. “And even to this day, manufacturers continue to experience some supply chain and operational disruptions due to COVID-19 and other issues that are out there.”

Absent another outbreak that causes businesses and consumers to become more hesitant, the economy will likely grow by 3-4% in 2021, with manufacturing output rising by 4%, though Moutray said this outlook “is one of cautious optimism.”

“Economic conditions later this year and next year will also be radically different than what was seen this past January and February,” he wrote. “That means business conditions will likely continue to be challenging, particularly for certain sectors."

Manufacturing lost 1.36 million workers between February and April, many of whom were temporarily furloughed because of shutdowns and reduced operations. Still, only about half of the jobs initially lost have been replaced, with 720,000 fewer jobs in August than in February.

Manufacturers are also grappling with issues that predate the pandemic, the most critical of which is finding talent. Prior to COVID-19, workforce challenges had been the main concern for manufacturers in 10 consecutive quarters, and half of U.S. manufacturers said they expect to continue having trouble finding talent over the next 12 to 18 months.

“As more baby boomers retire and firms continue to struggle with recruiting younger generations of workers, the ‘skills gap’ challenge represents a structural problem in the labor market — one that manufacturers have tried to proactively cope with for years,” Moutray wrote.

In 2019, manufacturing companies spent over $26.2 billion in training, mostly on programs to help employees do their daily jobs, but Moutray said COVID-19 presents an opportunity for possible recruitment: With some training or “upskilling,” he said, unemployed or discouraged workers in other sectors could be ideal candidates to fill gaps in the workforce.

Though Moutray predicted in his published paper that manufacturing may not completely rebound until 2022, he told The Academic Times that based on feedback from association members, he would probably revise his prediction to say that manufacturing production will reach pre-pandemic levels by the second half of 2021. Employment, however, will likely take longer to recover.

“I think the good news here is yes, manufacturing is rebounding strongly,” Moutray said. “We’re not quite where we would like to be, but hopefully, by this point next year, we will.”

The study “In recovery mode: manufacturers try to bounce back after COVID‑19 disruptions,” published October 20, 2020, in Business Economics, was authored by Chad Moutray, National Association of Manufacturers. 

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