Moving Manufacturing Onshore and the Impact on Wholesale Distributors

The location of your company’s warehouse and distribution center plays an important role in your firm’s ability to ship goods easily and quickly. With so many global uncertainties—catastrophic weather events, political instability, fresh outbreaks of COVID-19—many manufacturing companies have chosen to move their warehouse and distribution centers back onshore.

Wholesale distributors are facing many challenges, one of which is the move for manufacturers to bring their business back onshore. There are several considerations around this move, including its impact on the supply chain and on costs. And, to ensure that the physical relocation of the warehouse doesn’t disrupt business, technology considerations, too.

Offshore Manufacturing and the Movement Back

The manufacturing industry has always faced tight margins. To combat shrinking margins and increasing competitive forces, many manufacturers moved their production overseas or “offshore.” Their rationale was simple:

• Lower cost of labor: depending on the local salary ranges, many manufacturers could pay their workers offshore a fraction of what they were required to pay onshore talent for the same work
• Cheaper facilities: the cost of doing business may be less in other countries, especially if the exchange rate is favorable to the parent corporation
• Centralized shipping: depending on where the manufacturing facility was located offshore, the area may have prime shipping and distribution hubs already set up to accommodate businesses. Access to ports, railway lines, and air freight distributors all made some offshore locations desirable.

Lower costs enabled manufacturers to bring the cost of goods down while keeping prices steady in the onshore market, thus increasing profit margins. And, if competitors chose to compete on price, those who had offshore manufacturing facilities could easily lower their prices to compensate since their margins could accommodate a bit of price flexibility.

Challenges of Offshore Manufacturing

Of course, offshore manufacturing came with its share of challenges, including:

• Unskilled labor
• Poor quality control
• Slow shipping
• Higher shipping costs
• Uncertain delivery dates

While not every manufacturer faces the same challenges, those who fully embraced an offshore model may have found themselves facing other challenges over the past several years.

• Pandemic-related shutdowns, especially in countries with strict quarantine protocols, disrupted the local labor force and kept factories closed for days or weeks on end
• Higher fuel costs led to higher shipping costs
• Weather-related difficulties created timing uncertainties

Wholesale Warehouse and Distribution Centers—Offshore and Onshore

Wholesale warehouses and distributors, or wholesalers, generally set up shop wherever manufacturers establish their businesses. So, as manufacturers moved their operations from onshore to offshore, wholesalers went with them too. And, as manufacturers experienced problems with pandemic lockdowns, political uncertainties, rising fuel and cost of raw materials, and labor issues, so too did the wholesalers.

The Move Back Onshore and Its Impact on Wholesale Distributors

Again, as manufacturers go, so go the wholesale distributors—and as more moved back onshore, the wholesale distributors followed. Wholesale distributors are feeling the impact of moving onshore in many ways.

• Higher overhead and labor costs
• Labor shortages, or problems finding workers for warehouse and distribution centers
• Difficulty finding real estate in chosen locations, i.e., reasonably priced warehouse space near the manufacturing center
• Higher shipping costs

What has changed for the better? Many things are improved when wholesale distribution and warehouse centers move back onshore.

• Shipping times are faster, which improves customer relationships
• Customer service and call centers can be located onshore in the same time zone as customers, providing better service
• Great transparency and collaboration

Technology Eases the Impact

Not every wholesale distributor will choose to move back onshore. Some may find that the costs far outweigh any potential benefits: the cost of salaries, the cost of overhead, and the cost of moving.

For such wholesale distributors, technology can ease the impact of their customers, the manufacturers, moving their businesses onshore while they remain offshore.

Cloud enterprise resource planning (ERP) systems, for example, enable companies to connect via the internet through the ERP system. Such systems feed data in real time through networked cloud servers to provide a comprehensive, 360-degree look at accounting, finance, operations, and other business data.

Because cloud ERP systems rely on the internet, they are ideal for companies with multiple locations onshore and off. Additionally, vendors throughout the supply chain can be granted access so that real-time information is available on raw goods, finished goods, and shipments. Wholesale distribution and warehouse centers can then tap into the data from the ERP system to receive real-time information and to share similar information back with both customers and manufacturers.

Cost Savings Without Sacrificing Data

One of the key benefits of using cloud ERP systems for manufacturing businesses is the ease with which they can connect every aspect of the supply chain. For wholesale distribution centers that choose to remain offshore, such connectivity means they can continue saving on many costs without sacrificing information that can help them run their businesses.

Timely information, real-time reporting and order information, and visibility into all aspects of the supply chain can help decrease costs and improve margins. As a result, companies that choose either to remain offshore or follow a blended model of manufacturing facilities onshore and wholesale warehouses offshore can create the business model that suits their needs best and helps them remain both cost-effective and competitive.

Although the impact of their manufacturing partners moving back onshore may be felt in several ways, technology can certainly ease the initial shock. As technology improves, the world feels smaller, since companies can be connected through their ERP platforms to each other. Thanks to cloud ERP, the choice to remain offshore, move onshore, or find a happy medium between these choices means that manufacturers have the flexibility to find the model that’s right for their needs.

Mindover Software

Mindover Software has modern manufacturing software solutions and distribution solutions for companies of all sizes. Whether you run a small, specialized job shop or a large manufacturing plant, we’re here to help with software selection, implementation, and integration. Contact us or call 512-990-3994.