For several decades, businesses have been relocating their manufacturing operations to other countries to reduce their labor expenses. However, in the modern world, such a strategy is no longer sufficient on its own.Shipping costs have increased, geopolitical concerns are on the rise and many countries are experiencing a severe shortage of competent workers.
For example, in 2023, a container delivered from Shanghai to Los Angeles could cost 10 times more than pre-pandemic rates, adding hidden costs that substantially undercut the apparent savings from cheap labor.
Meanwhile, the manufacturing sector in Europe has decreased from about 20 percent of gross domestic product (GDP) in the 1990s to approximately 15 percent of GDP today, indicating that traditional industrial hubs are under pressure.
Workforce shortages | In the U.S., nearly 2 million manufacturing roles could remain unfilled by 2033. |
Logistics shocks | Post-2021, delayed shipping and surging container costs disrupted production cycles globally. |
Customer expectations | 62% of manufacturers forecast growth, but supply chain instability is a top concern. |
What is Industrial Right-Shoring and how does it differ from Reshoring?
Right-shoring locates production where it delivers the most value, balancing cost, quality, and resilience. Unlike reshoring (bringing everything home), it uses a blended approach to find the optimal global location for each specific function.
Why is traditional cost-only Offshoring no longer sufficient?
Offshoring fails due to rising shipping costs (up to 10x), increasing geopolitical risks, and workforce shortages. Right-shoring addresses this by focusing on Total Cost of Ownership (TCO), not just low labor cost.
What are the three fundamental building blocks of the Right-Shoring strategy?
The strategy balances three core elements: Managing Costs (via TCO and hidden cost analysis), Ensuring Quality (through supervision and skilled labor), and enhancing Supply Chain Resilience. Resilience is built by distributing production to avoid single-location breakdowns.
What is the most important first step in implementing a Right-Shoring strategy?
The crucial first step is Evaluation of the Present Situation. This involves creating a visual map of all facilities, volumes, and cost structures. It also identifies weaknesses related to over-reliance on single vendors or regions.
1.The importance of right-shoring in the present day
Industrial Right-shoring is the practice of strategically locating each component of your production in the place where it makes the most sense. It is different from reshoring, which involves bringing everything home, or nearshoring, which involves shifting production regionally. Right-shoring takes into consideration cost, quality and resilience.
Right-shoring is no more just a cliché in today’s global economy; it’s a real way for businesses to deal with growing costs, changing supply chains, and changing customer needs. Companies now think at things like how close they are to markets, how quickly they can deliver, how many talented people are available, and how stable the political situation is in the country they want to move to instead of just going to the cheapest place.
A manufacturer could choose to keep output that is high-value or time-sensitive close to its major market while sending standardized, labor-intensive jobs to areas where labor is cheaper. This blend lets businesses find a balance between being efficient and being strong, which helps them avoid the expensive problems that many have had in the past few years.
The best thing about right-shoring is that it is flexible. Think of a European store that gets some of its products from Eastern Europe so it can quickly restock and others from Asia so it can make bigger, cheaper batches. This method makes a buffer: if shipment lanes are blocked or customer demand suddenly rises, the business may still meet expectations without going over budget. It’s not so much about getting the lowest pay as it is about making a supply chain that can change and last. In the end, right-shoring helps firms stay competitive by servicing consumers faster, smarter, and more consistently.
2.The concept of industrial right-shoring
“Right-shoring” is not just about reducing costs; it focuses on strategically positioning production activities. The goal is to enhance overall value by considering factors beyond expenses alone. This approach balances cost, quality, and responsiveness. It ensures production is located where it best supports business objectives. At the core of this strategy are three fundamental building blocks that guide decisions.
2.1 The most effective way to manage costs
- Operating expenses, raw materials and employee wages are all instances of direct costs to the company.
- There are a number of charges that are not immediately visible. These include expenditures related to transportation, storage, compliance and the risk of disruption.
- The sum of all the expenses that are incurred along the supply chain results in the total cost of ownership (TCO).
2.2 Ensuring exceptional quality
- Being nearby allows for more efficient supervision and accelerates the process of resolving issues.
- High-quality results are ensured by regulatory compliance and skilled workforce.
- By eliminating problems and recalls, both time and money are saved.
2.3 The ability of supply chains to recover from difficulties
- To avoid breakdowns occurring at a single location, production sites should be distributed.
- Make capacity adjustments as needed to satisfy sudden spikes in demand.
- Decrease production delays by moving to more advantageous manufacturing locations.
As opposed to nearshoring and blanket reshoring, right-shoring considers both the realities of a situation and the aims of a strategy to identify the best site for each product line.
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3. A framework that consists of five phases for making decisions
To put right-shoring into practice, companies typically follow a structured approach divided into five phases. Each phase guides key decisions and actions. This process helps align production location with strategic goals. It ensures a thorough evaluation at every step. By following these phases, businesses can effectively implement right-shoring.
Step 1: An evaluation of the present situation
- Create a visual representation of all the manufacturing facilities, production volumes and cost structures.
- Baselines for measuring quality: rates of defect, customer complaints and compliance scores
- Investigate weaknesses in the supply chain related to an overreliance on single vendors or regions.
An appliance manufacturer of medium size discovered that inventory management and logistics accounted for more than 25% of overall expenses, which were concealed by the “low-cost offshore manufacturing” label.
Step 2 : Analysis of market and demand
- Make predictions about demand based on product kind, seasonality, and geographic location.
- Find out what customers expect about quality and delivery.
- Investigate the market tactics and production footprints of businesses that compete with yours.
- Investigate exchange arrangements, duties, and inducements.
The creation of a market-demand heat map might be of assistance in visualizing where manufacturing should be given precedence.
Step 3 : Examine potential locations
Evaluate each possible location based on the following criteria:
There are many questions to ask:
Infrastructure:
- Can transport networks be considered dependable?
- Are technological and utility systems up-to-date?
Labor:
- Is the local workforce sufficiently skilled?
- Is it possible for training programs to close existing gaps?
Rules and rewards that are issued by the government:
Are there any advantageous trade agreements, grants or tax cuts in place?
Adaptability:
Is the site able to grow rapidly or make a rapid pivot in the event that demand changes?
An appliance producer discovered that Mexico offered lower salaries and quicker shipping for high-volume parts, while the plants in Poland ensured precision for intricate components.
Step 4 : Financial forecasting
Use return on investment and scenario planning over a period of three to five years.
Include risk-adjusted returns: think about possible interruptions.
For every site, find the volumes needed to break even and the cost cutoff points.
Simplified Table Example:
Production Site | Annual Volume | TCO per Unit | ROI (5 years) |
Mexico | 500,000 | $18 | 15% |
Poland | 50,000 | $35 | 12% |
U.S. | 100,000 | $22 | 14% |
You can see the relative importance of price, quality and risk with this.
Step 5 : A plan for execution
- Make the changeover little by little to keep things running smoothly.
- Establish certification and quality control systems for local suppliers.
- Use digital resources such as digital twins, the internet of things and Industry 4.0.
- Oversee transitions in culture, changes in the personnel and the alignment of operations.
Case in point: a home appliance maker began manufacturing a single line of products in Mexico as part of a pilot program. In addition to a 20% decrease in lead times, they increased Overall Equipment Effectiveness (OEE) by 7%. As the business grew, it began to scale its right-shoring strategy across all of its product lines, applying lessons gained along the way.
4.Evaluating success levels
Key performance indicators (KPIs) should cover three main dimensions. These dimensions help measure success from different perspectives. Addressing all ensures a balanced evaluation of performance. Each dimension provides insights into specific areas. Together, they offer a comprehensive view of progress and outcomes.
- Financial: return on investment (ROI), total cost of ownership (TCO) and cost per unit
- Operational: Overall Equipment Effectiveness (OEE), defect rates, improvements in lead time
- Strategic: minimization of supplier risk, acceleration of the innovation process, time to market
KPI | Before Right-Shoring | After Pilot | Improvement |
OEE | 72% | 77% | +5 pts |
Lead Time | 25 days | 20 days | -20% |
Defect Rate | 4.5% | 3.2% | -1.3 pts |
5. A True-life example
Picture a business that manufactures appliances for the kitchen.
To save expenses and delivery times, high-volume parts are manufactured in Mexico.
Precision components that are of excellent quality are manufactured in Poland.
Final assembly takes place in the United States, near the greatest client base.
This hybrid method, over the course of five years:
- Return on investment (ROI) was increased by 15%.
- Lead times were cut by twenty percent.
- Improved ability to withstand disruptions in the supply chain
By adopting right shoring, they converted their manufacturing from an operation that was just focused on cost into one that was a strategic advantage. This enabled them to respond to market demands more quickly while maintaining quality and managing risks.
Last thoughts
Right-shoring is no longer just about cutting costs, it’s a strategic approach that combines efficiency, quality, and resilience. By placing each part of production where it delivers the most value, businesses can reduce lead times, manage risks and better meet customer expectations.
At Eminence Industry, we help companies design and implement smart, tailored production strategies.
Contact us to discover how right-shoring can turn your manufacturing operations into a real competitive advantage.
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