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ASCM Insights

Optimize Reshoring with Smart Factories

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As recent times have shown, when manufacturing operations are located overseas, supply chains can be disrupted — even at companies that implement best-in-class automation technologies. As a result, reshoring has become a mission-critical priority for many manufacturers around the world.

While reshoring is a complex and time-intensive process, it provides a unique opportunity to upgrade to smart factory capabilities — another top priority for many manufacturers. The planning processes for reshoring and smart factories complement each other in ways that make it opportune to pursue both at the same time. Reshoring involves either building new facilities or expanding existing ones. This creates a natural opportunity to upgrade and integrate new smart factory technologies while expansion is underway.

Why reshore?

There are many advantages to reshoring, beyond improvements in supply chain resilience. Rising wage inflation has made hosting manufacturing hubs in some countries less attractive than in the past, particularly in light of international supply chain risks. In addition, bringing production into the same time zone as and into geographical proximity with other operations can improve team synergy and accelerate customer lead times.

However, supply chains can’t be truly agile without smart factories. A smart factory is a flexible system that can self-optimize performance across a broader network, self-adapt to and learn from new conditions in real or near-real time, and autonomously run entire production processes. Embracing smart factory technologies enables manufacturers to sense and react to demand changes faster, increases flexibility to meet broader and more complex customer needs, and improves operational performance to compete with lower-cost manufacturers. Smart factory technology also can improve energy management, which in turn can make production more energy efficient, increase output and even increase labor productivity.

All of these gains could enhance two growing priorities for consumers when evaluating companies: competence and character. Competence refers to consumers’ perceptions of a supply chain’s operational efficiency and trustworthiness. Character refers to a supply chain’s perceived commitment to social good and environmental sustainability. Improved resilience, cost reduction and geographical proximity can enhance a supply chain’s competence; improved energy efficiency and localized operations can enhance a supply chain’s character.

When reshoring, manufacturers have to decide whether to take a brownfield approach (expanding existing facilities) or a greenfield approach (building new facilities). Both tactics can accommodate the implementation of smart factory capabilities, but each has unique pros and cons that, depending on a company’s smart factory goals, may help decide which path to take.

On the one hand, expanding brownfield facilities can typically yield faster turnaround times because there is no need to build a new facility. Instead, the company can leverage existing operations and support infrastructure. However, some facilities may have limited space, or it may be a challenge to work with legacy operations and technology. Therefore, a brownfield approach is best suited for manufacturers with strong existing infrastructure or for those that have specific pain points that can be addressed through added smart factory capabilities.

A greenfield approach is often best suited for companies looking to address deep-rooted challenges, completely reimagine established workflows, and secure a geographic advantage through proximity to customers and suppliers. However, a greenfield approach requires substantial capital and time investments to build the new facility from scratch, furnish it and staff it properly. But these additional investments can be a benefit. For example, taking a greenfield approach can spur local job creation for both construction and staffing, which lends a sense of goodwill.

Companies must evaluate the pros and cons of each option and work toward the solution that ultimately will be the most beneficial to them.

How can organizations achieve the expected results?

After deciding why and how to create a smart factory, the next important step is to have an action plan. A successful reshoring approach should address three key considerations:

1. Strategy: To help ensure the expected results are achieved, a good strategy should be evaluated from multiple angles, including how it fits into an organization’s long-term global footprint and the organization’s local presence. Consider whether the plant may lead to better agility to keep up with customer preferences, whether the plant will ultimately provide cost savings to offset the initial investment and what improvements it will generate in environmental sustainability.

2. Technology: Make sure any new or existing technology fosters digital connectivity. Digital connectivity is critical to a functional smart factory in order to help minimize the need for manual intervention and ensure consistent data streams. This is especially true for brownfield facilities. Advanced analytics should be implemented wherever possible to accelerate and improve decision-making.

3. Talent: Don’t neglect human talent. If building a new facility, use and learn from local talent to build a strong talent pool. For brownfield facilities, establish programs to train existing talent on new technologies and processes. Training programs can be tailored according to specific needs. Be sure to leverage the latest training capabilities, including augmented and virtual reality simulations.

Reshoring and embracing smart factories have long been priorities for supply chain and manufacturing leaders thanks to their potential to improve supply chain resilience. However, because of their complexity and the initial time investment required to achieve them, they can often be deprioritized in order to address more immediate concerns. We’re now entering a new era in which making the right supply chain investments and embracing digital transformation are not only smart but critical to future success.

Now is the time to take a hard look at supply chains and make them as disruption-proof as possible. For those that don’t act, the risks are high. For those that do, the rewards are great.

About the Author

Rick Burke Managing Director, Deloitte

Rick Burke is managing director at Deloitte.

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