In the first column of our three-part series, we examined the 2025 Reshoring Survey from the OEM’s point of view. Forty five percent of relevant respondents were OEMs compared to 55 percent being contract manufacturers (CMs). In this column, we explore the CM response.
The Reshoring Initiative in collaboration with Regions Recruiting conducted this comprehensive, industry-wide survey to identify three key factors: first, to understand the decision-making process of why OEMs reshored; second, to understand the perspective of the CMs in the OEM supply chain; and third, to gain a comprehensive understanding of the measures required to increase the rate of reshoring and thus U.S. manufacturing.
The survey revealed the priorities for U.S. reindustrialization as:
• a level the cost playing field
• a larger skilled workforce
• an increased use of Total Cost of Ownership (TCO)
• preparation for geopolitical risk
The CM response
The survey asked CMs if, for their customers, they had reshored over the last 10 years to the United States or were expecting to do so. Forty percent have reshored for customers or are actively executing orders to reshore, while 17 percent are currently quoting on reshoring. Thirty percent have not reshored (see Figure 1).
Respondent comments on CMs’ completed reshoring programs included: “It would be great if my customers stopped having us compete with offshore locations!” and “Can’t compete with total cost when only part cost is looked at.”
When asked what basis most of their customers use to compare offshore versus domestic options, CMs said only 27 percent use TCO in comparing domestic to offshore sourcing.
CMs said that the basis most of their customers are using to compare offshore versus domestic options is nearly evenly split between FOB/ExWorks/plant level manufacturing cost at 27 percent; landed cost at 28 percent; TCO at 27 percent; and other at 17 percent. CMs believe OEMs are using simplistic cost comparisons (see Figure 2).
Many times, these methods result in a 20 to 30 percent miscalculation of actual offshoring costs. The Reshoring Initiative’s Total Cost of Ownership (TCO) Estimator is a free, online tool that helps companies account for all relevant factors – overhead, balance sheet, risks, corporate strategy, and other external and internal business considerations – to determine the true TCO.
Shifting the bulk of OEMs to a robust TCO estimator would reshore $200B of manufacturing with no government subsidies, no supply chain shock, no retaliation and no impact on inflation after companies factored in all global risks and costs. By using TCO, instead of less complete measures of cost and risk, OEMs can both increase profitability and benefit all stakeholders. Data on 190 cases comparing China to the United States showed the United States win rate going from 8 percent based on price to 32 percent based on TCO and 46 percent with a 15 percent tariff.
CMs can use TCO to make a case with customers when competing with offshore competitors. For example, Morey Corp., an Illinois-based CM reported that TCO was the key to winning a $60 million order when competing against a lower cost Chinese competitor.
Typical CM scenario
CMs believe their customers reshored mainly for quality/rework/warranty (61 percent), delivery time (54 percent) and [less risk of] supply chain disruptions (50 percent). Other significant reasons were geopolitical risk (24 percent), manufacturing near engineering (22 percent), brand/image Made in USA (22 percent), and freight and duty (22 percent).
The typical scenario for CM reshoring is a customer with U.S. assembly operations shifting its sourcing of components, parts or tooling from offshore to a domestic supplier. Seventy one percent of CM respondents say their reshoring is from customers that had been assembling the end product in the United States and are moving component sourcing onshore. Twenty nine percent said their customers reshored both assembly and sourcing (see Figure 3).
The survey results reveal that many OEMs are placing a high value on the benefits of localization strategies. As the assembly comes back there will be another surge of work for the CMs.
We encourage companies to implement the top priorities for reindustrialization revealed by the survey – build a strong talent pipeline, use TCO and prepare for geopolitical risk. In part three, we will present our industrial policy conclusions.
On a mission
Are you thinking about reshoring? Our main mission is to get companies to do the math correctly using our free online Total Cost of Ownership (TCO) Estimator. By using TCO, companies can better evaluate sourcing, identify alternatives and even make a case when selling against offshore competitors. For help, contact me at 847-867-1144 or harry.moser@reshorenow.org.
Have you reshored a metal component or product? Apply for the National Metalworking Reshoring Award. The 2025 winner will be introduced at Fabtech 2025.
Click here to access the full list of Reshoring resources offered by the Reshoring Initiative. To report your reshoring successes or to get help with reshoring, contact Harry Moser, Founder and President, Reshoring Initiative, harry.moser@reshorenow.org, 847-867-1144.
